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Belgium Publishes Documentation Requirements for Innovation Deduction — Orbitax Tax News & Alerts

Belgium has published the Royal Decree of 2 October 2019 in the Official Gazette, which sets out documentation requirements for taxpayers claiming the new innovation deduction for qualifying IP income derived from qualifying IP rights (innovation income). The innovation deduction was introduced with effect from 1 July 2016 to comply with the modified nexus approach of BEPS Action 5, with the prior regime grandfathered to 30 June 2021. The requirements set out in the Royal Decree include the following:

  • In order to ensure that an acquired intellectual property right from a related party is valued at the market price, taxpayers must maintain documentation detailing the overall expenses that the related party incurred in relation to the intellectual property right;
  • Taxpayers must allocate innovation income among the categories specified by law, including license fees, indemnity payments, and gains from the disposal of intellectual property rights;
  • Taxpayers must maintain documentation proving that innovation income for which a deduction is claimed was received no earlier than 1 July 2016;
  • For taxpayers applying the transitional regime (grandfathering of the old regime), documentation must be maintained to demonstrate that no duplicate claim is made under the old and new regimes;
  • Taxpayers must demonstrate how and with which method the gross amount of innovation income is determined;
  • Taxpayers must demonstrate how indemnity payment amounts are determined if not already determined in the related judicial or arbitral decision or in the amicable agreement or insurance contract;
  • Taxpayers must demonstrate how R&D costs are determined and divided between costs for the tax year, costs carried forward, and losses from previous years;
  • For intellectual property rights that were jointly developed with other taxpayers, documentation must be maintained detailing the contribution of the taxpayer in the overall development cost; and
  • For determining the nexus ratio, expenditure amounts must be subdivided into expenditure for own R&D activities, expenditure for R&D activities outsourced to unrelated parties, expenditure for R&D activities outsourced to related parties, and expenditure for acquisition of intellectual property rights.

The Royal Decree also notes that in determining whether expenses are directly related to innovation income, it will not be necessary to look so much at the "nature" of the expenditures, but rather at their actual use. As such, the requirements set out above must be carried out using data from which this true use can be clearly established.