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France: Tax benefits for Innovation
Article 14 of the Finance Act for 2008 (see http://www.legifrance.gouv.fr/affichTexte.do?cidTexte=JORFTEXT000017853368&dateTexte = ) provides for various measures regarding taxation of patents and of innovation.
These measures include a quasi - total exemption for indivual inventors when assigning their rights to a company dedicated to exploitation of said rights, and an exemption for patent assignment between companies.
Assignment of patent rights between companies
Section I of this article 14 provides that the assignment of patents is now subject to a tax of only 15%, rather than the normal rate. In practice, this unifies the tax concerning revenues derivated from patents, since this rate of 15% was applied to revenues from licensing of patent rights. The only restriction to take advantage of this text lies in the inapplicability of this tax exemption for related companies, ie dependent on each other.
This is a useful and welcome simplification for business, although some plans are more favourable (Belgium, Luxembourg in particular)
Assignment of patent rights by individual inventors
Section II of this article 14 is intended to encourage inventors individuals to make its patent rights to a company which will be responsible for the market or directly from the tap.
In fact, before this law, the gain resulting from this contribution was taxable, but postponed for a maximum of 5 years.
With this new text, much more favorable to inventors, they can defer their capital gains without limits, as long as they retain their shares of the company or as long as the company retains rights to the patent. This means that, during this time, the inventor is not taxed on the gain he has done.
Moreover, even in the case of a sale of its shares of the company by the inventor, or of the patent by the company, the new law grants a reduction of one-third of the increase in value per year of detention beyond the 5th year. In practice, the inventor sees its contribution totally exonerated at the end of 8 years, even if he sells his shares of the company.
Again, individual inventors may be particularly satisfied with this tax exemption. Nevertheless it has to be noted that the vast majority of patents is not filed by individuals, but by companies: this text does not allow for any improvement in their situation. Moreover, the duration of 8 years, if it can fit with other provisions of the French tax law, is relatively long for rapidly evolving companies. What will become of the exemption if the company to which the inventor has made its rights merged or, God forbid, just disappear?