The fiscal antiphrase of innovation policy - Column in Trends of 23 March 2023
Two weeks ago, Finance Minister Vincent Van Peteghem (Christian Democratic and Flemish party) presented his proposal for the first phase of a broad fiscal reform. It is rather ambitious. Among other things, it guarantees more net income for everyone who works and increases the competitiveness of our companies. Businesses are the engine of our economy. In a country where the most important raw material is not found in the ground, but on average 1.50 to 1.90 metres above it, innovation is one of the most crucial drivers. Innovation-centred companies enjoy a number of government incentives. These should result in more companies becoming involved in innovation and trigger international companies to invest in our economy in the same way. Among other advantages, these incentives include the innovation income deduction (IID) of the net income in corporate income tax..
All patents are currently eligible for the innovation deduction, including Belgian patents that are granted irrespective of the outcome of the novelty and inventive step search. The scope of the IID now also covers plant breeders’ IP rights and copyright-protected software. The proposed changes, which consist in allowing the deduction solely for European patents and Belgian patents that have received a positive report from the European Patent Office, are a limitation of the innovation deduction. The bar is set so high that many companies that engage in innovation can no longer expect financial support. Government communications are claiming that this will promote legal certainty for companies. That may be true. But shouldn’t the counter-argument be that the abolition of such a system naturally brings the greatest legal certainty? We must be careful not to throw the baby out with the bathwater.
The justification expressed in the note for the amendments to those government incentives is also in stark contrast to the intended objective, which falls under the ‘competitiveness’ motto. The IT sector again appears to be falling by the wayside by excluding software from its scope and European patents have a stricter, longer and more complex registration procedure, which means that in manycases for SMEs, it will not be worth the hassle. Anyone giving it reasonable thought will get the feeling that it is an antiphrase. This is a rhetorical device of saying the opposite of what is actually meant in such a way that it is obvious what the true intention is.
In the case of the withholding tax exemption for research and development, the proposed changes are justified by saying that they will entail a more transparent division of powers between the Federal Public Service Finance and Belspo. Belspo assesses the innovative character of companies and their activities. The point is that the tax authorities are of the opinion that Belspo is too lenient in its recognition of innovation. This form of government schizophrenia has led to a public declaration of war between the two services. The companies are already the victims of this strife, having to litigate because of the stubbornness of the tax authorities with regard to Belspo. Strengthening innovation policy will in practice be nothing less than a narrowing of the scope. Strengthening our innovative policy will cost the government less money.
Strengthening innovation policy will in practice be nothing less than a narrowing of the scope.
Earlier in this column I gave a description of an antiphrase. I must admit that it was not complete. Specifically, that the figure of speech usually has an ironic effect. Now that you have all the facts, you can judge for yourself whether that is the case here as well.
THE AUTEUR ASSOCIATE AT TUERLINCKX TAX LAWYERS