BEPS action 5 and IP regimes from a local perspective

Abstract

Purpose: The purpose of this research is to evaluate what local tax practitioners think that BEPS Action 5 tried to achieve. Furthermore, it also tries to address the implications of the new Maltese Patent Box Regime and how regimes pursuant to the Modified Nexus Approach affect tax competition. Lastly, this study also examines whether the patent box regime makes Malta a more attractive jurisdiction to develop IP. Design: To carry out this research study, the researcher adopted a qualitative approach. Semi-structured interviews were carried out with seventeen local tax practitioners who specialise in international taxation. Findings: Local tax practitioners strongly believe that the aim of Action 5 is requiring substance by limiting preferential tax regimes that could potentially be harmful. This is in line with what the OECD has stated. Furthermore, even though the Maltese patent box regime provides a favourable tax rate of 1.75%, the strict criteria attached to it might have led to a lack of interest in this regime. Moreover, reasons for low interest and possible improvements were also identified. Conclusions: The government should focus on creating a whole infrastructure comprised of tax and non-tax incentives to attract R&D in Malta. Furthermore, the Maltese patent box regime should be marketed more as there is a lack of awareness. Also, additional guidelines on applying the patent box deduction rules should be published to help tax practitioners and taxpayers who would like to benefit from this deduction to interpret the rules better. Value: This study is of value to the Maltese government and Malta Enterprise. This study provides an insight into the practicality of the patent box regime and what could be done to achieve the desired results.