Patent box and R&D tax credit: regulatory news, business news

Regulations are constantly evolving and those who want to succeed in the fintech sector should not be left behind. New opportunities are created when the rules of the game change, and the professionals in the community can help by explaining them to us and enabling us to seize them. Raffaello Fossati of Fantozzi Associati explains the latest news on patent box and R&D tax credit.

What changes brings the repeal of the old Patent Box regime? What does the new regime introduce and what advantages it does provide to Fintech?

Art. 6 of the Law Decree 146/2021 introduced significant changes to the so-called Patent Box regime which was further amended in the 2022 Budget Law (hereinafter referred to as “New Regime”). Specifically, the New Regime represents a substantial shift from the former discipline (concerning the tax exemption availed on intangibles-related income) and hereby considers the research and development (“R&D”) costs with the exclusion of any intra-group expenses incurred in relation to the following IPs (either licensed or directly employed):
> copyrighted software;
> industrial patents;
> designs and models
These costs are deductible for the income tax purposes (both IRES and IRAP) at an increased total rate of 210% (i.e., at 110% more than the actual cost incurred). However, in compliance with the previous indications the option for the regime lasts for 5 tax periods, is irrevocable and renewable (as per par. 1 of the cited Art. 6). Finally, par. 10-bis of the 2022 Budget Law provides that in case if R&D costs were incurred for the development of one or more eligible intangible assets in previous years, the taxpayer can benefit of the referred 110% increased deductibility starting from the moment in which the intangible asset is registered on the overall costs incurred in up to maximum of 9 tax periods.

How does the management change for the patents and new software? Is the New Regime considered as an obstacle or, in turn, as an incentive for the innovation?

In the case of software, the New Regime could be viewed as a very appealing opportunity for increasing investments in innovation in consideration of the constant development activities carried out by “software houses”. In particular, the provisions of the old regime specified certain characteristics of the eligible R&D costs in terms of software development which were quite broad and, if the same applies under the New Regime, software houses would retain complete deductibility of the total operating expenses incurred atthe increased rate.

On an overall basis, however, the new regime reduces the incentive for producing profit generating IPs. What were the changes concerning the R&D tax credit?

As per indications provided in par. 45 of Art. 1 of the 2022 Budget Law, the amendments made with respect to the R&D Tax Credit were the following:
> R&D activity – 20% of allowable expenses up to a maximum amount of 4 mio EUR (for tax periods
2023-2031 the rate is decreased to 10% with maximum amount of 5 mio EUR);
> scientific and technological research as well as design and aesthetic ideation activities – 10% of
allowable expenses up to a maximum amount of 2 mio EUR (for tax periods 2024-2025 5% with a
maximum of 2 mio EUR);
> technological innovation activity – 15% of the allowable expenses up to a maximum amount of 2
mio EUR (for tax periods 2024-2025 5% with a maximum of 4 mio EUR).
Additionally, an indemnity was introduced for taxpayers who incorrectly benefited from R&D Tax Credit during the period 2014-2019, by allowing the ratification of the credit amounts used without a further application of penalties and fines.
Furthermore, it should be noted that the possibility for the simultaneous benefit from the Patent Box regime and R&D tax credit was confirmed.

In your opinion, how will these changes impact an innovative and agile reality like the fintech

The introduced changes in fact could be viewed as an incentive given to the taxpayers for a constant development and adjustment to the rapidly changing technological environment by providing the relevant tax savings in a medium-term perspective and thus releasing funds for the additional investment activities to be carried out by companies like Fintechs and startup.
The overall reorganization of both the R&D tax credit and Patent Box carried out since 2019 was clearly aimed at simplification, certainty and limitation of future challenges’ risks which are considered as important drivers of innovation. Subject to the final clarifications to be provided by the Italian tax authorities on the new Patent Box, we expect that startups and young Fintechs could benefit of both incentives and obtain relevant tax savings.
For instance, a company operating as a software house could avail of the Patent Box regime on the vast majority of its costs and be taxed only on the portion of profits which exceeds such development costs (e.g., no taxes should be due until the EBIT margin is approx. 50%).

The role of BaaS in the financial ecosystem according to Solarisbank

Solarisbank, the pan-European leader in Banking As A Service, shared its vision for the industry and defined the main developmental directions in which the main economic sectors could evolve under the impetus of the “Banking Revolution” brought on by integrated finance. European companies have a tremendous opportunity to improve their position by adopting embedded financial services.

The potential of embedded finance is huge and therefore the market for Banking-as-a- Service is immense. In Europe alone, it is estimated that nearly 500 million bank accounts will be opened. The business model of which Solarisbank is a promoter allows any company to incorporate, via API, financial instruments into their product portfolio, in a personalised way, while maintaining full control over the look and feel and relationship with its customers.

The integration of financial services into non-banks, or to put it simply, embedded finance, is reshaping the way consumers interact and will interact with financial services. This is a great opportunity from several perspectives: companies that offer financial services directly to their customers can both strengthen their loyalty and tap into new revenue streams.

In a recent study conducted by Solarisbank with the Handelsblatt research institute, a sample of over two thousand respondents were involved to analyse the willingness of consumers – in this case Germans – to use financial services from a selection of leading online shops. It emerged that as many as 61.4% would be willing to use a financial service from at least one of the proposed online shops – an absolutely remarkable percentage.

A wake-up call for Italy and Europe, the time is now!

Given that the development of embedded finance in Europe is still in its embryonic stage, we can consider an example from other parts of the world, such as the United States and Asia, where, in the face of the implementation of regulations similar to PSD2, large technology companies have already entered the vast potential of integrated finance. In fact, the industry will experience a season of great growth worldwide, particularly in the old continent, thanks to the introduction of integrated finance: Lightyear Capital estimates that integrated finance will grow tenfold over the next four years, reaching $230 billion by 2025.

Bain Capital Ventures assumes that by 2030, the volume of this segment – in the US market alone, which is more mature than the European market – could reach around $3.6 trillion. All these forecasts and the indicators supporting them confirm an immense opportunity for the European market.

Who in the world has already seized the opportunities of Banking as a Service?

Here are some significant examples that give an idea of the benefits that companies and users will gain from Banking as a Service

GDO – Walmart: retail meets integrated finance

Their goal is to “develop and deliver modern, innovative and cost-effective financial solutions” and provide “technology-driven financial experiences tailored to Walmart’s customers and partners”. Or in other words, the goal is to better serve their 230 million customers with the power of integrated finance. How? By creating an ecosystem of financial services created around the needs of their customers. This includes a Walmart credit card, debit card, money transfer services and the ability to pay for purchases in installments. For Walmart, a retail shop that is founded on offering great value and customer service, integrating financial services into their portfolio of offerings is a natural step into deepening customer relationships and supporting the core business.
APP services – Grab: the transport app that has become an everyday super app

Grab is Southeast Asia’s largest ride-hailing and food delivery company. The company started as a basic taxi booking app and later evolved into a super app with an impressive ecosystem of services. Grab began incorporating financial services into their offerings in 2019, launching a digital insurance marketplace in a joint venture with ZhongAn Insurance. Since then, the company has continued to add more financial services by securing a number of partnerships with fintech companies. Their financial offerings now include GrabPay, a payment solution that includes a card and a mobile wallet, AutoInvest, a micro-investment solution released under the GrabInvest umbrella, as well as consumer loans and buy now pay later (BNPL) payment options. With integrated finance, Grab can tap into a growing market, tapping into more than 200 million registered users in eight countries, opening up new revenue streams and driving financial inclusion in Southeast Asia.

Ride Sharing and the NCC world – Lyft: more security and instant payments with a debit card
for drivers

Lyft, the second largest ride-sharing company in the US, uses built-in finance to build loyalty among drivers by allowing them to manage their finances directly in the Lyft app. With Lyft Direct, Lyft provides a debit card and bank account – in partnership with Payfare and Stride Bank – that allows their drivers to receive compensation instantly after each ride, eliminating any transaction fees and increasing financial security by solving cash shortages.

Instant Messaging – WhatsApp: adding payment functionality to its largest marketplace

WhatsApp is the most popular messaging service, with around 2.5 billion users worldwide. The Facebook-owned company recently incorporated payments directly into its instant messaging app in its largest market, namely India. The payment feature is powered by BHIM UPI and processed by various local payment partners. The value proposition is quite simple – it allows users to send money to friends and family at no extra cost. However, what makes it much more convenient than other P2P payment services is that it is directly embedded in the same application that users already use to communicate with their friends and family.

This content is provided by our Corporate Member Solarisbank

Raisin arrived in Italy and joined the FD community

Raisin, pan-European marketplace for wealth management, arrives in Italy and signs its first alliance with Banca Sella. This partnership will allow the bank’s clients to access new deposit account solutions offered by other Italian and European banks. We interviewed Federico Roesler Franz, Country Manager Italy, to learn more about the strategy and objectives of this fintech.

What does Raisin do and who is the target?

Raisin is a fintech and the leading European cross-border marketplace for wealth management. We connect banks across the continent with consumers looking for competitive deposit offers for their savings and, in effect, harmonize the European deposits space. We’re excited to have just entered the Italian savings market through a partnership with Banca Sella. The bank has integrated Raisin’s marketplace, offering its customers a range of deposit products from Raisin partner banks within its own ecosystem.

So, in brief, Raisin addresses these groups:

  • B2C – retail clients: Save & invest profitably and conveniently
  • B2C – business clients: Save & invest corporate accounts
  • B2B – partner banks (currently 14 from Italy): Offer deposit products on our platforms
  • B2B – distribution partners (e.g. Banca Sella): Integrate our products on their platforms to more efficiently and cost-effectively expand their product and service range for their customers

How Raisin has grown in the last months and in what phase you are?

Some of Raisin’s recent achievements:

  • In addition to Italy with Banca Sella, nine platforms across Europe (Germany, UK, Spain, France, Austria, Netherlands, Ireland and the Europe-wide
  • U.S. market entry with a B2B SaaS offering
  • 100m EUR Series D with existing investors in early 2019, followed by 25m EUR investment from Goldman Sachs in July 2019
  • Four major acquisitions integrated in the company and rebranded: UK fintech PBF Solutions (now Raisin UK), MHB Bank (now Raisin Bank), German pensions specialist fairr (now Raisin Pensions), and the U.S.-Spanish financial software company that is now Raisin Technology.
  • 28bn EUR assets brokered and 650m AuM in ETFs and pensions
  • Trustpilot score 4.5, NPS 73
  • Co-founded – together with 20+ leading European fintechs – the new European Fintech Association based in Brussel to advocate for the single market for financial services and other topics

Have you done and/or are you interested in doing open innovation projects? With what kind of subjects?

In terms of open banking, Raisin has innovated by building the only pan-European digital marketplace for deposits, partnering with banks (including more than 10 Italian banks) on open banking infrastructure and simplifying cross-border digital banking for banks and consumers. Prior to Raisin, no such cross-border solution existed in Europe much less available in every European market. The Raisin deposits marketplace serves consumers, in giving them access to more competitive deposit products, and serves banks looking to diversify their funding sources.

But we also realized that by integrating this online marketplace, all kinds of financial institutions (as in the case of Banca Sella) could extend their product range for their customers, to include deposit offers from external parties. In some cases it also helps banks siphon off excess cash and reduce the pain of negative interest. With white label integrations Raisin is often invisible, and that’s the point – it’s about the solution we can provide B2B as well as B2C, not the name attached to it. I think it’s a good representation of the innovation mindset of fintech.

How can the Fintech District help you in this respect?

The Fintech District community offers a great chance for us at Raisin to engage with and learn from a wide range of banks, fintechs, and other financial institutions. We are also excited to share our experiences entering the Italian savings market and our insights as a fast-growing pan-European fintech, and we welcome the chance to connect.

How is your team composed and what kind of figures are you looking for on the Italian market?

Raisin employs around 350 people in Berlin, including a dedicated customer service team operating in multiple languages; another 30 in Manchester for the UK operation; ca. 35 team members in Frankfurt (Germany) at Raisin Bank; and a Raisin U.S. team of 13 based in New York and Madrid.