2.3.Linking preferential regimes to where value is generated
Certain preferential tax regimes are perceived to facilitate tax avoidance rather than genuinely encouraging the economic activities for which the tax benefit is offered. For example, a company may locate its intellectual property in a different country to its real R&D activities, in order to avail of the preferential tax treatment, in particular patent boxes.
In 2014 the Code of Conduct for Business Taxation Group agreed that, in order to address this problem, preferential regimes, such as patent boxes, should be based on the "modified nexus approach 10 ". This means that there must be a direct link between the tax benefits and the underlying research and development activities.
The Commission will continue to provide guidance to Member States on how to implement patent box regimes in line with the new approach so as to ensure that they are not harmful, and will carefully monitor this implementation. If, within 12 months, the Commission finds that Member States are not applying this new approach consistently, it will prepare binding legislative measures to ensure its proper implementation.
