I: Taxable profits and income

I.-Companies subject ipso jure or by option to an actual taxation system may, under the conditions provided for in this article, subject to separate taxation at the rate provided for in the second paragraph of a of I of article 219 the net income from the licensing of the following items having the character of intangible fixed assets:

1° Patents, utility certificates and supplementary protection certificates attached to a patent;

2° Plant variety certificates;

3° Software protected by copyright;

4° Industrial manufacturing processes that:

a) Constitute the result of research operations;

b) Are an indispensable accessory to the exploitation of an invention mentioned in 1°;

c) Are the subject of a single exploitation licence with the invention.

When the partnerships referred to in articles 8 and 238 bis L of this code or the groupings referred to in articles 239 quater, 239 quater B and 239 quater C are not subject to corporation tax and determine a net profit in accordance with the procedures set out in this article, their shareholders are personally taxed at the rate provided for in the second paragraph of a of I of article 219 for the portion of this income corresponding to their rights in these companies or these groupings, provided that they are liable for corporation tax or natural persons participating in the operation within the meaning of 1° bis of I of article 156.

II.-1. The net income of the concession is determined by the difference between the income, acquired during the financial year, derived from eligible assets and the research and development expenditure which is directly related to these assets and which is carried out, directly or indirectly by the company, during the same financial year. In respect of the first financial year for which the net income is calculated, this is reduced by all the expenditure directly related to the creation, acquisition and development of the intangible asset, including that incurred previously during the financial years commencing on or after the date on which the option for this scheme is exercised by the company under the conditions set out in V.

2. Where the net income determined in accordance with 1 is negative, it is offset against the net income from concessions of the same asset, the same good or service or the same family of goods or services made during subsequent financial years.

III.-1. For the purposes of determining the net profit taxed under I, the net profit determined under 1 of II is multiplied by the ratio existing between, on the numerator, the research and development expenditure directly related to the creation and development of the intangible asset carried out directly by the taxpayer or by arm's length companies within the meaning of 12 of Article 39 with it and, in the denominator, all research and development or acquisition expenditure directly related to the creation, acquisition and development of the intangible asset and carried out directly or indirectly by the taxpayer.

For the application of the ratio mentioned in the first paragraph of this 1, no account is taken of costs relating to loans, land and buildings.

2. The ratio referred to in 1 is calculated in respect of each financial year and takes into account the expenditure incurred by the taxpayer in respect of that financial year as well as that incurred in respect of previous financial years.

By way of derogation from the first paragraph of this 2, the taxpayer may only take into account, in respect of expenditure incurred in previous financial years, that incurred in respect of financial years commencing on or after 1 January 2019.

Expenditure in the numerator is taken into account for 130% of its amount. The ratio obtained is rounded up to the next whole number and may not exceed 100%.

3. By way of derogation from 1, the taxpayer may, due to exceptional circumstances and after obtaining approval issued under the conditions provided for in Article 1649 nonies, substitute for the ratio defined in 1 of this III a replacement ratio representing the proportion of the value of the eligible asset that would actually be attributable to research and development activities carried out directly by the taxpayer or by companies that are at arm's length within the meaning of 12 of Article 39 with the taxpayer.

The proportion of the value referred to in the first paragraph of this 3 corresponds to that which would be attributable to it by persons dealing at arm's length with the taxpayer within the meaning of Article 39(12) who would have engaged, under similar conditions, in these research and development activities.

The approval referred to in the first paragraph of this 3 is granted when:

a) The ratio referred to in 1 is greater than 32.5%;

b) The replacement ratio referred to in the first paragraph of this 3 is significantly greater than the ratio defined in 1 due to exceptional circumstances beyond the taxpayer's control.

The approval is valid for a period of five financial years provided that the conditions mentioned in a and b of this 3 continue to be met at the close of each of the financial years concerned.

By way of derogation from Article 1649 nonies, the application for approval is filed at least six months before the deadline for the declaration of income for the first financial year in respect of which the benefit of the replacement ratio is sought.

IV.-II and III may be calculated separately for each of the assets mentioned in I or by aggregating the assets contributing to the production of an identified good or service or a family of goods or services. Where the costs in question relate to several assets or groups of assets, the company allocates them in proportion to the added value they provide to each asset or group of assets or, by default, in proportion to the income generated by each asset or group of assets.

Where the company monitors each asset or service or each family of assets or services, it must justify this choice in terms of the impossibility of doing so, as the case may be, by asset or by asset or service, while maintaining consistency and permanence in the method chosen.

V.-The option for the system provided for in this article shall be formulated for each asset, good or service or family of goods or services in the income tax return for the financial year in respect of which it is exercised. A schedule attached to the income tax return details, for each asset, good or service or family of goods or services, the calculations made for the application of II and III.

This schedule shows separately the list of inventions referred to in 5° of I as well as the sum of the net results from this category of assets.

Where applicable, this schedule shows separately the list of assets for which the net result taxed in application of I has been calculated using the replacement ratio provided for in 3 of III and the sum of the net results from this category of assets.

A company which ceases to apply the scheme provided for in this article in respect of a given financial year permanently forfeits the benefit thereof for each asset, good or service or family of goods or services concerned.

VI.-.This article also applies under the same conditions to the net result of a sub-licence of an intangible asset mentioned in I. The royalties due by the sub-licensing company are taken into account in the net result of the sub-licence calculated in accordance with 1 of II and in the denominator of the ratio mentioned in 1 of III.

VII.-This article is also applicable under the same conditions to the net result of the disposal of an intangible asset mentioned in I when the following additional conditions are met:

1° The intangible asset has not been acquired for consideration for less than two years;

2° There are no links of dependence between the transferor company and the transferee company within the meaning of Article 39.