Innovation income deduction, an opportunity for the financial sector!


The new corporate income tax regime labelled as ‘innovation income deduction’ (IID) is about to be enacted. Given its new scope of application, it opens new opportunities for the FS sector in Belgium.

Indeed, the IID regime is now applicable to a broader range of intellectual property (IP) assets and, as such, could be of interest for most financial sector players. More specifically, copyrighted IT software developed within banks and insurance companies may qualify for IID purposes provided that it results from a qualifying R&D project (as defined for the purposes of the partial exemption of wage withholding tax for research and development) and hasn’t generated income before 1 July 2016.

Typically, the following examples apply to banks and insurance companies (based on the Frascati Manual):

  • mathematical research relating to financial risk analysis;
  • development of risk models for credit policy;
  • experimental development of new software for home banking;
  • development of techniques for investigating consumer behaviour for the purpose of creating new types of accounts and banking services;
  • research to identify new risks or new characteristics of risk that need to be taken into consideration in insurance contracts;
  • research on social phenomena with an impact on new types of insurance (health, retirement, etc.), such as on insurance cover for non-smokers;
  • R&D related to electronic banking and insurance, internet-related services and e-commerce applications;
  • R&D related to new or significantly improved financial services (new concepts for accounts, loans and insurance and saving instruments).

Let’s talk and see whether this can be an opportunity for your company

The development of IT solutions and the digitalisation of the economy no doubt trigger new challenges in the FS sector requiring creativity and innovation-driven solutions. These solutions are likely to qualify for the IID regime.

Identifying the qualifying copyrighted IT software in your organisation under this new piece of legislation will be one of the key steps in that process. Besides, banks and insurance companies also need to start thinking about the value chain underlying the products and solutions they create through qualifying copyrighted IT software in order to identify and quantify their embedded innovation revenue part.

PwC can definitely guide you in many ways in this respect, including:

  • performing a feasibility analysis to determine whether the IID regime is relevant for your company;
  • helping you to identify the ‘innovation’ income inherent to your qualifying copyrighted IT software;
  • consolidating these results and the related benefits of the IID regime into a legally binding ruling.

We have a developed a longstanding expertise in this field through combining the right mix of expertise. Clearly, what is involved and required here is not only the corporate tax aspect but also operations, IP, IT, pricing etc. as well as the capability to bring all this together in a project.