Commercial exploitation of patents is crucial for companies and research institutes, as significant costs can be incurred in prosecuting, maintaining and litigating patent portfolios. However, several provisions are available to reduce expenses when commercially exploiting patents in India.
Excise duty waiver
A company manufacturing patented products can claim an exemption from excise duty by applying for a certificate from the Department of Scientific and Industrial Research. The certificate covers a three-year period from the commencement date of commercial production. Examples of eligible goods include:
- animal products;
- vegetable products;
- organic chemicals;
- mineral products;
- ceramic products;
- base metals;
- electrical machinery;
- medical or surgical instruments;
- pharmaceutical products;
- aircraft; and
- miscellaneous manufactured articles.
To benefit from the exemption, the goods must be:
- manufactured by a wholly owned Indian company;
- developed and designed exclusively by an Indian company; and
- patented in at least two countries among the United States, Japan and European countries.
A brief description of the patented product or technology must also be submitted. If patent rights have been obtained on assignment or licence, the assignment or licence agreement should be in force for the period for which excise duty exemption is sought. Rights holders should ensure that this certificate does not extend to formulations derived from the patented product or other derivatives of the patented product.
Companies operating in the fields of biotechnology, aircraft manufacture, drug production, pharmaceuticals, chemicals, telecoms equipment and computer and electronic equipment are eligible for a 150% weighted tax deduction on R&D expenditure. The deduction is also available for costs arising in relation to patent application filing in India, clinical trials and obtaining regulatory approval (under any central, state or provincial act) for drugs and pharmaceuticals. Eligible expenditure includes costs incurred in the payment of salaries for employees engaged in such scientific research or in the purchase of materials used therein. For approved scientific research programmes, the same tax deduction is available for any sum paid to a national laboratory, university, Indian institute of technology or specified person. However, it is not available for expenses incurred in the acquisition of rights in or arising out of scientific research or costs incurred in acquiring land.
Scheme of amalgamation
In a scheme of amalgamation, if the amalgamating company sells or otherwise transfers to the amalgamated company (being an Indian company) any asset representing expenditure of a capital nature on scientific research, the following provisions apply:
- The tax deduction is not available for the amalgamating company.
- The provisions of the tax deduction apply to the amalgamated company as they would have applied to the amalgamating company if the latter had not sold or otherwise transferred the asset.
Goods and services tax
Parliament has passed a bill on goods and services tax. It appears that the government is set to meet the target of implementing the goods and services tax with effect from April 1 2017. Central taxes (eg, central excise duty, service tax, additional customs duty and central sales tax) as well as state-level taxes (eg, value added tax and sales tax) will be subsumed into the goods and services tax.
Licensing or selling intellectual property
Licensing or selling intellectual property involves various forms of taxes such as service tax, R&D cess, income tax, sales tax and customer duty. The forthcoming implementation of the Bill for Goods and Service Tax will also affect the licensing or sale of intellectual property in India.
Stamp duty is imposed on legal agreements by the states and will continue to be levied through state goods and services tax.
Worldwide commercial exploitation of patents
In a positive development, that the previous 30% tax on income from worldwide commercial exploitation of patents developed and registered in India has been reduced to 10% (effective from April 1 2017). Therefore, companies investing in patents and seeking to commercially exploit them worldwide will definitely benefit in the 2017/2018 assessment year.
This article first appeared in IAM. For further information please visit www.iam-media.com.