Belgium: Taxpayer properly included arm’s length intercompany royalties in computing innovation income deduction (court decision)
“Prior user right” doctrine did not override general transfer pricing principles.
The Court of First Instance of Antwerp on January 12, 2026, held that the taxpayer properly included intercompany royalties for the use of patents in computing its qualifying income for purposes of applying the innovation income deduction (IID) under Article 205/1 ITC 92.
Summary
The taxpayer, a member of a Belgian group of companies in the food industry, licensed certain patents to its affiliates. The taxpayer included the intercompany royalties in its calculation of qualifying income for purposes of applying the IID, using a blended arm’s length royalty rate derived from three transfer pricing methods:
- Embedded royalty method (derived from ktMINE database)
- Sector OM differential method
- Rules of Thumb approach
The Belgian Tax Authority (BTA) challenged the inclusion of the intercompany royalties in the IID calculation, arguing that because the affiliated companies had used the patented inventions for years without compensation prior to patent registration and licensing, under Article XI.36, §1 of the Belgian Code of Economic Law (the “prior user right”), the affiliates were not obliged to pay royalties.
The court concluded that royalties received from affiliated companies were includible in the IID calculation base provided they meet the arm’s length requirement of Article 205/1, §2, 2° ITC 92, and that the “prior user right” does not imply a right to royalty-free use in an intra-group context after licensing. The court also found that the BTA’s position was inconsistent with its failure during prior tax audits to challenge deductions either for the intercompany royalties at issue in the case or for other intercompany royalties under similar arrangements in the group.\