Applicability of Tax Incentive Policies under the Authorized Planting Model of New Plant Variety Rights

      In the planting industry business model, there is a mainstream form of "Company + Farmers", whereby the company, on the premise of holding the "New Plant Variety Rights Certificate," reaches a cooperation agreement with the local government of the planting area, allowing local farmers to plant and committing to purchase the agricultural products planted by the farmers. Under this model, on the one hand, the company does not need to spend energy and costs on contracting rural land and hiring labor; on the other hand, it can promote local economic development and ensure farmers' income. This article mainly analyzes the tax incentive policy issues related to the authorization fees collected by the company under the authorized planting (i.e., the licensing of new plant variety rights implementation) transaction model.

      New plant variety rights, together with patents (including defense patents), computer software copyrights, integrated circuit layout design exclusive rights, and new biological medicine varieties, all fall under the concept of "technology" in the Civil Code. The contract concluded by the right holder who legally owns the technology to license others to implement and use the relevant rights of the existing specific technology is a technology licensing contract, which can be directly linked to the relevant tax incentive policies for "technology transfer contracts." The key to whether authorized planting can apply the tax incentive policies for "technology transfer contracts" lies in whether new plant variety rights constitute technology and whether licensing of implementation (i.e., the right of use) constitutes technology transfer. Corporate Income Tax Incentive Policy: According to Document No. 82 of the State Administration of Taxation (2015), effective from October 1, 2015, the income from technology transfer obtained by resident enterprises nationwide through the transfer of non-exclusive licensing rights for a period of 5 years or more (the technologies listed in the document include patent technology, computer software copyrights, integrated circuit layout design rights, new plant varieties, new biological medicine varieties, and other technologies determined by the Ministry of Finance and the State Administration of Taxation) shall be included in the scope of technology transfer income eligible for corporate income tax incentives. The portion of a resident enterprise's annual technology transfer income not exceeding RMB 5 million shall be exempt from corporate income tax; the portion exceeding RMB 5 million shall be subject to corporate income tax at a reduced rate of 50%. Under the premise that the ownership of the technology is clear and meets the requirements of the document, the authorized planting model can apply the corporate income tax incentive policies related to technology transfer income. In addition to the incentive documents for technology transfer income, agricultural services themselves also have corresponding tax incentive documents. Article 86, Item 1, Subparagraph 7 of the "Implementation Regulations of the Corporate Income Tax Law of the People's Republic of China" mentions that "agricultural technology promotion" service projects can be exempt from corporate income tax, but the document does not provide an explanatory interpretation of "agricultural technology promotion" services. In fact, reference can be made to the interpretation of "7511 Agricultural, Forestry, Animal Husbandry and Fishery Technology Promotion Services" in the "2017 National Economic Industry Classification Notes" published by the Ministry of Civil Affairs of the People's Republic of China, which includes "planting technology development, consulting, exchange, transfer, and promotion services." The above authorized planting process is also a process of agricultural planting technology promotion and should reasonably conform to the concept of "agricultural technology promotion." In terms of corporate income tax, the tax incentive intensity for "agricultural technology promotion" is relatively greater, as the portion exceeding RMB 5 million in income can also be fully exempted, but the applicability of the policy is relatively less clear and definite. Value-Added Tax Incentive Policy Analysis: According to Annex 3 of Caishui [2016] No. 36, taxpayers providing technology transfer, technology development, and related technology consulting and technology services may be exempt from value-added tax. The technology transfer and technology development mentioned in Annex 3 of Caishui [2016] No. 36 refer to business activities within the scope of "technology transfer" and "R&D services" in the "Notes on Sales of Services, Intangible Assets, and Real Estate." The interpretation of sales of intangible assets in Annex 1 of Caishui [2016] No. 36: Sales of intangible assets refer to business activities of transferring the ownership or right of use of intangible assets. Intangible assets refer to assets that do not have a physical form but can bring economic benefits, including technology, trademarks, copyrights, goodwill, rights to use natural resources, and other equity-based intangible assets. Among them, technology includes patented technology and non-patented technology. From the definition in the document, technology licensing (i.e., right of use) contracts fall within the scope of technology transfer contracts, but the definition of "technology" is limited to patented and non-patented technologies. Therefore, the tax incentives for "technology transfer contracts" cannot be directly applied under the interpretation of the VAT documents. Stamp Duty Applicable Tax Item Analysis: Whether technology implementation licensing contracts should be subject to stamp duty under the "technology contract" tax item or under the "property rights transfer documents - transfer of trademark exclusive rights, copyrights, patents, and proprietary technology use rights" tax item was delineated in the earlier document (1989) Guoshuidi No. 34. The first point of this document clarifies that contracts concluded for the transfer of patent application rights and non-patented technology transfer shall be subject to the "technology contract" tax item; contracts and documents concluded for patent rights transfer and patent implementation licensing shall be subject to the "property rights transfer documents" tax item. Therefore, technology implementation licensing shall be subject to stamp duty under the "property rights transfer documents" tax item. The stamp duty documents also only mention patents and non-patented technologies with respect to "technology."