The way you structure intellectual property (IP) rights, either within your group or upon the acquisition of a business, has tax consequences. By moving IP rights into favourable tax jurisdictions, creating royalty payment and other similar structures you can make material tax savings.  

Act now

Now is the time for an up-to-date assessment of your position. The economic downturn has brought IP valuations back down to earth and you may have substantial tax losses available. This may help in reducing the tax costs of transferring IP rights.  

What’s involved?

It involves careful thinking, an international perspective, and a close understanding of how tax authorities in each relevant country will react as they are likely to scrutinise tax saving structures.

A robust transfer pricing system is also required; IP rights may need to be valued, royalty rates will have to be substantiated. IP rights need very careful handling to ensure their value is protected. The wrong ownership structure can invalidate a trade mark or make suing for patent infringement impossible in the place you need to. Agreements need to reflect the structure chosen.

We understand that careful co-ordination between IP, tax and transfer pricing specialists is required to maximise the value of your IP holdings. We will provide a team with the right blend of experts to achieve this. If your structure is challenged, we will stand by you and defend it. 

The right blend of experts

IP rights are intangible, and need very careful handling to ensure their value is protected. The wrong ownership structure can invalidate a trade mark, or make it impossible for you to sue for patent infringement in the place you need to. An overly elaborate tax plan could cost you hundreds of thousands in IP registration fees and interfere with the daily running of your business, where you might have many anti-counterfeiting actions on the go at any one time.

You therefore need to correctly assess values and set royalty rates appropriately. We understand that, so we bring together specialists in tax, IP and transfer pricing, to make sure that what’s good for your balance sheet is good for your brand, and vice-versa. 

The right kind of structure

Moving IP rights into the right tax structure should lead to overall tax savings and this will help maximise the value of your IP holdings. Your structure also needs to be practicable from a business perspective. Because these arrangements are tax efficient, authorities scrutinise them very closely. The last thing you can afford is a structure that exists on paper but is not properly embedded in everyday reality. It’s essential to demonstrate substance, not just form, so that if you’re subject to a tax audit, your arrangements, including solid legal and transfer-pricing documentation, can withstand challenge.  

The right sort of experience

We’ll help you consider all the angles. For example:  

• a major IP restructuring could involve moving staff: that raises human resource and public relations issues
• it could mean moving thousands of patents you’re integrating from a newly-acquired business. 
• you might need to do a complete trade mark audit to make sure you’re not spending money transferring defunct marks. We make sure the whole process goes smoothly. 
• we’re also experienced in engaging tax authorities to get soundings on their likely approach to issues where appropriate. 
• for especially sensitive projects, you might prefer help in the form of a risk assessment before you decide to proceed.

An acquisition of a new business may be the perfect opportunity to consider where to acquire the relevant IP of that business; our IP and tax lawyers will interact with our corporate M&A teams and your in-house IP and tax teams.

Rules and views can change, and tax schemes can make headlines, so it’s important to keep your tax/IP design under regular review. A structure you set up a decade ago may no longer pass muster, or the reputational risk it now involves may be greater than the savings it delivers today. Clients turn to us for second opinions or review of existing structures and of restructuring proposals made by other advisors, and we ensure a balanced approach between tax savings, tax risks and IP protection aspects in making our assessment.

Of course, challenges can happen. And when they do, we have the right resources to defend them, whether in a tax audit or full-blown litigation.

For more information, contact a member of our Tax and Intellectual Property Structuring team.