Page 43 - Strategic Tax Planning for Global Commerce & Investment

Strategic Tax Planning for Global Commerce and Investment

Principal Tax Issues

The basic decision when creating IP is between maximizing the
deductibility of the expenses incurred and locating ownership
of the IP in a jurisdiction offering a low effective tax rate.

Under the traditional model, the shared contract and the cost-
sharing model the expenses incurred for the creation of the IP
will be deducted in the jurisdiction where the research is
carried out, often a high tax jurisdiction, but correspondingly
the profits generated by the IP will be allocated to that
jurisdiction.

Under the contract R&D model the R&D company will
generally make a profit due to the application of the cost-plus
method and the expenses will be allocated to the IP company. If
the latter is in a low-tax jurisdiction, the relief for the expenses
incurred will be deducted at a correspondingly low tax rate.
This issue is of critical importance, particular when the research
is unsuccessful and results in a loss.

It is worth mentioning now, that another possibility would be
to develop the IP so that it is owned in a high-tax jurisdiction
and thus, maximizing deductibility of the expense and
subsequently migrate the IP to a low-tax jurisdiction to
minimize tax cost.

The Management of IP

Once IP is generated, a company con usually transact with it in
two ways:

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