How to protect and structure an Intellectual Property Business

A few weeks ago, we talked about certain key aspects to consider when structuring a holding company, as well as reviewed a number of jurisdictions that may be interesting for holding company purposes. If you haven’t had the chance to read them, you can do it here and here.

Today, we’ll go over a specific type of holding company – an intellectual property (IP) holding company – how we can protect our IP, exploit it, and the benefits and caveats that one should take into account when setting up an IP-based business.

IP is, perhaps, the most valuable business asset class one can have. Look at the major companies of the digital age, and many of them are all built primarily on IP.

Whether it is a reputed trademark among consumers, a patented process, technology, or a copyrighted software – intellectual property is what gives you your competitive edge and key differentiation against your competitors. It is your added value to the marketplace in an increasingly knowledge-based and technological-focused economy and one of the key drivers of your company’s valuation.

IP is a key revenue generator whether it is via licensing and the exploitation of IP rights or commercializing IP-protected products and services. IP also plays a fundamental role in investment decisions when obtaining financing and it can also be leveraged when implementing tax optimization strategies.

From a structuring standpoint, IP is an intangible asset and therefore can be held virtually anywhere, giving a high degree of structuring flexibility that has traditionally been exploited in tax planning international structures to significantly reduce a given business group’s tax liability. Furthermore, in order to boost technological innovation and create value for local economies, a number of jurisdictions have traditionally provided tax benefits for IP-based businesses, the so-called ‘patent boxes’.

However, the international tax landscape is undergoing major changes regarding this and certain caveats must now be considered when structuring an IP-based business or an IP holding company such as economic substance or the so-called nexus requirements, which we will review in this article.

From a commercial and financial standpoint, your IP must be protected to keep your unique position in the market and your competitive edge or avoid competitors to benefit from your hard-earned reputation, product research and development achievements, trade secrets, or directly plagiarize your products. In addition, your IP can have certain financial benefits such as using it as collateral for loans or a higher company valuation in the event of a merger, acquisition or an equity offering.

In this article, we have reviewed certain key aspects to consider when protecting and structuring your IP-business. The article is not intended to be a comprehensive review and is not legal advice or tax advice of any kind.

IP Protection

As we commented previously, in order to leverage the commercial and financial benefits from your intellectual property, you should take the appropriate steps to protect it.

First of all, in order to protect your IP, you may need to first identify what class of IP you have via an IP audit – which should be carried out by professionals.

Performing an IP audit in your business can give significant advantages as it will provide you the intelligence to determine your IP protection strategy, in addition to potentially identify new sources of revenue as well as get valuable knowledge on how you can better manage your IP and orientate your business and operational strategy to strengthen your position in the marketplace.

This IP audit can also serve to rethink your corporate structure and the relationship between your different business units to leverage certain tax and asset protection strategies, as we will see later.

When it comes to intellectual property, we can divide it into four broad categories: patents and utility models, trademarks and design rights, copyrights and trade secrets. Different IP protection strategies apply to different classes of IP.

Patents and Utility Models

Patents are the strongest protective methods when it comes to IP. They are also the most complex, expensive and time-consuming to obtain.

Patents apply to inventions on certain functional and technical aspects of products or processes. Patents are exclusive rights for using, selling and importing these inventions for a limited period of time, generally 20 years, in a specific jurisdiction or territory.

Generally, to be patentable, an invention should be novel, it must have industrial applicability and must involve an inventive step, i.e. a non-obvious solution for solving a problem.

The principle of territoriality applies to patents and are only enforceable in the jurisdictions where the patent has been filed and the exclusive rights are granted in accordance with the law of that jurisdiction. Elsewhere, a patent may be freely used as it is of the public domain. Patent registration in the country of origin does not grant protection in other countries if no international treaty is in place.

Criteria for granting patents vary across countries. Certain countries only grant patents for technical products and processes such as those related to chemistry, mechanics, and information technology, while others also cover business processes which involve technology.

For instance, the EU has a more strict approach on what is patentable, in which generally, patents are not available for software or for business processes, whereas the US is more flexible and may grant patents to these inventions. However, since Alice Corp. v. CLS Bank International, it has become much harder to obtain and enforce software patents in the US – which is generally the first place companies register intellectual property.

In the EU, the European Patent Office (EPO) requires the invention to be an ‘absolute novelty, i.e. it must not be disclosed to anyone (except under confidentiality agreements) before the date of filing or priority. For its part, the United States Patent and Trademark Office (USPTO) gives a grace period of 12 months before filing the patent application.

In most countries, patents can be issued to either natural or juristic persons, except in the US, where only natural persons can apply for a patent. Usually, an employee of a US company will apply for the patent and the rights will be assigned to the company via a contract. In some countries, an employee may also have the right to apply for a patent if their employer has not done so.

Inventions can also be protected via utility models in certain jurisdictions, are generally applied to mechanical and other technological innovations and commonly used for adaptations of existing products.

Requirements to obtain a utility model are much more flexible than patents. Although the ‘novelty’ feature is required, the requirement of involving an ‘inventive step’ and/or be ‘non-obvious’ are far more relaxed or directly not required and the procedure may not include an inspection. Protection terms are also lower as well – generally between 7 to 10 years.

Utility models are not available in the US, Canada, or the United Kingdom. However, in the US, entrepreneurs may seek to protect their utility models via a ‘utility patent’.

Both patents and utility model rights can be transferred and licensed.

Trademarks and design rights

Trademarks are usually registered to protect marketing tools such as brand names, logos, or company slogans, among others, from third-party use or plagiarism.

Same as with patents, the principles of territoriality apply, meaning that you should register it in each jurisdiction where you wish to seek protection. There are certain supranational options such as the EU Trade Mark that cover all EU countries.

There is also the Madrid system for the international registration of marks, which is administered by the World Intellectual Property Organization (WIPO). It allows having your trademark protected in more than 90 countries, including the US, Europe, and most Asian countries.

Trademarks are usually valid and renewable for periods of 10 years and can be canceled if they are not used. Like Patents, trademarks are also property and their rights can be sold and licensed. Trademarks however, should be more aggressively utilized – while patents can be used as more of a defensive course of action.

Trademark owners should diligently protect their trademarks from infringement and other misuses (e.g., blurring, tarnishment, unfair competition, passing off, false advertising and cybersquatting) that may harm the owner’s goodwill and business reputation. A trademark owner is not required to uncover all possible uses that might conflict, or immediately commence a lawsuit against every possible infringer. At the same time, a complete failure to enforce will lead to a weakening of an owner’s marks, loss of distinctiveness over time and, as we saw in this case, potential forfeiture of certain available remedies. “Trademarks : if you snooze, you lose” source

Most countries whose legal code is based on Common law grant certain protection by default to trademarks, subject to the fact that certain goodwill must have been established, meaning the trademark has earned a certain reputation or public knowledge.

Other countries apply the first to file principle, whereby the first party applying has priority. There are a number of exceptions such as with well-known trademarks.

Designs may also be registered and protected. They refer to the shape, colors or material aspects of products such as packaging and containers, furnishing and household goods, lighting equipment, jewelry, electronic devices, textiles, and, in some instances, to graphic symbols, graphical user interfaces, and logos.

Generally, to qualify for registration the design must be ‘new’ or ‘original’. Protection terms vary across jurisdictions and can be from 5 to 25 years.

Although industrial design protection also applies country-by-country, the Geneva Act of the Hague Agreement on the international registration of industrial designs provides for the registration of designs in 70 countries with a single application to the UN’s World Intellectual Property Organization (WIPO).

Copyrights

Copyrights are the most common way to protect intellectual property and refer to original literary, dramatic, musical and artistic works derived from intellectual effort or creative skill.

Copyright is usually used for software and for websites, music, videos, brochures, books, etc. and can be protected via copyright which is usually obtained automatically. Note that only creative content can be copyrighted, and not ideas, brands, procedures, operational methods and/or mathematical concepts.

Creators of a given copyrighted work have the right to prohibit or authorize its reproduction, public performance or publication, broadcasting, adaptation, dissemination or retailing. They can sell or license these rights and receive royalties in return.

Protection term is usually 50 years after the creator’s death as per the World Intellectual Property Organization (WIPO) treaties.

The Berne Convention for the Protection of Literary and Artistic Works is the international agreement governing copyrights, in which most jurisdictions worldwide are contracting parties. Members of the World Trade Organization (WTO) have also implemented the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) which also covers matters related to Copyright protection.

Under the above treaties, copyrights are protected without requiring registration. Although, certain jurisdictions such as the EU provide for a registration option where copyrighted works can be lodged to facilitate any legal claim.

An exception to this is the US, which, although it is a member of the Berne Convention, it does require registration with the US Copyright Office (USCO) for copyright owners to sue for infringement and receive certain remedies for statutory damages and attorney fees.

Generally, the copyright owner is the creator of the copyrighted work by default. Labour laws may include provisions that grant copyright ownership for employees’ creations to the employers. However, these may not apply in an independent-contractor relationship. Care should be taken when drafting certain agreements to include relevant provisions that assign the ownership of the copyright to the company.

Trade Secrets

Confidential business information should be protected also. This may include know-how, customers or prospective databases, technological developments, business strategies and tactics, recipes, manufacturing processes, among many others, which collectively are known as trade secrets and may provide a competitive edge over other market players. This know-how can also be licensed and become a direct source of revenue.

Trade secrets do not need to be registered in order to be protected, and therefore, no protection term limitation applies.

Definition and conditions for trade secrets vary across jurisdictions. However, certain international standards are outlined in the TRIPS agreement including the fact that the information should not be known by or accessible to the public, it should have certain commercial value and steps should be taken to keep them confidential, such as via non-disclosure agreements with partners, clients, suppliers, contractors or employees, among others.

Trade secrets that consist of inventions may be patentable or qualify as a utility model. Some companies prefer not to register as seeking a trade secret protection strategy does provide for no limitations in time, no registration costs, have immediate effect and do not need to comply with legal requirements applicable to patents.

However, trade secrets do not provide exclusive commercial rights and are more difficult to enforce than patents. If these trade secrets are materialized in products – third parties may discover it via reverse engineering and may use it without any legal constraints. Furthermore, in a worst-case scenario, a third-party who has discovered the trade secret may patent it, although certain legal restrictions may apply.

Infringement

IP rights’ holders are responsible for identifying infringement and whether enforcing their rights. IP rights infringement may involve civil offenses and, in certain cases, criminal offenses such as counterfeiting or piracy.

Court proceedings are time-consuming and represent a financial burden. Furthermore, IP infringement might be difficult to enforce in certain countries – and, of course, there is no guarantee.

This is why many IP rights’ holders opt for sending ‘cease and desist’ letters to the infringer in the first instance, or seek dispute resolution mechanisms such as mediation or arbitration when the dispute is between parties of a contract.

Mediation is usually the less expensive option, and In international contexts, arbitration might be more easily enforceable. Furthermore, it may allow keeping better business relations between the parties than in a legal proceeding.

IP Exploitation

As previously commented, intellectual property is one of the most valuable business asset classes that can be monetized.

For instance, a given company can commercialize its IP-based product whereby a license agreement might be concluded with the client. This is common with software developers and providers, where the licensor may grant a non-transferable, non-exclusive copyright and patent license to use such software under certain terms and conditions. In certain instances, part of the revenue generated by the product might be classified as royalty which might entail certain tax benefits as we will see in the next sections.

In a B2B environment, IP rights can also be licensed to third parties and/or affiliates to use the IP rights. Licenses can be established for the use of any type of intellectual property including patents, copyright, trademarks, designs, and trade secrets.

With exclusive licenses, only the licensee, and not even the licensor, can use and/or exploit the relevant IP. Non-exclusive licenses may allow the licensor to exploit the relevant IP and grant more licenses. A co-exclusive license is used when the licensor is only permitted under the contract to grant licenses to a limited group of persons. In any of these cases, exclusivity may or may not be restricted to a product, field, territory, among others. The agreement may also confer different rights, such as the right to use or the right to commercialize.

IP rights can also be used for cross-licensing agreements, for instance, when two or more entities agree to leverage each others technology. IP also plays a fundamental role in franchising agreements, especially when it comes to trademarks.

IP agreements are also common in mergers & acquisitions, or in joint ventures to govern relationships in which, for instance, a company may contribute with certain know-how and other with specific market experience and knowledge.

When it comes to cross-border agreements, you should make sure that your IP is protected in the relevant jurisdictions, or you might end up with no right to restrict the use or exploitation of your IP.

And in any of the above cases, you should seek specialized legal advice in the relevant jurisdictions to carefully draft and/or review the terms and conditions governing these contracts.

Your IP can also serve as collateral for accessing financing. Securitization of IP assets is a growing trend, as we will see later.

Furthermore, like any other asset, IP can be bought and sold, transferred and/or assigned to any entity.

IP Structuring

IP holding company

A number of business groups elect to set up a vehicle to hold their intellectual property assets – an IP Holding Company.

Using an IP holding to hold, administer and commercialize IP rights by licensing them to related companies or third parties may provide a number of benefits, and not doing so, may potentially lead to certain issues.

First of all, a business may operate via different entities due to commercial reasons, e.g. operating in different markets, different products, and services, etc. In these groups, different entities may create and/or use different trade secrets, brands, copyrighted work, etc. which may be further shared and used across entities.

IP rights may not be clearly assigned to any entity, or in the case of registered intellectual property, each one may be assigned to a different entity. In these cases, there may be no licensing agreements between entities, and no clarity on who holds and accrues the IP rights.

This could create cross-contamination and cross-liability issues which can negatively affect your valuation, it can lead to problems when selling business units/subsidiaries/IP or when securing financing, as well as having your IP exposed to liabilities arising from trading activities.

Furthermore, when a given group IP is all over the place it might be challenging to efficiently identify and manage all the intellectual property that the business is accruing or get the most out of it via, for instance, turning the IP into a direct revenue-generating asset.

By establishing an IP holding company, one can minimize or eliminate the aforementioned issues. The IP holding is solely established to accrue the IP rights, hold the IP, implement the IP protection strategies, and carry out any financial or commercial IP-related activity.  

Relationships between the IP holding and affiliated companies using or exploiting the IP rights should be properly legally covered via a licensing agreement to clearly determine ownership of the IP and isolate IP assets from other group’s entities liabilities.

It also provides a further level of flexibility. For instance, at a certain point of time, a given business could switch to a franchise business model with ease by selling the operating companies and keeping the intellectual property holding company.

Asset Protection

As we discussed in a previous article, a holding structure can be a powerful asset protection and risk management tool and may lead to a separation of legal and financial liability and risks between business assets.

By establishing an IP holding structure and segregating the IP assets, the assets may not be exposed to the legal financial risks and losses from the commercial activities of the group. For instance, it can protect your IP from other related businesses creditors or insolvency.

Although sharing key management control personnel between trading entities and the IP holding company is possible, steps should be taken to clearly distinguish governance and administration of the entities, for instance via separate and differentiated board structure and meetings. Additionally, in the wake of new tax policies, as we will see later, this will reinforce that transactions between related companies are conducted in an arm’s length basis, and having on the ground directors makes prudent sense from a substance standpoint as well.

Furthermore, appointing different executives whose duties are exclusively the management of the IP, or employing staff whose tasks are IP-related such as research and development, and are not directly involved in the day-to-day commercial activities, may reinforce the ring-fencing objective of the IP Holding, and may also provide R&D tax breaks, as we will see later.

Intra-group transactions should be properly documented, accounted in their respective books and records, and covered by the appropriate licensing agreements. Activities of the company should be properly structured to assign the accrued IP to the IP holding. Ideally, no trading entity should be doing business in the name or on behalf of the IP Holding.

For a greater level of IP asset protection, an IP-holding subsidiary authorized to sub-license the IP rights could be used to enter into licensing agreements with third parties, therefore the IP holding wouldn’t be conducting transactions with these third parties, and minimize any trading and financial risk.

However, when structuring the holding and the relationship between affiliated parties, certain legal caveats would also need to be considered such as that in certain jurisdictions non-exclusive IP rights licensees are not able to receive remedies for IP infringement.

Taxation

As IP holdings may be considerably mobile businesses, one of the main benefits related to structuring IP holdings has traditionally been the ability to implement tax planning strategies by setting up in low-tax jurisdictions.

Certain multinational groups’ IP holdings have been incorporated and/or controlled and managed from offshore tax advantageous jurisdictions and have concluded licensing agreements with affiliate operating companies and royalties received by the holding have been exempt from taxation. In this way, as royalty payments are deductible expenses, the tax base of the trading company (which may be subject to higher taxes) is significantly reduced.

However, as most offshore jurisdictions do not have double-taxation agreements (DTA) with most countries (where operating entities are set up), these royalties are subject to withholding tax at the source, minimizing the tax efficiency of the structure.

To avoid that, multinational groups set up intermediate companies in onshore or midshore jurisdictions to sublicense this IP. These companies would be tax resident in jurisdictions that have a large network of DTAs and have a low to nil withholding taxation on royalties paid.

These practices are known as ‘treaty shopping’ and the Netherlands has been, perhaps, the most popular jurisdiction to set up these ‘intermediate companies’ due to their vast network of dual tax conventions

However, the international tax landscape is quickly changing on this matter, as we discussed in previous articles. In order to prevent these legal practices for tax avoidance, under the OECD’s Base Erosion and Profit Shifting (BEPS) Inclusive Framework and the European Union Code of Conduct Group (Business Taxation) (EUCoCG), the Forum on Harmful Tax Practices (FHTP) has instigated most jurisdictions worldwide to introduce amendments into their tax legislation to outlaw these tax planning strategies.

Some of the measures include the implementation of the General Anti-Avoidance Rule (GAAR), which allows a tax authority to disregard any structuring arrangement that has been put in place only to obtain a tax benefit in a given jurisdiction and does not have economic or commercial substance, as well as Controlled Foreign Company Rules (CFC) which may tax undistributed profits of a subsidiary incorporated in a low-tax jurisdiction. Exit taxes are also being implemented to avoid a company to change its tax residency (or transferring assets to a foreign permanent establishment) without paying a ‘capital gains’ tax on the appreciation of their assets (including IP).

There is also a wave to amend double-tax agreements (DTA) with increasing economic substance requirements to qualify for treaty benefits. Transfer pricing requirements and reporting are increasingly becoming stricter with country-by-country reports (CbCr) and local and master file transfer pricing documentation for large multinational groups, as we discussed in previous articles.

Furthermore, most advantageous IP-regimes, the so-called ‘patent boxes’, are suffering major changes with stricter qualifying requirements. BEPS-compliant patent boxes require an eligible company to meet substance requirements (physical presence, local expenditures, control, and management). Economic substance tests usually look at where strategic decisions are made and where the management and control over these strategic decisions, budgets, research and commercial programmes take place.

BEPS-compliant patent boxes also apply the ‘nexus approach’, whereby IP income eligible for an exemption is determined based on the ratio of R&D and other expenditures carried out within the country.

Typically, an IP holding company would outsource R&D activities to another affiliated entity in another jurisdiction, while IP rights are assigned to the holding company. With new requirements, it might be worth considering whether it is beneficial for the business group to keep R&D activities in the same country where the IP is held.

Traditional offshore jurisdictions have also been required to put economic substance requirements in place for IP businesses, which now have to conduct the core-income generating activities (CIGA) within the jurisdiction, and have management, staff, premises and local expenditures within the jurisdiction.

This is especially the case for IP businesses that have not created the IP (have acquired it), are licensing the IP rights to affiliate companies or are not conducting R&D activities locally, which are considered ‘high-risk IP businesses’ and are subject to enhanced economic substance requirements (and will be presumed not to have met the economic substance test by default and will need to rebut this presumption).

Although the international tax landscape is becoming increasingly challenging for IP-based businesses or IP holding companies, IP-based business groups can still leverage international structuring opportunities to obtain significant tax benefits.

As we’ve seen, economic substance is key. There are a number of jurisdictions in which by incorporating your IP holding and establishing local activities, you can have access to advantageous IP regimes with substantial exemptions to royalty income. You may want to relocate your R&D and/or IP commercial & development management and staff. Furthermore, if your company has intensive R&D expenditures, it might be worth considering setting up shop there to access tax concessions.

For instance, Luxembourg provides for an 80% tax exemption on net IP income eligible (determined by the nexus ratio) derived from patents, utility models, copyrighted software, etc. as well as a 100% exemption from net wealth tax and exemption from capital gains – provided that the substance requirement is met.

However, it is important to look at what class of IP you will be accruing, and if it qualifies under the IP regime, and other relevant aspects such as what type of IP income qualifies (e.g. IP-income derived from the sale of products or income from licensing agreements) or whether the IP needs to have been developed by the company, or the mere IP economic ownership suffice to be eligible.

You can establish your regional trading activities in jurisdictions that provide tax benefits and have a tax treaty with the jurisdiction where your IP company is located. Economic substance requirements vary depending on the jurisdiction. You could also leverage ‘mid-shore’ jurisdictions that have relatively low tax rates where you may not need to meet unreasonable substance requirements.

However, establishing economic substance and the place of effective management is a positive step to take and is paramount in an optimized corporate structure. As it will also provide certainty on the tax residency jurisdiction of your company it may also avoid triggering CFC laws in the jurisdiction of the parent entity, if applicable.

You must also consider how transactions between entities, either affiliate or third parties are structured, as it may have a significant impact from a tax standpoint as well. Commercial substance between entities is important and should reflect commercial reality. As we’ve mentioned before, IP holding companies should have their own decision-making structure independent from other group’s entities. All IP-related transactions between affiliated entities must be conducted at arm’s-length and fair-market-value, and be properly documented.

A good approach is having the proper structure on day 1. Postponing the incorporation of an IP holding company to the time that the IP has been considerably developed may lead to less tax-efficient restructuring options and you may lose access to certain tax breaks in certain jurisdictions, in addition to potentially higher capital gains tax.  

Your financial and commercial goals should also be considered in conjunction when determining your structure – incorporating in a jurisdiction only because tax reasons may not be that effective.

Other tax benefits from properly structuring your IP holding may include in some jurisdictions a reduction of capital gains tax in an eventual IP sale. Certain IP assets may be considered depreciable assets or have been acquired for a minimal cost (such as a trademark), and a subsequent sale of these assets may lead to a balance adjustment – which gains may be taxable. Having an IP holding may lead to potential tax efficiency depending on the country where the company has been incorporated as the sale of shares may be fully or partially exempt from taxation.

Securitization

As we briefly commented previously, properly protecting your IP assets and holding them in a holding company may also lead to a broader range of financing options.

First of all, having an IP-focused entity may help you to properly identify and value your IP assets, which in turn may lead to higher valuations for your business group.

IP assets can also be used as security for obtaining financing, such as from venture capital funds, hedge funds, private lenders, or angel investors. Furthermore, there is a growing trend for using intellectual property assets as collateral for commercial bank loans.

You could also leverage your IP holding for fundraising via an equity offering. For technology and blockchain-related companies, you could even set up an IP special purpose vehicle (SPV) to tokenize your IP and give rights to the business royalty revenue streams to your token holders.

However, if you are looking at alternative ways to get financing via securitizing your IP assets, investors will want to see that your IP is properly protected, and saleable.

When structuring the IP business it is also worth looking at whether your IP-based business may benefit from government and non-government financing schemes such as grants and/or loans. Some governments provide additional incentives for IP headquarters or an HQ where IP is primarily generated.

The Bottom Line

As we’ve seen intellectual property (IP) assets may be one of the most valuable business assets and therefore businesses should take the appropriate steps to protect them, as well as execute the appropriate commercial strategies to get the most out of them.

If you haven’t done so, perform an audit of your business and identify what intellectual property assets you have, what class of IP, and then design and implement a plan on how you can protect it.

You should evaluate whether you can register them, and if so, that the registered IP protection covers at least all the international markets where you operate or plan to operate, whether it is via individually registering them or via an international treaty.

If they are not registrable, you must ensure that your contracts with partners, employees, contractors, suppliers, and clients contain the proper clauses to maintain confidentiality and properly assign and protect the existing or accrued IP rights to your business.

Even if you are a newly set up start-up, your intellectual property strategy plan should be already in place, otherwise, it might negatively affect your position in the marketplace once your business grows and might have negative business consequences, and even tax consequences.

When exploiting your IP rights, and licensing to third parties, you should be really careful in the terms and conditions of your contract, especially in technology-licensing agreements and joint-ventures.

It is of significant importance to have the proper IP Holding structure and the IP properly assigned and owned by one entity. It may lead you to more efficiently manage, administer and develop your IP, set the foundation for IP-focused business growth, and find new sources of revenue.

Furthermore, if the IP ownership is properly assigned and administered, it may lead you to higher business valuation and open a number of alternative financing options for your business.

It will also provide a greater level of asset protection, as you can effectively isolate your IP from the business risks and liabilities that arise when carrying out commercial activities.

You can also leverage your IP structuring strategy to access tax breaks. Most countries have ‘patent boxes’ available that provide tax concessions for income derived from the exploitation of IP rights and other tax incentives related to R&D expenditures.

In addition, a properly structured IP business may lead to significantly reduce your overall business tax burden. To effectively achieve that, economic substance, transparency and commercial substance between entities are of increasing importance. With the current international landscape, shell vehicles or treaty shopping strategies might not be as effective as they used to be and a more comprehensive and elaborated approach should be taken.

There is no ‘one-size-fits-all’ solution, however, there are a number of jurisdictions that provide a number of benefits, or that can be beneficial for international structures dealing in IP. In the next article, we will review some of these jurisdictions.

If you are planning to structure or restructure your IP business, we here at Flag Theory can help you leverage global structuring opportunities with a global approach and jurisdictional comparison intelligence customized to your specific business.

We take into account not only all the legal, regulatory, and tax elements, but also the commercial needs, priorities, and goals of your business. Our goal is to empower you to legally benefit from the highest asset protection, risk management, tax minimization, and smooth finance and commercial operations. Contact us today, it will be a pleasure to assist you.