Fiscal engineering and IPPs

Discussant comments

Agenda item 6

IPPs

• Informa will create a new parent company listed in UK, incorporated in Jersey, and tax resident in Switzerland.

• Under new tax rules, dividends from “real” activity will not be taxed. But income derived from intellectual property will be taxed

• Companies that have a lot of intellectual property in their subsidiaries are being challenged – the revenues are in the Revenue’s view, largely artificial

IPPs

• Ocra company case study• Transfer patent to subsidiary in low tax country

from which the patents are licensed to one or more licensing companies which do not levy a withholding tax on royalties paid abroad.

• Spread between royalties paid and received can be minimised (no transfer pricing regulations)

IPPs

• Revenue is looking to clamp down on tax avoidance by multinationals that artificially offshore intellectual property assets to minimise tax liability

• Selling back use of the intellectual property to domestic parent generates an offshore untaxed profit, and a generous tax deduction in the parent company country

IPPs

• Issue: international trade in IPPs has grown• SNA 2008 recognition of R&D as capital

formation has led to increased need to measure IPPs

• We need better classification system for IPPs, and in survey collection headings

• We need information on affiliated company trade in IPPs and associated service payments

IPPs

• Background: classifications not up to speed, collection systems need to be developed.

• International standards – OK• Measurement issues – huge

– Tax avoidance schemes– R&D products not always patented– No one best current source of information

(Frascatti?)

IPPs

• We need a new survey for international transactions in R&D products, especially between affiliates.

IPPs

• Summary• The form of the paper is a long way from

what is needed to go in the manual• There needs more focus on fiscal

engineering – if many (most) multinational minimise global tax burden by IPP switching schemes, there is no chance of the proposed survey getting useful answers