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Patent Box Regimes: Taxation of Intellectual Property


June 2015

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Synopsis

Intellectual Property/Intangibles (“IP”) have become the mechanism to create wealth throughout the world. The mobility of IP has led both large and small multinational companies to optimize the location of ownership of the IP to insure a low worldwide effective tax rate. Examples of companies taking advantage of this effective tax rate minimization include Microsoft, Google and other technology companies.

Many developed countries, including those in the European Union, are providing tax incentives for multinational companies to locate IP in their domiciles. Proper structuring of the ownership of IP can provide clients with significant worldwide tax savings.

Issue

Certain EU member countries (as well as Switzerland) have adopted “Patent Box” or “Innovation Box” regimes. Under the Patent Box regime, income attributable to IP is taxed at a 10% rate. The United Kingdom, Netherlands, and Switzerland have adopted or will adopt such legislation.

The key to the Patent Box regime is that the IP must be subject to a patent registered in the country of domicile. Further, after a dispute between the United Kingdom and Germany over the United Kingdom’s Patent Box regime, a company claiming benefits under such a regime in the EU must also have substance in the country of domicile pursuant to a “modified nexus” approach - significant research and development must be undertaken in the country.

The Patent Box regime has caught the attention of Congress. Charles W. Boustany Jr., R-La., a member of the House Ways and Means Committee, said on May 13, 2015, that the U.S. may likely consider the “Innovation Box” regime as part of the its international tax reform. The Innovation Box regime is broader than the Patent Box in that it includes IP that is otherwise not subject to a patent.

Contact

To learn more about CohnReznick’s International Tax Practice, please visit our webpage.


Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.
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