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Accounting Best Practices, Fifth Edition by Steven M. Bragg Englewood, Colorado

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13–24. Move Intellectual Property to an Offshore Holding Company

A company’s intellectual property (IP), in the form of patents and trademarks, can be an extremely valuable resource that can generate millions of dollars in royalties from patent licensees. Given the high profit percentage on IP, a company may find that a significant proportion of its total income taxes are paid on just its IP portfolio.

A way to reduce the tax liability is to shift a company’s IP to an offshore intellectual property holding company that is sited in a low-tax jurisdiction. Any earnings on the IP will then be taxed at the lower rate of the offshore jurisdiction. There are several ways to effect this transfer:

  • Create a cost-sharing agreement with a holding company before IP is completed, under which international revenue rights are shifted to the holding company.

  • Create an offshore research and development facility, so that IP originates in a low-tax jurisdiction.

  • Shift the economic rights to the IP to the holding company, rather than the IP itself.

Of course, this strategy must include consideration of the company’s ability to eventually repatriate earnings from the foreign tax jurisdiction.

Cost: Installation time:

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