Post on 19-Jan-2017
Cross-Border IP Strategies
Jamille CumminsTransworld Group
www.transworldgroup.im1
Cross-Border Strategies?
Jamille Cummins, Transworl
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Global Business Context
Increasing Technology Competition: Semiconductor Design, Fabrication Pharmaco-Genomics, Medical Devices Wireless Telecom, Broadband Content
Strategic Intellectual Capital: Defensive & Offensive Portfolio-Building International I.P. Licensing and Litigation
Jamille Cummins, Transworl
d Group
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Intellectual Property Rights
Jamille Cummins, Transworl
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Intellectual Property Rights Patents
Trade Secrets
Copyrights
Maskworks
TrademarksJamille
Cummins, Transworl
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Patents
Protects “unobvious” apparatus, method
Substantial application effort
Arises under federal, international law
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Trade Secrets
Protects confidential business information
No registration process
Arises under state, federal, international law
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Copyrights
Protects original literal works
Optional registration, marking
Arises under federal, international law
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Maskworks
Protects semiconductor lay-out designs
Simple registration, marking
Arises under federal, international law
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Trademarks
Protects distinctive marks, symbols
Optional registration, marking
Arises under state, federal, international law
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Protecting Software / Data
Trade secret as default position
Copyright for original media content
Patent for algorithms, business method
Maskwork for chip implementation
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US Patent Practice
First-to-invent rule
1-year bar-date rule
1-year foreign-filing rule
Export controls
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Other Intangible Assets
Franchises
Covenants not to compete
Governmental permits
Informational base
Business goodwillJamille
Cummins, Transworl
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US Tax Practice
Business Development Expense §174
Capital Gains for R&D/Patent Sale §1235
Trademark development generally non-expensable, unless advertising §162may be amortizable §197
Copyright generally non-expensable, non-capital asset §1221
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Offshore Motivation
Globally-competitive development, manufacture, sales, or partnerships
Overall tax savings or deferral
Improve company balance sheet
Cross-border shifting of income, risk, control, or privacy
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Strategic Options
Offshore technology/IPR development, co-inventorship, or improvement
Transfer domestic technology/IPR to offshore structure in favorable tax jurisdiction
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Offshore Development
Impractical when technology rights already mature, commercialized
Export control restriction on sensitive technology
Favorable early fair market valuation
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Offshore Transfer
Complex structural choices for offshore entity/ies
US tax regime substantial reach on cross-border transactions
Territorial practical considerations
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Key Planning Objectives
Align IP ownership with development spend
Locate IP with market, manufacture
Consider incentives, depreciation, exit
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Applicable Tax Regime
US person subject to tax on all income, whether source is domestic / foreign §1
Tax law of jurisdiction applicable where IP is used, income source §§ 861-862
Development Manufacture Sales
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Transfer Pricing
IRS may reallocate income/deductions between taxpayers, when transactions conducted by controlled group §482
May require transfer pricing study/policy to validate arms-length economic relationships
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Foreign Corporations
Controlled Foreign Corporation (CFC) §§ 951-964
Foreign Personal Holding Company (FPHC) §§ 541-547, 551-558
Passive Foreign Investment Company (PFIC) §§ 1291-1297
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CFC Rules
Total US shareholders owning at least 10% of company exceed 50%
10% shareholders taxed as if dividends paid, even if no cash distribution
Taxed on share of foreign company Subpart-F income, even if no cash distribution
Jamille Cummins, Transworl
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IP Contributions
US person transferring IP to foreign corporation recognizes gain based on fair market value of receivable §367
Exceptions: Active trade / business by foreign
corporation Domestic stock transfer, gain
recognition agreement Foreign stock transfer, corporate
reorganizationJamille
Cummins, Transworl
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Valuation Methods
Excess operating or premium profits
Premium pricing
Cost or royalty savings
Market comparison
Replacement costJamille
Cummins, Transworl
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Inbound / Outbound Issues
Withholding tax on royalties?
Applicable tax treaty, rate?
Trade / business or permanent establishment in foreign jurisdiction?
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Sale vs. License
Transfer “all substantial rights” ?
Sale gives rise to capital gains / loss, usually no withholding tax
License is ordinary income, royalties subject to withholding tax
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Licensing Terms
IP grant Improvements Currency Inflation rates Withholding tax Exchange
controls Royalties
Arbitration Language Political risk Travel expense Product liability Indemnification Applicable law
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Country Selection
Entity structure Funding type Formation time, documentation Shareholding meetings Taxation Foreign authority information exchange
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Cayman Islands
Entity structure: Company unit trust ltd, partnership
Funding type: Open/closed-end class, hybrid scheme Formation time/docs: 1-week memorandum, articles of association or deed of trust, minimum $33k equity or fund listed on approved stock exchange
Shareholding mtgs: None Taxation: No individual income, corporate, capital gains or transfer tax payable by funds or shareholders; no tax treaties Authority Info: Mutual legal assistance treaty with US to cooperate regarding narcotics, fraud
Jamille Cummins, Transworl
d Group
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Bermuda
Entity structure: Company unit trust ltd, partnership
Funding type: Open/closed-end class Formation time/docs: 3-5 weeks prospectus, memorandum of association or deed of trust
Shareholding mtgs: Annual meeting need not be in Bermuda Taxation: No individual income, corporate, profit, withholding capital gains, estate, duty, or inheritance tax payable by funds or shareholders; no tax treaties Authority Info: Mutual assistance act with US to cooperate regarding fraud
Jamille Cummins, Transworl
d Group
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Ireland
Entity structure: Company unit trust ltd, partnership
Funding type: Closed-end, VC professional investor funds
Formation time/docs: 2-3 months, memorandum, articles of association or deed of trust
Shareholding mtgs: Annual meeting in Ireland Taxation: Special tax zone exempts funds and shareholders from income and capital gains tax; tax treaty Authority Info: Official secrets act maintain confidentiality except in limited circumstances
Jamille Cummins, Transworl
d Group
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Luxembourg
Entity structure: Fixed capital company, variable capital unit trust, partnership
Funding type: Closed-end, VC funds Formation time/docs: 3-5 months, prospectus, articles of incorporation or deed of trust
Shareholding mtgs: Annual meeting in Luxembourg Taxation: No income, capital gains, withholding, or dividends tax on funds of non-resident shareholder; tax treaty Authority Info: Banking secrecy statute
Jamille Cummins, Transworl
d Group
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OECD List Andorra Anguilla Antigua & Barbuda Aruba Bahamas Bahrain Barbados Belize British Virgin Islands Cook Islands Dominica Gibraltar Grenada Guernsey Isle of Man Jersey Liberia Lichtenstein
Maldives Marshall Islands Monaco Montserrat Nauru Netherlands Antilles Niue Panama Samoa Seychelles St. Lucia St. Kitts & Nevis St Vincent & Grenadines Tonga Turks & Caicos Islands US Virgin Islands Vanuatu
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Cross-Border Model
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USCompany
HoldingCompany
ForeignSubsidiary
Offshore Company Set-up
USCompany
HoldingCompany
ForeignSubsidiary
US Company sets-up Holding Company in low-tax/treaty(no-withholding) jurisdiction, limit US control/interest
File IP appropriately for offshore protection, enforceability
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Offshore IP Transfer
USCompany
HoldingCompany
ForeignSubsidiary
Holding Company pays US Company for fair-market-value stake in IP intangibles
Cost-sharing agreement for IP co-development, financing by US and Holding companies, jointly-owned per relative contributions
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Offshore Subsidiary Licensing
USCompany
HoldingCompany
ForeignSubsidiary
Holding Company licenses IP to Foreign Subsidiar(ies) to collect royalties from customers in other jurisdiction(s)
US Company receives royalty portion in US and accumulate portion offshore, actively licenses IP from Foreign Subsidiary
Jamille Cummins, Transworld Group 38
Offshore Tax Benefits
USCompany
HoldingCompany
ForeignSubsidiary
US Company receives tangible asset as payments on balance sheet for sale of intangible IP
US Company deducts license to use intangible asset, may defer income repatriation to tax-efficient time
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Jamille Cummins, Transworld Group
Transworldcapital.imJamille
Cummins, Transworl
d Group
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