9 th Meeting of AEG Economic Ownership of Intellectual Property Products by SPEs Michael Connolly...
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Transcript of 9 th Meeting of AEG Economic Ownership of Intellectual Property Products by SPEs Michael Connolly...
9th Meeting of AEG
Economic Ownership of Intellectual Property Products by SPEs
Michael ConnollyChair UNECE Task Force Global Production September 2014
Presentation Outline
• Review of TF Head Offices Holding Companies and SPEs
• Illustrative example
• Work of TF Global Production on Economic Ownership of IPP
• Recommendations
Royalty and Licencing Companies – TF Head Offices, Holding Companies
and SPEs • SPEs - Group receipts of royalties and licences
• Recognised as an institutional unit (SNA 4.61)
• Do these SPEs own the related IPP ?
• To reroute the receipts to the original owner - parent or originator of the IPP – difficulties caused by imputations
TF Global Production get involved
“further clarification is needed on the (economic) ownership…of certain assets of SPEs …TFGP to put forward more concrete proposals”
8th AEG Meeting, June 2013 Luxembourg
Consequences of recognising SPE as economic owner
• Capital formation increases in SPE country
• Trademarks, brands etc. are recognised as being owned by SPE
• Profits earned in one jurisdiction reduced by IP charges - effectively a rerouting of profits
MNE Rationale for Non-Resident SPE holding IPP
• SPE created for Tax planning purposes
• Double tax agreements
• Withholding tax agreements
MNE Structure (simplified)
US ParentUS Parent
Dutch Company – IP Sub licences
Cayman Irish registered non-resident- owner of IP
Irish ResidentTrading Company
ROYALTIES
Ireland imports Royalties Royalty Flows
CAYMAN ISLANDS
Assessment of Royalty Flows
• Netherlands is little more than a conduit for these royalty flows
• Cayman is a passive holder of IPP
• Actual beneficiary is parent in US
• This issue not examined in depth by TFGP
TF Global Production Economic Ownership of IPP in MNE Groups
• Risks and Rewards of IPP– Risks – registrations, enforcing copyrights etc.– Rewards – Royalty and other fee receipts
• Difficult to observe transactions in IPP itself
• Compilers reliant on accounting data
Is unit member of a MNE group ?Is unit member of a MNE group ?
Did the Unit produce the IPP ?Did the Unit produce the IPP ?
Main activity of the Unit ?Main activity of the Unit ?
Does the Unit receive income from IPP or pay for the use of IPP ?Does the Unit receive income from IPP or pay for the use of IPP ?
Decision Tree for IPP ECONOMIC Ownership
Economic Ownership of IPP in MNE Groups
• Following the decision tree should lead to decision on ownership
• Information may be scarce
• Importance of who prepares accounting records for SPE
Economic Ownership of IPP in MNE Groups
• Importance of Large Cases Units (LCU)
• Understand the MNE structure
• Cost recovery and transfer price agreements within MNE
• Legal rather than economic ownership
Economic Ownership of IPP in MNE GroupsTFGP Recommendations
• IPP producers are owners of IPP– Unless sale of original to parent or subsidiary– Unless no IPP related turnover generated - control by parent– Without conclusive evidence assign ownership to IP producer
• Rerouting of ownership away from SPE /Royalty companies not recommended
• Assign economic ownership to these units• A separate institutional unit is recognised and consequently
de facto owner of IP assets• Record these transactions separately
Economic Ownership of IPP in MNE GroupsTFGP Recommendations
• AEG is requested to review the decision tree and the discussion points in Section 3 of the issue paper
• The AEG is requested to express their views on the recommendations of the TFGP as formulated in section 4