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Our Tax treaty networks offer a unique financial planning tool
for companies possessing rights in intellectual property
including patents, trademarks and copyright. When such companies
start with their sales expansion plan into international
markets, they have a distinct advantage because international
treaties often provide for favorable tax treatment of royalties
paid on intellectual property.
The main obstacles in designing an offshore structure are
transfer pricing and the so-called limitation of benefits
clauses or anti-treaty misuse provisions. These provisions will
generally treat the offshore structure as transparent for tax
purposes where the intermediaries are under common ownership and
control. To address these obstacles, a specialized royalty
inning company can be introduced to the offshore structure.
Scenario: Softco is a domestic software development firm that
has developed a new product. It plans market and sell its
products globally. The company would like to minimize its tax
burden on profits from its international sales.
Solution: Softco will sell the intellectual property rights in
its new software product to a tax-exempt offshore company. The
offshore company will then enter into a master licensing
agreement with an independent royalty inning company in the
Netherlands. The Dutch royalty inning company, which is owned by
residents of the Netherlands , will in turn enter into
sub-licensing agreements with various international customers.
The reason for choosing a Dutch intermediary is due to the
extensive tax treaty network benefiting the Netherlands. The
Netherlands' treaty network will allow the Dutch royalty inning
company to receive IP royalty free of withholding taxes.
Example: The UK tax authority would normally require tax to be
withheld at a rate of 22% on any royalty payments being made to
a non-UK resident.
However, based on the tax treaty between the UK and the
Netherlands, no withholding tax will be withheld on IP royalty
payments.
The UK purchaser will pay GBP 1,000,000 to the Dutch royalty
inning company pursuant to the terms of their sub-license
agreement.
The master license agreement requires a payment of GBP 930,000
from the Dutch company to the offshore company. The only amount
subject to tax is the margin of GBP 70,000, which is retained by
the Dutch company and is taxed in the Netherlands at an
effective rate of 2%
For more information:
Email us at: rudsel.lucas@sadekya.com
Sadekya Fiduciary Partners.
Rudsel. J. Lucas TEP, Managing Director
Saliña Galleries Unit A-201
P.O. Box 4750
Curacao, Netherlands Antilles
Telephone: 599 9 4652698
rudsel.lucas@sadekya.com
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