IP & CONCEPT PROTECTION
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It may seem counterintuitive and indeed a waste of money to set-up a structure before an idea/IP appreciates but ironically it could be the wisest move an individual or company ever makes. Why? Well, the reason is that in virtually all developed countries a tax event will be triggered on any asset transfer to another legal entity with the value of such transfer being based on the open market value at the time of the transfer. Therefore, if a business concept is developed and sold before agreements and/or contracts are in place it remains simply an idea that has little intrinsic value, making it difficult for a tax authority to ascribe a high value. Ideally, before making such a transfer careful research should be carried out to try and identify the open ‘market value’ of the idea/concept.
IF I SET-UP A STRUCTURE BEFORE THE IP APPRECIATES, COULDN’T I LOSE MONEY?
Yes, in a worst-case scenario an unexploited idea could literally go nowhere but that is exactly the point! However, the costs relating to parking an idea are not prohibitive and can be managed to ensure that any potential loses are known and controlled. The upside on the other hand is that should an idea work massive business, personal, family and asset protection benefits can be enjoyed for you and future generations.
SO, WHAT TYPE OF STRUCTURES ARE NORMALLY SET-UP TO RECEIVE THE IP?
How and when structures are set-up depends on each and every case, timeframes and likely appreciation. However, in most instances the IP will be initially transferred to a tax free international holding company (IBC), which in turn would be ‘owned’ by either a trust or self-owing private interest foundation (PIF). In the case of the latter, this is a self-owing legal entity managed by a foundation council subject to a charter and regulations. The regulations will normally state the purpose of the PIF which will usually be to look after the family members of the founder of the PIF. At law, a correctly administered PIF has many advantages including that although not owned by any one individual, it is considered to be a company under English law. This means that beneficial ownership of any transferred assets rests with the PIF and not the founder which can have many tax advantages together with asset protection benefits.
EXPLOITING THE IP AFTER TRANSFER AND APPRECIATION
Once the IP has been safely transferred and appreciation has started to occur or is likely to occur in the foreseeable future then structures will be broadened out to ensure that tax efficiency is maximised. For example, it will often be required to place the master IP license in a low tax jurisdiction with a good tax treaty network with respect to royalty payments/dividend withholding taxes etc. It should be noted that there are no ubiquitous solutions as each and every business model should be individually assessed but favoured locations can include Ireland, the Netherlands, Luxembourg, Malta and Cyprus.
For more information, please contact one of our consultants.
