Tax implications of offshoring IP
Produced in partnership with Anne Fairpo of Temple Tax Chambers
Tax implications of offshoring IP

The following IP practice note Produced in partnership with Anne Fairpo of Temple Tax Chambers provides comprehensive and up to date legal information covering:

  • Tax implications of offshoring IP
  • Choice of jurisdiction—tax issues to consider
  • Transfer of IP from the UK—exit taxes
  • Intra-group transactions—transfer pricing
  • Trading generally—controlled foreign companies
  • UK income tax on offshore royalties rules
  • Individuals—specific tax rules to be considered

Where a business decides to hold its IP outside the UK, there are a number of tax issues that need to be considered. Perhaps unsurprisingly, the UK tax authorities will, generally, look quite closely at any transfer of IP by a UK business to a related party in a low-tax jurisdiction.

Choice of jurisdiction—tax issues to consider

The countries that offer the best tax rates are generally described as tax havens (the Channel Islands, the Isle of Man, Bermuda, the Cayman Islands, etc). These have little or no corporate taxes but, as a result, usually have very few tax treaties as well. As a result, royalties paid to these locations from most higher-tax countries (most European countries, the USA, Japan, Australia, etc) will have tax withheld tax source on the gross royalty. The USA requires tax to be withheld on royalties at 30%; the UK requires withholding at 20%. These withholding taxes cannot be recovered, in a zero-tax country which means that a zero-tax country may result in a 20–30% effective tax rate overall.

As a result, where appropriate, IP will often be located in jurisdictions such as Ireland, Switzerland, Luxembourg and Malta, which have good treaty networks and favourable (although not always 0%) tax rates.

Transfer of IP from the UK—exit taxes

A transfer of IP from a UK company to a connected company offshore will be treated

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