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Intellectual property movement in Asia

As you may have seen from my blog, I'm getting back into Japan, TW, HK and related.  One thing that we'll be doing is developing content/applications for that market.  The work will happen in all three places, along with a smattering of others, all in Asia.

The ownership is fungible as far as location goes, as we have P.E. in six countries and counting.

I'm familiar with cost-sharing agreements and the like, which we will be using here.

What I'm looking for is a quick tutorial on managing the tax impact of:

-Moving the IP across borders (such as if I buy it in TW and want it to be owned by a KK in Japan).

-Royalties for explotation across borders (such as if the KK then licenses it into HK)

Cheers, and thanks in advance.

Answers

Jake Feldman
Title: Managing Director
Company: Global TaxFin Advisory Group LLC
(Managing Director, Global TaxFin Advisory Group LLC) |

Hi Keith,

Generally speaking, it is desirable to establish an affiliate in the lowest or even zero tax jurisdiction (doesn't have to be in Asia) that would acquire or fund the acquisition and R&D of IP even across borders. Off the cuff, Japan does not appear to be the best choice. So, you don't need to first buy the IP with a local entity that then has to migrate the IP across borders (at a tax cost) but have the IP entity buy in the first place. It is also desirable to establish the parent company outside the US to avoid the US's worldwide taxation system. The IP entity would also hire other affiliates under a cost plus service fee to actually conduct the development work. The intercompany fees would be governed by transfer pricing regulations.

It's not clear why you desire or think you need to use cost sharing. Do you think it's wise to do something that requires its own special tax form that raises a red flag with the IRS?

As for exploitation across borders, here too there may be alternatives to a network of license royalties depending on the circumstances. For example, the IP or another related low tax entity could sells/license the product directly to customers rather than via a local entity. In any case, any intercompany arrangement will also be governed by transfer pricing regulations.

Needless to say, it will be far more advantageious in the long run to think through and implement an entity structure with diligent upfront tax and legal planning. If you don't have advisors that can do this for you, please get in touch.

Jake

Topic Expert
Keith Perry
Title: Consulting CFO and Business Operations A..
Company: Growth Accelerator
(Consulting CFO and Business Operations Advisor, Growth Accelerator) |

Jake,

Thanks for the thoughts....helpful. I hadn't thought of the "license from elsewhere" approach.

Cheers,

KP

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