Licensing Intangibles through the US

Does Anybody Want to License Intangibles "Through" the United States?

London, 19th April 2010

Merriman Capital Transactions Ltd

U.S. Transaction Planning Insights - March 31, 2010

Does Anybody Want to License Intangibles "Through" the United States?

Although what I am proposing may seem counterintuitive, particularly given the reputation of the United States as being somewhat tax unfriendly, there may be discreet circumstances when licensing intangible property ("IP") via a U.S. corporation ("USCo") could make sense. Here's why. As a matter of U.S. federal income tax law, royalties derived from the use of IP "outside" of the U.S constitute non-U.S. source income. As such, if, for example, a non-U.S. person ("NUSP") licensed IP to a USCo, solely for the use "outside" of the U.S., and USCo paid royalties to NUSP from sub-licensing the IP to parties for use "outside" the U.S., royalties paid to NUSP by USCo should in general constitute non-U.S. source income. In this simple scenario, USCo could pay royalties to NUSP free of U.S. withholding tax, even if NUSP was not eligible for U.S. income tax treaty benefits. You may think "so what", but for example, this could be useful to a NUSP resident in a tax haven or for a NUSP resident in a country whose treaty benefits for royalties are generally not as favourable as U.S. treaty benefits for royalties. Further, depending on facts, a USCo may have logistical advantages for a NUSP; no rulings would be necessary for a USCo; and a USCo is automatically a U.S. resident in many U.S. treaties notwithstanding location of management etc. U.S. transfer pricing, U.S. reporting and U.S. state tax all must be addressed, but these issues may be acceptable if non-U.S. withholding taxes are significantly reduced for NUSP.

For further information contact:

Chuck Merriman (Email) cmerriman@merrimantransactions.com / (Telephone) 44 (0)20 7887 1442 (Address) Second Floor, Berkeley Square House, Berkeley Square, London W1J 6BD, United Kingdom

Rob Stephenson is a Founder and Managing Partner of Maven Partners, a specialist taxation recruitment business. For more information please contact Rob on 0207 061 6421 or robstephenson@mavenpartners.co.uk

U.S. Transaction Planning Alert: Economic Substance Doctrine Made Statutory

London, 1st April 2010

Merriman Capital Transactions Ltd

U.S. Transaction Planning Alert - March 31, 2010

Codification of the Economic Substance Doctrine & Related Penalties

On March 30, 2010, the Health Care and Education Reconciliation Act of 2010 (the "Act") became law. The Act includes a provision which codifies, or makes statutory, what is referred to in U.S. federal income tax ("FIT") law as the economic substance doctrine ("ESD"). Over approximately the last 75 years, the ESD was solely a common law doctrine administered by the courts. According to the Act, a transaction(s) will have economic substance only if, apart from FIT benefits, (A) the transaction(s) changes in the meaningful way the taxpayer's economic position, and (B) the taxpayer has a substantial purpose for entering into the transaction(s). Profit potential will be taken into account only if pre-tax profit is substantial when compared to expected net tax benefits. In certain circumstances state income tax and financial statement benefits would not be valid purposes for the transaction(s). Of critical importance, the Act also provides a penalty of 40 per cent for underpayments of FIT relating to undisclosed transactions which do not have economic substance per the ESD. The scope of the ESD is very unclear and raises many unanswered questions. One concern is that transactions outside the realm of "tax shelters" may be negatively impacted. Also, the ESD can be compared to a general anti-avoidance rule, or GAAR. Since the ESD is effective from today taxpayers must evaluate the possible ESD impact on transactions entered into from today, even without the benefit of U.S Internal Revenue Service guidance.

For further information contact:

Chuck Merriman (Email) cmerriman@merrimantransactions.com / (Telephone) 44 (0)20 7887 1442 (Address) Second Floor, Berkeley Square House, Berkeley Square, London W1J 6BD, United Kingdom

Rob Stephenson is a Founder and Managing Partner of Maven Partners, a specialist taxation recruitment business. For more information please contact Rob on 0207 061 6421 or robstephenson@mavenpartners.co.uk