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