9 th meeting of aeg economic ownership of intellectual property products by spes michael connolly...
TRANSCRIPT
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9th Meeting of AEG
Economic Ownership of Intellectual Property Products by SPEs
Michael ConnollyChair UNECE Task Force Global Production September 2014
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Presentation Outline
• Review of TF Head Offices Holding Companies and SPEs
• Illustrative example
• Work of TF Global Production on Economic Ownership of IPP
• Recommendations
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Royalty and Licencing Companies – TF Head Offices, Holding Companies
and SPEs • SPEs - Group receipts of royalties and licences
• Recognised as an institutional unit (SNA 4.61)
• Do these SPEs own the related IPP ?
• To reroute the receipts to the original owner - parent or originator of the IPP – difficulties caused by imputations
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TF Global Production get involved
“further clarification is needed on the (economic) ownership…of certain assets of SPEs …TFGP to put forward more concrete proposals”
8th AEG Meeting, June 2013 Luxembourg
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Consequences of recognising SPE as economic owner
• Capital formation increases in SPE country
• Trademarks, brands etc. are recognised as being owned by SPE
• Profits earned in one jurisdiction reduced by IP charges - effectively a rerouting of profits
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MNE Rationale for Non-Resident SPE holding IPP
• SPE created for Tax planning purposes
• Double tax agreements
• Withholding tax agreements
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MNE Structure (simplified)
US ParentUS Parent
Dutch Company – IP Sub licences
Cayman Irish registered non-resident- owner of IP
Irish ResidentTrading Company
ROYALTIES
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Ireland imports Royalties Royalty Flows
CAYMAN ISLANDS
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Assessment of Royalty Flows
• Netherlands is little more than a conduit for these royalty flows
• Cayman is a passive holder of IPP
• Actual beneficiary is parent in US
• This issue not examined in depth by TFGP
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TF Global Production Economic Ownership of IPP in MNE Groups
• Risks and Rewards of IPP– Risks – registrations, enforcing copyrights etc.– Rewards – Royalty and other fee receipts
• Difficult to observe transactions in IPP itself
• Compilers reliant on accounting data
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Is unit member of a MNE group ?Is unit member of a MNE group ?
Did the Unit produce the IPP ?Did the Unit produce the IPP ?
Main activity of the Unit ?Main activity of the Unit ?
Does the Unit receive income from IPP or pay for the use of IPP ?Does the Unit receive income from IPP or pay for the use of IPP ?
Decision Tree for IPP ECONOMIC Ownership
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Economic Ownership of IPP in MNE Groups
• Following the decision tree should lead to decision on ownership
• Information may be scarce
• Importance of who prepares accounting records for SPE
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Economic Ownership of IPP in MNE Groups
• Importance of Large Cases Units (LCU)
• Understand the MNE structure
• Cost recovery and transfer price agreements within MNE
• Legal rather than economic ownership
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Economic Ownership of IPP in MNE GroupsTFGP Recommendations
• IPP producers are owners of IPP– Unless sale of original to parent or subsidiary– Unless no IPP related turnover generated - control by parent– Without conclusive evidence assign ownership to IP producer
• Rerouting of ownership away from SPE /Royalty companies not recommended
• Assign economic ownership to these units• A separate institutional unit is recognised and consequently
de facto owner of IP assets• Record these transactions separately
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Economic Ownership of IPP in MNE GroupsTFGP Recommendations
• AEG is requested to review the decision tree and the discussion points in Section 3 of the issue paper
• The AEG is requested to express their views on the recommendations of the TFGP as formulated in section 4