9 th Meeting of AEG
Economic Ownership of Intellectual
Property Products by SPEs
Michael Connolly
Chair UNECE Task Force Global Production
September 2014

• Review of TF Head Offices Holding
Companies and SPEs
• Illustrative example
• Work of TF Global Production on
Economic Ownership of IPP
• Recommendations

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

“further clarification is needed on the
(economic) ownership…of certain assets of SPEs
…TFGP to put forward more concrete proposals”
8 th AEG Meeting, June 2013 Luxembourg

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

MNE Rationale for Non-Resident SPE holding IPP
• SPE created for Tax planning purposes
• Double tax agreements
• Withholding tax agreements

US Parent
Cayman Irish registered non-resident- owner of IP
ROYALTIES
Dutch
Company – IP
Sub licences
Irish Resident
Trading Company

Ireland imports Royalties
Royalty Flows
CAYMAN
ISLANDS
NETHERLAND S
IRELAND

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

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

Decision Tree for IPP ECONOMIC Ownership
Is unit member of a MNE group ?
Did the Unit produce the IPP ?
Main activity of the Unit ?
Does the Unit receive income from IPP or pay for the use of IPP ?

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

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

Economic Ownership of IPP in MNE Groups
TFGP 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

Economic Ownership of IPP in MNE Groups
TFGP 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