Companies engaged in intellectual property (IP) and/or research and development (R&D) activities should make the most of  attractive tax rules in many EU jurisdictions. But, with no one-size-fits-all tax solution, they should choose the right location and assess the fiscal advantages with great care, according to a report by Nexia International, a global network of accounting, tax and consulting firms.

Rajesh Sharma, chairman of the Nexia International tax committee, says: “Despite falling tax revenues, a number of European jurisdictions continue to maintain favourable tax rules for IP and/or R&D businesses, as they endeavour to attract and retain investment in their countries. These rules provide tax-efficient treatment of either the corporation  or the staff. In some countries, both are eligible for local tax relief.

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“When deciding how best to manage IP, every case is different and  needs to be analysed on its own merits and based on the underlying business circumstances,” he says. “It may be preferable to locate all the IP within a  group to a single company and then license the relevant IP to group companies. This ensures the group’s resources are managed effectively from a legal, fiscal and administrative point of view.”

The global tax implications also need  to be considered, along with issues such as controlled foreign company  regulations in the country of the group’s headquarters and any indirect tax rules that might apply and have an impact on the overall effective tax rate.

Nexia International’s “Intellectual property and R&D – a guide to European tax regimes” report identifies the attributes of an ideal IP location, which include: a low-tax, economically and politically stable jurisdiction in which the IP or the master licences can be centralised; access to double taxation treaties; the absence of or reduced withholding taxes on IP payments to the IP company; the tax-free repatriation of profits from the IP company to shareholders; the ability to deduct the royalty and licence fees in the operating countries; a secure legal infrastructure to protect the IP and to deal with potential disputes and litigation; and the availability of  the local workforce to deal with the day-to-day running of the IP company.

The report focuses on the tax rules relating to IP and R&D in Belgium, France, Ireland, Luxembourg, Malta, the Netherlands, Spain, Switzerland and the UK.