IP location: ”Apple set up some Irish subsidiaries a mere four years after it was founded. Foreign sales, which account for 60% of Apple’s profits, are routed through these Irish subsidiaries and taxed nowhere. How is this possible, when the intellectual property that supports the value of Apple’s products is in the United States?”

But two paragraphs later the article says: “Beneath the holding company is an Irish principal company … It and another Apple operating affiliate share the foreign rights to Apple’s U.S. based technology.” Well, if the Irish principal company shares the foreign rights to the technology, then at least some of Apple’s IP (the non-US IP) isn’t in the US. “US-based” is just misleading – it might be developed in the US, and some of it might be registered in the US, but companies can have intellectual property registered and owned elsewhere in the world even when it’s developed in the US.

And confirmed by: “Apple’s intellectual property is in the United States, where it was developed.” Just because it might have been developed in the US doesn’t mean that some of the IP can’t be registered and owned elsewhere as well … in fact: ”Apple has an old contract with its Irish principal company and Irish operating company, called a cost-sharing agreement, that … divides Apple’s research and development expenses between U.S. and foreign uses according to sales.” A cost-sharing agreement for R&D will also usually result in co-ownership of the resulting intellectual property – that’s one of the reasons why companies use them. Various subsidiaries contribute to the costs of R&D and share in the resulting IP so that there’s no requirement to enter into licences and deal with intra-group royalty payments later.

Cost-sharing: “IRS regulations no longer permit this division of income without a significant upfront payment to the U.S. parent for use of intellectual property” – not necessarily. Cross-border cost sharing agreements for R&D can still be entered into at relatively low cost where the R&D is undertaken on new projects that will result in future intellectual property, which is shared between those who paid for it and where there is substance outside the US (see, oh, for example, this Forbes article last year). The risk in the R&D looking for that potential IP is shared between the cost sharers; quite a lot of R&D goes nowhere, Apple included. The costs of the R&D are usually shared according to the hoped-for benefits to be derived by the co-owners – rather than having one entity develop and own the IP and then licence it out. Sharing developed and tested and proved intellectual property is expensive, agreed – but that’s because there’s little risk involved to those sharing in it.

And then Ireland: “If Ireland were a legitimate low-tax country, all of Apple’s Irish affiliates would be paying the statutory 12.5% rate on their income.” No, they’d be paying it on their profits.

“Irish law asks where a company is managed and controlled to determine its tax residence. U.S. law asks where the company was organized, that is, where papers creating it were filed.” Ireland does the same as just about every other developed country – this is all about the somewhat ridiculous US position of only looking at the location of incorporation. It’s about the only developed country I’ve come across with quite such a blinkered view of corporate residence: most countries look at the location of central management and control – taxing where the strategic decisions are made. If the US is so short-sighted that it ignores central management and control, then it’s mildly ridiculous to criticise Ireland for attracting business from the US. Frankly, the subsidiaries could have been in almost any European country – the result would be much the same in this aspect.

IP & international tax: There’s a lot of discussion to be had about how intellectual property-based business and the world’s tax systems collide (and a good discussion to be had about creating a tax system for the 21st century rather than the 19th century one we currently have) but could we please start by understanding the systems we have?

There was one ‘direct’ IP announcement – the above the line R&D relief for large companies is increased to 10%, from the originally proposed 9.1%. This doesn’t sound much of an increase, but it’s a large improvement on the 6% that the current large company relief would be worth when the 20% corporate tax rate comes into effect. A blog post on ATL is in the works …

A ‘coming soon’ announcement was also hidden in the Budget documents – the Government plans to introduce consultation on tax reliefs for the visual effects industry. Presumably these will be modelled on the film/quality tv/animation/video games reliefs that we already have, but there’s no detail yet beyond the announcement of consultation.

There were quite a few indirect announcements – things that will benefit IP companies by benefiting companies and sectors in general, including:

- the 20% corporation tax rate: a bonus for large companies, and fairly predictable
- the NICs allowance of £2,000 per business, reducing the costs of employing people
- the extension of the capital gains tax exemption on investment via SEIS: useful for startups looking for funding
- then the grants etc funding, including £1.6bn for Industrial Strategy, part of which will go into a £2.1bn fund for aerospace; a £15m competition for digital content production; and £8m for the Skills Investment Fund, focussed on the digital content sector
- and finally, various initiatives intended to make it easier to raise finance. In theory.