Bridging the divide: a special report on BEPS and IP (part three)
IP and tax are rarely uttered in the same sentence – but that needs to change, writes Ed Conlon in an opinion piece for part three of this special report.
Today, April 26, is officially World IP Day, which is observed annually to recognise the impact of intellectual property on society. Each instalment carries a different theme, with this year’s being “women and IP: accelerating innovation and creativity”. It’s an undeniably noble aim.
Today is also the day we launch our first special report of 2023 – Bridging the divide: a special report on BEPS and IP. While I’m not suggesting BEPS or tax more generally will lead the World IP Day celebrations anytime soon – or indeed that they are on a par with women and IP – they should certainly be on IP counsel’s minds.
You’d be forgiven for thinking that tax and IP seem like distinct issues, but that’s not the case in reality. There is significant overlap between the two fields, particularly when it comes to IP licensing; taxation of trademarks; transfer pricing (TP) of intangible assets; and patent boxes, to name just a few.
This notion is nothing new, especially in the tax world. Over in IP, the International Trademark Association (INTA), one of the leading IP professional bodies globally, released a report in May 2022 detailing the tax implications within the EU trademark life cycle. It concluded clearly that trademark and tax professionals should foster a more productive and collaborative relationship.
However, despite this intervention and the work of others, the theme of tax and IP and the need for closer cooperation have largely failed to gain traction. I have edited ITR’s sister publication Managing IP for over four years now, and I can tell you that these are not top-of-mind issues for most IP professionals.
That’s not to say, of course, that they shouldn’t be. It’s exactly why we are releasing this special report today – which builds on the work of INTA but targets both tax and IP specialists rather than just brand professionals. It also stretches beyond trademarks in the EU and pays close attention to the global issue of BEPS.
BEPS was launched in 2015 to tackle base erosion and profit shifting. According to the OECD, BEPS practices cost countries between $100 billion and $240 billion in lost revenue annually, which is the equivalent of 4 to 10% of the global corporate tax revenue. These are big numbers.
Using BEPS as its focal point, our special report includes insight from lawyers, advisers and in-house directors and delves deeply into the disconnect between the IP and tax fields. Importantly, it provides some possible solutions and explains why BEPS compliance is important from a business and shareholder point of view.
I’ve been thinking about why there is such a chasm between IP and tax professionals even within innovative companies, where you’d expect there to be well-established processes for working together on key legal and financial issues.
Although the natural answer for some companies might be, “it doesn’t affect us”, we know this doesn’t stand up to scrutiny. Lots of evidence suggests that IP-intensive companies could be exposed in tax authorities’ audits if their BEPS compliance is poor, so there is a real need to bring the two sides closer together.
Another reason might be that many departments in companies all over the world, and of all shapes and sizes, do work in silo. It’s a common business problem. I suspect this naturally affects tax and IP departments, which are simply not talking to each other enough. To some degree, that’s just normal.
Another possible explanation is that tax or TP professionals and IP specialists are very different people with different experiences. The former are likely to have an accounting or financial background; the latter specialise more in the law. Again, you can see how a disconnect arises.
While there may be other reasons at play, none of the above explanations mean IP and tax professionals can’t come together. Granted, it won’t be easy, but it’s not impossible.
What we seek to do in our special report is shine a light on these important business issues, giving expert insight from both sides of the divide. If nothing else, whether you’re a tax or IP director, perhaps it will encourage you to pick up the phone and give your colleague in that mysterious ‘other’ department a call.
You can access part one of the special report here, and part two here.