Intellectual property is not just an important asset for the running of companies, but it actually can help in catapulting the profits of companies. Multinational corporations use intellectual property to avoid taxes on massive scale, by transferring their intellectual property to tax havens for artificially low prices.
IP-based Tax Avoidance
A company typically does this by incorporating an offshore affiliate company and then transferring the title for the intellectual property to this offshore entity. The company will then sub-license this piece of IP for use in other jurisdictions in which it operates. The company will receive franchise fees and royalty payments from the branches of its operations in other jurisdictions that are sub-licensed to use the IP, and for the fact that this income accumulates in a low tax jurisdiction, the company is able to increase its profits.
