The Resource The income tax treatment of an R&D project funded by related parties

The income tax treatment of an R&D project funded by related parties

Label
The income tax treatment of an R&D project funded by related parties
Title
The income tax treatment of an R&D project funded by related parties
Creator
Subject
Language
eng
Summary
Host country reports prepared by practitioners in 12 separate jurisdictions. Facts: H is a business entity formed under the laws of Home Country and considered a "corporation" for purposes of Home Country's income tax law. H has two wholly-owned foreign subsidiaries, F1 and F2 (also considered "corporations" for purposes of that law), which were formed, respectively, under the laws of Foreign Country 1 and Foreign Country 2, two countries that are considered "low-tax" jurisdictions. H holds the worldwide patent rights to technology used to manufacture contact lenses (the "standard technology"), and currently licenses that technology to F1 and F2. Each uses the standard technology to produce contact lenses in its country of incorporation and sells the lenses to distributors in a number of foreign countries. H is interested in developing a "super" technology for manufacturing contact lenses (the "super technology"), which will result in contact lenses far superior to others currently on the market. H is planning to enter into a contractual arrangement with F1 and F2 for the joint development of the super technology (the "joint research and development ('R&D') project"). The costs of the joint R&D project will be shared in proportion to each participant's share of the reasonably expected benefits from the exploitation of the super technology. Once the super technology has been developed, each participant will have certain rights in the technology and will exploit its rights independently of the other participants; thus, each will separately generate its own profits from the exploitation of the technology. The R&D of the joint R&D project will be conducted by employees of H in Home Country in a laboratory owned by H. H will make its standard technology available to the joint R&D project for the purpose of developing the super technology. Questions: 1) How will the joint R&D project be classified under Home Country's income tax law - as some type of generic cost-sharing arrangement (as that term is broadly understood), as a partnership, or in some other way? 2) Under Home Country's law, is the joint R&D project required to be at arm's length (as that term is commonly understood)? If so, how will the arm's length nature of the joint R&D project be evaluated? 3) Suppose: (i) only F1 and F2 entered into the joint R&D project for the development of the super technology; (ii) H made its standard technology available as a non-participant; and (iii) H agreed to provide contract R&D for the project (using its R&D employees and laboratory in Home Country). Again, how will the arm's length nature of the joint R&D project be evaluated under Home Country's income tax law?
Citation source
In: Tax Management International Forum. - London. - Vol. 27 (2006),
http://library.link/vocab/creatorName
Malherbe, J.
Language note
English
http://library.link/vocab/subjectName
  • research and development
  • transfer of technology
  • tax haven
  • patent
  • arm's length principle
Label
The income tax treatment of an R&D project funded by related parties
Instantiates
Publication
Contents
Belgium p. 4-6 ; China p. 7-13 ; Czech Republic p. 13-14 ; Denmark p. 15-17 ; France p. 17-19 ; Germany p. 20-22 ; Italy p. 23-27 ; Netherlands p. 27-31 ; Spain p. 32-37 ; Switzerland p. 38-39 ; United Kingdom p. 41-44 ; United States p. 45-55
Label
The income tax treatment of an R&D project funded by related parties
Publication
Contents
Belgium p. 4-6 ; China p. 7-13 ; Czech Republic p. 13-14 ; Denmark p. 15-17 ; France p. 17-19 ; Germany p. 20-22 ; Italy p. 23-27 ; Netherlands p. 27-31 ; Spain p. 32-37 ; Switzerland p. 38-39 ; United Kingdom p. 41-44 ; United States p. 45-55

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