Cross-border licensing of intangible property: tax and legal issues in the life sciences sectors

Bloomberg BNA Life Sciences Law & Industry Report

Bloomberg BNA Life Sciences Law & Industry Report
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Michael W. Hardgrove and Marisa P. Kaley write for Bloomberg BNA Life Sciences Law & Industry Report.

Success in the life sciences industry can depend on a company's ability to share knowledge and collaborate with strategic partners while simultaneously protecting from its competitors the valuable information on which its business is based. This valuable information consists of intangible property in its many forms, all of which have substantial value independent of the services of any individual.According to the US Department of the Treasury (the "Treasury"), intangible property includes patents, inventions, formulae, processes, designs, patterns, know-how, copyrights, trademarks, franchises, licenses, methods, systems, procedures, studies, forecasts, estimates, customer lists, and technical data, among others. 

As a business seeks to expand its research and development, manufacturing, or sales operations beyond the shores of the United States, it may choose to take advantage of the operational and tax efficiencies that can be achieved through licensing its intangible property to its overseas affiliates in exchange for a royalty. Because the United States has a worldwide system of taxation as opposed to a territorial one, without proper planning a U.S. business that transfers technology overseas will find itself paying U.S. tax on the revenue its expansion activities have generated abroad. Fortunately, granting a license to use intangible property in exchange for a royalty can help a business minimize its effective tax rate in the United States while promoting international growth of the business.

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Reproduced with permission from Life Sciences Law & Industry Report, 10 LSLR 24, 12/09/2016. Copyright 2016 by The Bureau of National Affairs, Inc.

1See Treas. Reg. § 1.482-4(b).