Positioning intellectual property
IE rights are often owned by the company that actually uses and exploits them (operating company). This is often due to the fact that the IP rights have been created by employees of the company, and therefore, based on the law, belong to the company.
Positioning IP rights in an operating company carries the necessary risks. For example, any creditors of the company can recover their claim by seizing the IP rights of the operating company because the IP rights are part of the assets of the operating company. Furthermore, the company - especially its shareholders - may lose control of the IP rights in the event the company is declared bankrupt or goes into receivership. In that case, the IP rights fall into the bankruptcy estate and the trustee can sell the IP rights to a third party. Placing IP rights in a separate company can also be useful for reasons other than "protecting" the IP rights: It gives shareholders the choice of whether or not to retain the IP company (and thus the IP rights) in the event of a sale of the operating company.
To avoid these vulnerabilities and keep a grip on the - often valuable - IP rights, many companies choose to position their IP rights in a separate legal entity. This is often arranged by transferring the IP rights to a holding company or to an IP company set up specifically for that purpose. Another option is to split off IP rights to a new IP company within the group. This IP company then grants a license (right of use) to the operating company, with or without the right to grant sub-licenses. It is important to determine the best way to separate the IP rights from the operating company based on the facts and circumstances of the case.
Points on transferring intellectual property rights
The manner in which IP rights are transferred can have legal and tax implications. In this blog, we discuss the legal and tax consequences of transfer of IP rights within a group. The legal and tax consequences of the separation of IP rights will be discussed in a separate blog (part 2).
Judicial points of interest transfer
.The transfer of IP rights must meet a number of requirements under the law. For example, Section 3:84 of the Civil Code requires a valid title, a delivery act and disposition of the transferor.
Delivery act
.The transfer must, pursuant to the applicable regulations, be effected by deed (cf. Article 2 of the Copyright Act, Article 65 of the ROW, 2.31 paragraph 2 of the BVIE and 3:95 of the Civil Code). For this it is sufficient that the parties conclude a written agreement in which the transfer is agreed upon. A notarial deed is not required.
When it comes to registration IP rights, such as trademark rights and patent rights, it is important that the transfer is registered the relevant register. The registration is not a constitutive requirement for the transfer. This means that the transfer takes place at the time of signing the transfer agreement. However, the registration is necessary for the third-party effect of the transfer. As a rule, this means that the transfer can only be invoked against third parties after the transfer has been entered into the register (cf. Section 65(3) ROW).
Valid title
.The IP rights can be transferred by title of purchase, among other things. This must involve the transfer for monetary consideration. The title must be clear from the deed. If the parties have not agreed on a fee, this can have undesirable consequences:
It is advisable to agree on a real consideration for the transfer. Failure to agree on a fair consideration may have adverse tax consequences for corporate income tax, dividend tax and/or gift tax. It can also have civil-legal consequences if the transfer has taken place for no consideration or for a (too) low consideration and the transferring party is declared bankrupt after the transfer. In that case, a trustee in bankruptcy may claim that the transfer has disadvantaged creditors of the company and that the transfer is therefore "paulianus". Under circumstances, this may result in the transfer being overturned by a trustee.
Bankruptcy
To effect a transfer, the transferor must have dispositive power. In other words, the transferring party does need to own the IP rights and have the power to transfer them.
If third parties have been engaged for the development of - for example - software, then the copyrights to this software in principle rest with this third party (unless otherwise agreed in writing). In that case, the commissioning company does not claim the IP rights but only acquires user rights and cannot transfer ownership of the IP rights in that case.
Transfer of future IP rights
The advantage of a transfer of IP rights is that also future IP rights in respect of yet-to-be-developed products and services of the operating company, can be transferred to the holding company or an IP company within the group (unlike in the case of a split-off of IP rights). This means that one deed is sufficient for the transfer and no additional agreements are required for the transfer of future IP rights.
Fiscal points of interest transfer
Corporate tax
If a Dutch company (this blog assumes a limited liability company, a B.V.) transfers IP rights by way of purchase to another group company, it will in principle realize taxable profits for corporate income tax purposes to the extent that the fair value of the IP rights exceeds their fiscal book value. Because production costs of intangible assets (including IP rights) can be amortized in one lump sum in the calendar year of production, the book value for tax purposes will usually be low.
To limit the imposition of corporate income tax on the transferring company (the operating company), there are a number of options. The most appropriate route depends on the facts and circumstances of the case. We elaborate on a number of options for limiting corporate income tax liability.
Deductible losses
.If the transferring company has carry-forward losses, the taxable gain arising on the transfer of the IP rights can potentially be offset against the carry-forward losses present, reducing the taxable gain.
Re-investment reserve
The profit gained on the transfer can be allocated to a reinvestment reserve. However, this requires that at the time of disposal there is a (plausible) intention to invest the reserved profit within the reinvestment period (the year of transfer and the three following years) in an asset with the same economic function. If this reinvestment does not take place, the reserve will still be released taxed. Due to the reinvestment intention and the "reinvestment obligation," forming a reinvestment reserve will often offer little relief.
Fiscal unity
When IP rights are transferred within a fiscal unity for corporate income tax purposes, this does not normally result in corporate income tax being levied because the fiscal unity is considered a single taxpayer. If the transferring company (operating company) or the acquiring company (holding or IP company) is 'disentangled' from the fiscal unity within a period of six years after the IP rights have been transferred (e.g. upon a sale of the shares in one of these companies to a third party), taxable profit for corporate income tax purposes will normally still be realized. A fiscal unity can therefore provide solace, if a demerger within the six-year period is not an issue.
Innovation box
.If there are self-generated intangible assets that have been generated from activities for which an S&O statement has been obtained (and, for larger taxpayers, there is also an additional legal access ticket such as a patent or software), the innovation box can be applied to those intangible assets in many cases. Profits from the intangible assets (including sales profits) are then taxed at a lower effective rate (9% in 2024). More important in this context, however, is often the ability to (continue to) apply the innovation box to benefits obtained from the exploitation of the intangible assets after the transfer. The granting of exclusive licenses or use of the fiscal unity can help here.
VAT
.The transfer of IP rights is basically taxed with VAT. When the company acquiring the IP rights performs VAT-taxed activities, this VAT is deductible. The granting of a license is such a VAT-taxed activity. As a result of the VAT-taxed transfer of the IP right, all VAT on costs incurred to arrive at the IP right also remains deductible.
Also for the levy of VAT, if there is a transfer of the IP right within a fiscal unity, levy of VAT is not an issue. The transfer also does not affect any right to deduct VAT on (production) costs.
Whether the transfer of IP rights can qualify as the transfer of a totality of goods must be assessed per transfer. Often, this will require more than just the transfer of the right itself.
Conclusion
The legal and tax consequences described above will have to be taken into account when transferring IP rights within a group. It will have to be assessed on a case-by-case basis whether the IP rights are being transferred correctly from a legal point of view and what the tax consequences of that transfer are.
