Virgin considers move to Switzerland for its IP licensing business

The Mail Online reported earlier this week that Sir Richard Branson's Virgin Enterprises, which owns the trade marks and other intellectual property rights to the Virgin brand, is considering relocating to Switzerland. According to a company spokesman,

"Virgin Group has become increasingly focused on the development of the Virgin brand internationally and especially in emerging markets. To reflect this, we are considering moving our licensing entity to Switzerland in the near future to co-ordinate our international growth and brand management". 

This is the sort of thing that every government dreads. Taxation of corporate trade is a vital ingredient of any national budget and it's worth offering a lower rate of tax on the basis that you'll attract more taxpayers into the jurisdiction -- but this in turn invites a race to the bottom as national tax rates are forced to drop in order to retain existing corporate tax-payers. Looks a bit like competition, doesn't it?

India: a follow-up

Just when you thought it couldn’t get more confusing … Following on from the previous post on the Microsoft shrink-wrap case, I came across a Advance Ruling given to GeoQuest Systems BV (a Dutch company) by the Indian authorities in August.

Remember that the Delhi Tax Appeal Tribunal pretty much held that all software payments are royalties, and withholding tax needs to be deducted from payments, even if for shrink-wrap boxed software? Well, the GeoQuest Advance Ruling concludes that a payment for the licensing of special purpose software does not constitute a royalty – so no withholding tax on payments made from India.

The customer was granted an exclusive, but non-transferable, right to use the software and the associated proprietary information. but no rights to modify the source code, make copies or transfer the software to any other person. The software had to be returned at the end of the licence period.

The Advance Ruling confirmed that:

• unless the right to directly exploit copyright in the software (by copying it, amending it or similar) is granted to the payer, the payment should not be considered a royalty under Indian domestic law; and


• a payment for the use of a product that has an embedded copyright is not the same thing as a payment for the use of the copyright.

Now, see, these points make sense. The Advance Ruling makes it clear that income from a supply of software constitutes business profits rather than a royalty, so that no withholding tax should apply. Now, could they just explain this to the Tax Appeal Tribunal?

Taxation of royalties between associated companies: time to give your views

The European Commission has launched a consultation on extending the scope of Council Directive 2003/49 on a common system of taxation applicable to interest and royalty payments between associated companies of different Member States (the Interest and Royalties Directive). According to the Commission:

"The Directive on a common system of taxation applicable to interest and royalty payments between associated companies of different Member States aims at solving double taxation problems linked to cross-border payments. In these cases, the State from which a payment is made (source State) charges a tax on its recipient company. Additionally, the recipient company is subject to tax on the income derived from this same payment in the Member State of its tax residence. The Directive provides for tax exemption in the source State. The exemption also applies when the payment is made from a permanent establishment (i.e. a branch) of the company place in a third Member State or received by such business centre.

The objective of this initiative is to clarify existing legislation while extending its benefits to a wider range of companies by: including other legal forms of companies enjoying the Directive; reducing the threshold to be considered associated company; taking account of indirect shareholdings to compute the total holding; alternatively, extending the exemption to payments between unrelated parties. It will also be proposed to solve a potential technical problem derived from the requirement that the payment be a tax deductible cost for the permanent establishment making it by stating that the directive covers payments linked to the activity performed by such an establishment".

If you want to have your say, you've got until 31 October to tell the Commission what you think.

By the way, Article 2(b) of the Directive defines "royalties" as

"payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work, including cinematograph films and software, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience; payments for the use of, or the right to use, industrial, commercial or scientific equipment shall be regarded as royalties".

The explicit omission of any reference to rights in sound recordings, broadcasts and transmissions and plant varieties rights may itself raise a comment or two.