Pitfalls to avoid when planning to onshore Intellectual Property in Ireland

In order to comply with the OECD’s Base Erosion and Profit Shifting Project (BEPS) and European Union directives, many multinationals are evaluating onshoring their non-US IP away from tax structures or jurisdictions which represent tax risk or reputational challenges.

The adoption of specific transfer pricing aspects of the BEPS project is putting pressure on the ability to maintain large IP profits in low people substance jurisdictions. According to the NTMA, it is estimated that IPs worth circa €300bn were onshored in Ireland in 2015.

Life Science companies that onshore IP in Ireland benefit from:

• the existing presence of many of the world’s top Life Sciences companies
• geopolitical advantage
• strong national and international IP laws
• a supportive business environment for R&D – Ireland was the first country to introduce a fully compliant Knowledge Development Box
• competitive tax rates

However, reorganising and restructuring IP ownership also requires detailed project planning.

Based on our experience of valuing and reviewing the valuation work of IPs collectively worth over $500bn, we suggest companies consider the following when project planning:

Engage a valuation specialists at the planning stage

We frequently see valuation specialists engaged at a later stage of the IP transfer when companies have to fair value IP for tax purposes, and we believe engaging one at the planning stage will help address questions in a timely manner, such as:

• The unit of account (whether the transferred IP is a single bundle of various IPs to be valued separately)
• Key methodological questions
• How consistent or different the current IP is compared to previous IP transactions, and whether it would have any implications for the valuation methodology
• How consistent or different might the methodology and valuation of the same IP valued for other purposes such as the US transfer pricing be

Assess the accounting implication at the onset

The focus of the IP valuation exercise is to comply with Irish accounting and tax laws. Therefore, we suggest contemplating the accounting implication of the IP valuation and the Remaining Useful Life (RUL) assumptions at the onset. We typically work closely with our financial advisory, legal advisory, and tax teams to develop an integrated plan for the treatment, valuation, structuring and recognition of the asset.

Plan annual impairment assessment well in advance

Though the work relating to the initial IP onshoring is significant, the forecasts and valuation workings should be considered in the context of potential impairment tests over the life of the asset. Management teams should plan for the impairment assessment in advance, particularly for indefinite life IPs.

Conclusion

Our experience suggests that addressing these points sooner rather than later helps avoid inefficiencies and an impact on project timelines.

A key element of our approach is to treat the IP onshoring as a comprehensive project, and offer Tax, Legal, Financial Accounting and Valuation Advisory services together – which, based on our experience, generates efficiencies.