Intellectual property and royalties

The importance of intellectual property (IP) is well recognised. A branded product or service will command a premium in the market place. In order to take full advantage of their lP, companies as diverse as Ford, Coca-Cola, Prontaprint and McDonalds use licensing and franchising as part of their business strategies.

The last thirty years or so have seen the growth of the “business format franchise”, an arrangement under which a person (the franchisee) carries on a business using a trade name and methods developed by another (the franchisor).

For the franchisor it allows a rapid expansion in the network of outlets, giving economies of scale and the opportunity to outflank competitors. For the franchisee the risks of failure are considerably reduced.

Licensing and franchising is increasingly carried out on an international scale. The tax issues raised by this include:

•  the deductibility of payments under the license/franchise,
• the taxation of those payments in the recipients hands,
• the valuation of intangibles transferred to related parties outside Malta.

We at Grant Thornton have extensive experience in dealing with these issues and in minimising the tax liabilities as outlined in our regular information updates. For further information on such solutions please do not hesitate to contact us.