International direct taxation issues concerning the exploitation of intellectual property rights, with particular reference to Malta

Abstract

Human innovation and creativity are of central importance in today’s global economy, which is increasingly becoming knowledge-driven. The concept of ‘intellectual property’ (IP) has therefore become a key consideration in the day-to-day running of a business since many products or services embody different types of IP. Given the importance of IP, legislators and tax practitioners around the world constantly develop taxation strategies and incentives in order attract owners of IP who wish to maximise the value of a these assets. Furthermore, multinational companies, which may be subject to tax in numerous jurisdictions, are always looking for taxation systems that offer incentives and other form of taxation benefits – all within the realms of the law. International efficient tax planning, if handled properly, will ultimately lead to a company becoming increasingly competitive in the global market place and will benefit the final customer simultaneously. The latter is the case since high taxes translate into higher prices of products/services, which are ultimately borne by the working family. Malta comes into play in this respect since the county’s favourable tax system and its extensive double taxation treaty network means that, with proper planning and structuring, investors can achieve considerable fiscal efficiency using Malta as a base. As a financial services practitioner by profession, I have on various occasions come across Maltese IP structures, beneficially owned by non-residents, which have been set up to hold and deal in IP rights. The structuring and tax treatment of such IP rights interested me to the extent that I was encouraged to study the subject and write my M.A. (Financial Services) dissertation on this topic. Whilst carrying out research at the University of Malta and the Institute of Advanced Legal Studies in London, I have come across articles on foreign IP structures dealing with image rights belonging to internationally renowned stars. At times, such articles also discussed why such IP companies were considered to be a ‘sham’ by the courts of the relevant jurisdictions. Keeping this in mind, the objective of this dissertation is to propose a tax efficient, ‘water-tight’ structure that protects the interests of the IP owners.