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How to pilot an IP Tax strategy at 360

10 Nov 09:00 by Laurent Pompanon

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The Laurence Simons Search Talking Heads Series continues with an interview with Pascale Farey Da Rin, Partner at Fidal, the largest leading independent business law firm in France.

Pascale has been advising clients on international and French corporate tax matters for more than 20 years, with a particular emphasis on IP Tax, restructuring and reorganisation of listed and non-listed companies based on the local market or abroad.

Pascale discusses the patent box with Laurent Pompanon, Principal Consultant at Laurence Simons Search.

Laurent Pompanon (LP): Pascale, thank you so much for taking the time to talk to us, I know you must be very busy as you have just recently joined Fidal.  Please can you briefly introduce yourself?

Pascale Farey Da Rin (PFDR): I took my first steps as a tax specialist with Fidal Marseille and then continued my career as a lawyer with Andersen Legal. In 2002, I joined Baker & McKenzie where I used my expertise in tax transactions to assist tax audits, restructuring, and taxation of non-profit organisations.

After a two-year stint as a partner at Brunswick, I joined De Gaulle Fleurance as a partner in January 2018. Over the past few years, I have focused specifically on the tax aspects relating to funds and financial tax issues, particularly securitisation.

In addition, I have developed a comprehensive expertise in intellectual property taxation, offering a strategic legal and tax approach in conjunction with the so-called CIR (Research Tax Credit), transfer pricing and M&A practices.

LP:  Thank you Pascale. I know one of your areas of expertise is the patent box. Can you please explain to the non-tax specialists among us what the patent box is and how you developed that practice?

PFDR: The tax regime for certain intangibles were overhauled by the 2019 Finance Act.  After 50 years of status quo, it has now become essential to support all companies / groups carrying, developing, managing or wishing to acquire intellectual property, (falling within the scope of the new regime), as well as those with a patent portfolio.

This approach aims to ensure all companies are compliant with the new regime, and also to carry out upstream legal and tax arbitrations in order to judiciously and strategically select the assets, lines of assets or families of assets that are eligible for the new regime, and for which it is relevant to opt for this new tax regime. 

We must particularly take into account the location of the research and development expenses that contribute to the emergence of the eligible asset, and the quality of the company that carried out the said expenses (related company or third party).

The favourable tax rate of 10% resulting from the new tax regime is directly correlated to research and development expenses and, according to certain criteria relating to research and development expenses, this may get worse.  These choices will result in a tax policy for the management of eligible intangibles that will necessarily have to be combined with the options retained in terms of RTC and transfer pricing to avoid possible negative interactions. This 360° approach aims not only to streamline the management of intangibles, but also to generate tax savings and therefore pockets of cash.

LP: How will that practice fit in Fidal’s range of services and which opportunities of cross-fertilisation can you anticipate?

PFDR: This expertise is an integral part of the general policy for the management and development of intangibles. It must be combined with other areas of expertise, in particular transfer pricing and RTC, in order to opt for the best legal and tax strategy to implement a harmonious, relevant and compliant policy, creating significant tax savings and, consequently, cash flow. The synergies with the transfer pricing and RTC teams are therefore obvious.

LP:  Which clients and industries can be interested in that practice and what benefits can they draw from adopting an IP tax strategy?

PFDR: The target audience is actually very broad: any company/group carrying, developing, managing, or wishing to acquire eligible assets. This includes, for example, software publishers, the cosmetology and pharmacology sectors, plus any company spending on research and development contributing to the production of an eligible asset. 

LP: You mentioned external growth and M&A, please can you tell us more on the impact of patent box on those transactions?

PFDR: This approach can, and ideally should be, deployed in the context of external growth operations in the broadest sense: the question of the opportunity to integrate/acquire a target or only a family of assets or an asset isolated from the target arises acutely in order to maintain a harmonious and optimal portfolio management policy.  

LP: Is there a different angle from which to implement a patent box in different countries? How are you tackling the international aspects of this?

PFDR: The international dimension is inherent to the new tax system since the Nexus approach is based on Action 5 of the BEPS (Base Erosion & Profit Shifting) program deployed by the OECD since 2012.  This is intended to put an end to tax practices/legislation that have very harmful consequences for national tax bases. The OECD has therefore invited all member states to get on board.

This has resulted in a regime linking the favourable tax rate of eligible assets to the place of realisation of the research and development expenses that contributed to the emergence of those assets and to the nature of the entity that incurred the research and development expenses (related entity or third party). The resulting international flows will have to be viewed from the perspective of an approach combining at least the Nexus/RTC/Transfer Pricing logic.

LP: Thank you. And finally, are there any recent or future developments relating to IP tax that we should be aware of?

PFDR: The IP/IT world is not immune to the movement to penalise tax law. The Finance Act for 2020 has, for example, instituted VAT solidarity for operators of e-commerce platforms if they host operators who do not meet the VAT requirements.

The same finance law also introduced reputational sanctions (Name & Shame) by publishing a list of so-called non-cooperative platforms, (such as non-cooperative states), on the tax authorities' website, i.e. those that do not meet their tax obligations on national territory. In short, this penal dimension must also be integrated into any approach aimed at implementing a legal and tax strategy in relation to eligible intangibles.     

LP: Thank you Pascale for your time, insight, and knowledge.