What is an Intellectual Property business?
Intellectual Property Business: a business which holds, exploits, or receives income from the Intellectual Property Asset(s).
Intellectual Property Asset: any intellectual property right in intangible assets, including but not limited to copyright, patents, trademarks, brand, and technical know-how, from which identifiable income accrues to the business (such income being separately identifiable from any income generated from any tangible asset in which the right subsists).
Who is a High-Risk IP?
High-Risk IP Licensee is a Licensee which carries on an Intellectual Property Business and in respect of which any of the following two conditions apply:
(a) the Licensee–
i. did not create the intellectual property in an intellectual property asset which it holds for the purposes of its business.
ii. acquired the intellectual property asset either from-
(a) a Connected Person.
(b) in consideration for funding research and development by another person situated in a country other than thin e State.
iii. licenses the intellectual property asset to one or more Connected Persons or otherwise generates income from the asset in consequence of activities performed by Foreign Connected Persons.
(b) the Licensee does not carry out research and development, or branding, marketing and distribution as part of its State Core Income-Generating Activity.
Applicability of Economic Substance Test Regulation
Intellectual Property Businesses as licensed in the State, including Intellectual Property Businesses licensed in a Free Zone or a Financial Free Zone.
Core Income-Generating Activities in respect of Intellectual Property Business
(a) where the Intellectual Property Asset is a –
i. patent or an asset that is similar to a patent, research and development.
ii. non-trade intangible (including a trademark), branding, marketing and distribution.
(b) if the Relevant Activity is conducted by a Licensee that is regarded as a High-Risk IP Licensee, the State Core Income Generating Activity must include any of the following additional activities:
i. taking strategic decisions and managing (as well as bearing) the principal risks related to development and subsequent exploitation of the intangible asset generating income.
ii. taking the strategic decisions and managing (as well as bearing) the principal risks relating to acquisition by third parties and subsequent exploitation and protection of the intangible asset.
iii. carrying on the ancillary trading activities through which the intangible assets are exploited leading to the generation of income from third parties.
Assessment by the Authority
1. The Regulatory Authority may make a assessment that a Licensee has not met the Economic Substance Test during any Financial Year of the Licensee.
2. No assessment will be done six (6) years after the end of the Financial Year to which the determination relates.
3. In relation to a High-Risk IP Licensee, the Regulatory Authority must determine that the Economic Substance Test is not met during a Financial Year unless the Licensee provides sufficient information to satisfy the Regulatory Authority that the Test is met.
Additional Information to be reported
In the case of a Licensee that is carrying on a high-risk intellectual property business the following additional information must be provided:
i. Information demonstrating that the Licensee does and historically has exercised a high degree of control over the development, exploitation, maintenance, enhancement and protection of the intellectual property asset by an adequate number of full-time employees, with the necessary qualifications, who permanently reside and perform their activities in the State.
ii. business plan showing the reasons for holding the ownership in the Intellectual Property Asset in the State.
iii. employee information, including level of experience, type of contracts, qualifications and duration of employment with the Licensee.
iv. evidence that decision making is taking place within the State.
In respect of a High-Risk IP Licensee, regardless of whether or not the Regulatory Authority has made a determination, the Regulatory Authority must provide to the Competent Authority the information provided to the Regulatory Authority by the Licensee as per the Regulation for each Financial Year of the Licensee. The Competent Authority shall, pursuant to an international agreement, treaty or similar international arrangement to which the State is a party, provide any information received to –
(a) the Foreign Competent Authority of the country or territory in which resides the parent company, the ultimate parent company, and the Ultimate Beneficial Owner of such Licensee.
(b) if the High-Risk IP company is incorporated outside the State, the Foreign Competent Authority of the country or territory in which the company is incorporated.
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