Matrix Company, Spain - Tax Planning

TAX PLANNING: ASSIGNMENT

1.- “Matrix” company is resident in Spain. Matrix is the owner 100% share capital of the following companies:

        - “Eurosud”, resident in Spain

- “Berlin”, resident in Germany

- “Beach Island” located in a Tax Haven

They are all related companies.

They are supplying services for technologic development. Matrix owes a patent to do so. Matrix allows the other three companies (Eurosud, Berlin and Beach Island)  to use this patent paying a price for it.

They are thinking about new structures in the international market, so they want to know tax consequences for some of these changes.

1.- They are about to create a new patent. Any idea for patent location in order to reduce tax liability for the group? Will the patent and group operation affected by any rule to eliminate this tax reduction?

According to European Patent Office patent applications data analysis, that the patent applicant and the inventor are located in di↵erent countries in a non-negligible number of cases (around 8% of the granted patent applications).

Multinational tax avoidance strategies through the relocation of patent income to low-tax countries. Moreover, the determinants of the decision to geographically split patent ownership from the R&D location and also that high patent income tax rates in the inventor country increase the probability of relocating patent ownership to a foreign economy. Low patent income taxes are comparably instruments in attracting ownership of foreign-invented patents. Furthermore, patent location decisions tend to become more sensitive to tax considerations the higher the expected earnings potential of the patent.

2.- They are thinking about the creation of a holding company. This holding company would supply some administrative services to the other companies in the Group. Any idea for the location of the holding company to reduce tax burden? How will tax pricing regulations affect the group operations in this case?

Firstly they need to Assess the location of a group of companies in the jurisdiction that offers a better taxation for the global operation of the structure, specially avoiding unnecessary tax charges, for instance, for intragroup operations. In their desire to obtain the maximum amount of investment in their territory, it is usual for States to create favourable tax systems for holdings and other forms of groups of companies.They need to seek best places such low-tax or tax haven states to choose establishment of holding company. On the other hand transfer pricing regulation of selected country’s is also important to choose location, it should  be carrying benefit or low-cost strategy for foreign companies.