Choose any type of intangible property and propose a strategy to minimize or eliminate the tax impact of licensing.

licensing of intangible property | Business & Finance homework help

One type of intangible property that can have a significant tax impact when licensed is intellectual property (IP). A strategy to minimize or eliminate the tax impact of licensing IP would involve structuring the agreement so that payments for license fees are treated as deductible operating expenses rather than taxable income. To do this, consider using royalty-free licenses instead of fixed-fee or royalty agreements. Under a royalty-free license agreement, the licensor receives consideration on an ongoing basis in exchange for allowing the licensee to use their IP. This allows companies to deduct all payments made through these arrangements as deductions against current year profits and minimize any related tax liability.

In addition to royalty-free licenses, companies should also look into cost sharing agreements. These allow multiple parties with shared interests in technology development costs to share research and development expenses, resulting in each party’s respective share being taxed at a lower rate compared to if they had attempted such innovation independently. Finally, be aware of any applicable foreign tax credits which may be available depending on the jurisdiction where IP is held and used; if applicable these can be used to offset any taxes due on income earned from licensing activities abroad.