taxing country
iP
$$
for
taxes
$$
for
taxes
iP at the parent
corporation
$$
for
taxes
ongoing
iP rights
Primary taxhaven
iP held at the cfh
$$
for
initial iP
$$
to
maintain
the iP
.
.
$$
for
dividends
iP available for
more new projects
initial
iP transfer
right
to use
the iP
new
iP
Profit share
for parent
available for
more new projects
$
Profit share
for cfh
all untaxed
$
new s
new iP
and
New projects in
semi-taxhavens and
low-cost countries
new profits only
for cfh
?
time
nancial ones, derived from licensing
and royalties for use of the IP, and the
IP itself. Both grow steadily, as outlined in Figure 3 and are now freely
available to initiate and grow projects
in any CFC. The IP in the primary taxhaven is made available by charging
license fees to projects in the semi-taxhavens, providing immediate income
to the CFH. When the projects have
generated products for sale, royalties
on the sales provide further income to
the CFH.
Initially, the income at the CFH is
used to reimburse the parent compa-
ny for the assumed value of the IP that
was transferred, 19 an amount typically
paid over several years. Moving the
IP offshore early in the life of a com-
pany, when there is little documented
IP, increases the leverage of this ap-
proach. The income of the CFH is also
used to pay for ongoing R&D or for the
programmers at the parent company
and in any IP-generating offshore lo-
cation. 28 U.S. taxes must be paid on
such funds as they are repatriated to
the U.S., since they represent taxable
income. The funds not needed to sup-
port R&D (often more than half after
the initial payback) can remain in the
CFH. In each yearly cycle yet more
funds flow to the holding company in
the taxhaven. Additional funds may be
repatriated from a CFH when a coun-
try (such as the U.S.) offers tax amnes-
ties for capital repatriation or when
the parent companies show losses, so
the corporate income tax due can be
offset. 1, 6
