In recent years, a growing number of U.S. corporations have relocated some of their operations abroad, as they were trying to take advantage of the lower marginal tax rate in other nations. After seeing through this strategy, the federal government decided to start looking for ways to stop such companies to make sure that all players in the U.S. economy will pay for their fair share of business taxes.
If you run a company that has branches overseas, then you'll find this article interesting, as it discusses the tax benefits of transferring of individual products abroad.
What is the transferring of individual products?
Rather than moving their headquarters overseas, companies came up with a clever plan consisting of transferring their patents' rights to lower-tax nations. Indeed, by registering the patents under one of their foreign subsidiaries, such firms are able to escape the high tax rate that the IRS would normally assess them.
As you might know, the value of newly-introduced products lies in their patents. This is because patents allow companies to be in a monopolistic position for an extended period of time. During that time frame, the company will reap huge profits by distributing its products at very high prices.
What are the tax benefits for such companies?
As mentioned earlier, the transferring of patents rights enables companies to take advantage of foreign marginal tax rates, which are usually lower than the one in the United States. For example, the Irish tax rate is 12.5%, while the IRS assesses a rate of 35% on all U.S. corporations. This represents a 22.5 point-differential, which is very attractive from the point of view of profitability.
Why is the transferring of patents rights criticized?
Critics argue that all American companies should follow the same rules for fairness purposes. But on the other hand, businesses that relocate overseas deem that the tax savings that are generated allow them to maintain their global competitiveness, especially since they are competing against multinational corporations that are taking advantage of low corporate tax rates.
It's clear that the transferring of individual products will considerably boost your profit margins. This is precisely why you're strongly encouraged to apply this strategy, especially since the federal government will, sooner or later, implement measures to control this practice. If you wish to find out more information about how to effectively transfer individual products abroad, then contact a qualified patent attorney today.
To learn more, contact a company like Hamilton IP Law PC.