DEMPE is not complicated – It is simply IP substance

For those who cared then, there was a lot of panic when the first drafts of the OECD BEPS (base erosion and profit shifting) action items were circulated.

The Action Plan had implications that were not limited to taxation and economic development. In later drafts it became more evident that intellectual property would receive extensive attention. Action Items 8 to 10 address the aspects of intangible assets with respect to preventing base erosion and profit shifting.

DEMPE, The Elephant In The Room For Multinationals

Background

At the 2012 G20 Summit in Los Cabos, participants raised concerns about multinational corporations (MNCs) using tax avoidance structures to exploit inconsistencies and gaps between different legal systems in order to shift profits to low-tax (or no-tax) jurisdictions. The G20  charged the OECD with the responsibility of coming up with an action plan to avoid Base Erosion and Profit Shifting (BEPS).

The resulting Action Plan was adopted at the 2105 G20 Summit in Antalya.

On June 7th 2017, ministers and officials from 76 countries and jurisdictions signed a multilateral instrument (MLI) that will allow rapid implementation of the BEPS actions into more than 1,100 bilateral tax treaties already in existence among the parties.

The only 3 OECD members to not yet sign are the USA, Brazil and Saudi Arabia.

What does this mean for IP owners?

Because IP accounts for the majority of enterprise value for MNCs, a simple shift in IP ownership can have a large impact in transferring profits (and therefore taxes) to other jurisdictions. The Action Plan paid special attention to the role of IP in base erosion and profit shifting.

The ramifications for IP ownership could be profound.

Multinational Subsidiaries - The Four Bridges

When you are running a multinational subsidiary, you start it, staff it and scale it. Day-to-day activities occupy the bulk of your attention. It is absolutely correct that you should concentrate on this – it is what you were tasked to do.

You can enhance this single-minded focus by addressing the other aspects that are crucial to the long-term sustainable success of your enterprise. I call them “The Four Bridges”.

Why the European Commission Apple decision IS significant for policy and behaviour

In August 2016, the European Commission issued a final decision in its investigation into the way Apple paid tax in Ireland. The sheer scale of the decision was dramatic and made headlines around the world. In the aftermath, analysts said that the ruling was limited to the specific facts around the Apple case and would not apply to other international companies in Ireland.

This may be true, but the reality is that this case is a significant wake-up call. It is an indication of a much larger issue.

Monetising the Internet of Things

A lot has been written about the Internet of Things (IoT) with Gartner predicting that the number of connected devices will grow to 20.8 billion by the year 2020. This figure compares with 2.1 billion smartphone users in 2016 and 3.4 billion internet users. I believe the actual number will far exceed those estimates.

Because of the term "Internet of Things", most of the focus to date has been around the “things” that make up IoT. Clearly there is a huge potential market for suppliers of the devices that are connected, switches, networks, cloud storage, etc.

Aside from that tangible value in hardware, the real potential of the IoT is how the “things” interact. As they exchange information, value is being created in the data. This is a new development. Among lawyers, it is just beginning to open new questions. Historically, the laws around data protection, privacy and ownership assumed that a human was doing something with the data. The laws were designed to regulate how those humans would behave and did not envisage scenarios where humans might not be involved at all.

No, Silicon Valley doesn’t like failure!

I often hear that Silicon Valley celebrates failure. This is a clear oversimplification. What Silicon Valley really likes is success. Huge success! If there are failures along the way, they are accepted as part of the experience.

Yes, I get it. If you always punish failure, nobody is ever going to try something new. Small failures can be a sign that you tried an experiment that didn’t work. 

Innovation is not about Beanbags

In the 1980s, Japan was hailed as an “economic miracle”. There were best-selling books such as Ezra Vogel’s “Japan as Number One: Lessons for America” and SONY President Akio Morita’s “Made in Japan”. American electronic and automobile manufacturers were caught by surprise by the success of Japanese manufacturers.

One thing that became apparent on visits to Japanese factories was that they used impressive manufacturing robots. American manufacturers raced to catch up. They invested in expensive robotics. This was done without looking at any of the less-visible aspects of the Japanese miracle. The investment in robots was an increased expense that did not yield the ultimate competitive benefits in terms of quality or productivity that justified the expense incurred.

I attended a conference in China where one keynote speaker from a large Western multinational corporation described their approach to innovation. We heard about the more than 100 years of history, the thousands of employees and the billions spent on R&D. Then we heard about the big plan for innovation. A team would be given 5 weeks to focus on bringing innovative projects. They would be given beanbags.