To benefit from the Treaty, international groups efficiently manage payments made in consideration for the use of intellectual property through special companies incorporated in a jurisdiction offering favorable tax treatment. Financial companies of the group quite often act in such capacity. They transfer non-exclusive rights to or in trademarks, know-how, patents, manufacturing secrets or software of the operating company which, in turn, recognizes the relevant payments as expenses for profit tax purposes and this is how the tax effect is achieved.

When choosing a jurisdiction for incorporating a company that will exercise a right to use intellectual property, the low rate of local profit tax charged on royalties must be considered.

It is worth noting that offshore companies, including non-resident companies incorporated in the Republic of Cyprus, operating in the offshore mode, while fully exempt from taxes, will not be able to use tax optimization tools under Double Taxation Treaties when it comes to the licensing of intellectual property rights.

However, offshore companies are still widely used in royalty tax optimization mechanisms. Featuring the highest level of asset owner confidentiality, offshore companies normally become the holders of exclusive intellectual property rights. The further successive licensing of non-exclusive rights to business and operating companies through a company incorporated in prestigious jurisdiction benefiting from Double Taxation… results in an optimal model for managing intra-group royalty payments featuring a high level of property protection.