Exploitation of Intangible Property Rights Abroad: The Tax Incentives to Licensing under FDII
By Anthony Diosdi A U.S. corporation’s lease or licensing of property and license of intellectual property to non-U.S. customers may be subject to U.S. federal tax at a rate of only 13.125 percent. This reduced tax rate can apply to cross-border licenses of software, apps, streaming of audio or video, and proprietary knowhow that is essentially secret or confidential information not known to the public. This article explains the general framework for the Foreign Derived Intangible Income (“FDII”) deductions available to U.S. corporations that license intellectual property to non-U.S. entities or persons and foreign tax considerations associated with cross-border licensing agreements. Tax Incentives to Cross-Border Licensing Tax considerations often create major incentives for licensing of intangible rights to unaffiliated and foreign affiliates controlled by the licensor as a result of…