IP Tax Regimes: A New Tomorrow

Major developments are currently in progress with regards to IP tax regimes as part of the Organisation's for Economic Co-operation and Development (OECD) Action 5 of the Base Erosion and Profit Shifting (BEPS) Action Plan.

In September 2014, OECD published their progress report on "Countering Harmful Tax Practices More Efficiently, Taking into Account Transparency and Substance", setting out the progress made under Action 5. A major part of Action 5 concerns the strengthening of the "substantial activity" requirement used to assess preferential regimes so as to realign taxation profits with substantial activities.

One of the approaches considered in the September report with regards to IP regimes is the nexus approach. Following work within the OECD Forum on Harmful Tax Practices (FHTP), the Modified Nexus approach was developed whereby there should be a "direct nexus" between income, tax benefits and Research and Development (R&D) expenditure. In particular, this