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Tax Treatment Of License Agreements

In his petition, Mylan questioned the IRS`s qualification of a transaction. In 2001, Mylan entered into an agreement with a Belgian company to acquire the exclusive right to develop drugs containing a patented compound called Nebivolol (the compound) in the United States and Canada. In 2006, Mylan transferred its connection rights to a third party, Forest Laboratories Inc. Originally, this agreement invited Mylan to remain active in some marketing and development efforts with the group, but in 2008 the agreement was amended because « Mylan made a commercial decision to sell its exclusive license to [the association] to generate cash and improve its capital structure » (Mylan Inc. Tax Court petition, p. 19). Mylan considered this to be a transfer to the core of all the rights of the site. Mylan received a down payment from Forest of $370 million and then staggered payments. Mylan treated the transaction as a sale with the resulting profit, which was crucial and was recognized by the tempes selling method. In addition, under the relevant double taxation agreements, taxes on licensing revenues can be levied either in the licensee`s country or (in whole or in part) in the holder`s country.

In the latter case, the contract sets a tax rate in the licensee`s country and includes a mechanism to avoid double taxation by placing the amount paid in the licensee`s country as part of the licensee`s tax obligations upon presentation of the corresponding documents. In practice, the use of intellectual property cannot be regulated by a paid licensing agreement. In addition, intellectual property sold by a term-paid licensing agreement can be used by the taker without payment of royalties. Tax authorities may, without consideration, characterize these cases as servants of intellectual property, which means that the non-professional income of the company is considered to be the market price of the property rights received, with a corresponding imposition of profits and related fines and penalties. When analyzing a licence versus a sale, all facts and circumstances must be taken into account. S. 1235, often cited as a guide to this finding, was adopted by Congress to encourage individual investors by allowing the patent holder to benefit from long-term capital acquisition treatment, regardless of the holding period or the holder`s professional investor status. To allow the holder to qualify, the section requires the transfer of all essential rights to the patent. Although the section specifically applies to individual subjects, the framework remains applicable to business owners (C.A. Norgren Co., 268 F. Supp.

816 (D. Colo 1967)). But what has not changed with the Tax Reduction and Employment Act is the tax treatment of legal fees.