The MARQUES workshop on "M&As and Restructuring: brand challenges" was packed to the rafters, despite the attractions of a selection of tours of Vienna that were laid on for the delectation of the 800+ registrants at this year's conference. Opening the session, Ben Goodger (Osborne Clarke) summarised a number of key issues that might drive IP owners to rearrange and/or relocate their IP assets, or to dispose of them completely (for example, Nortel's patents being solved to pay the company's debts). Ben also mentioned "corporate inversion", a way of reducing corporation tax liability by incorporating a foreign company to which it can sell its current operations.

A tax inversion deal reviewed by Ben was the deal between Burger King and Canadian cofffee and doughnut chain Tim Hortons to form Restaurant Brands International, which holds the IP of both companies though their IP portfolios are entirely separately managed. RBI is reputedly owned by a Mexican company. But not all deals are driven by tax: some are driven by the need for greater business efficiency, such as the Nokia-Microsoft deal. 

Werner Leiter (Grant Thornton, Vienna) then spoke on the relation of a company's structure to its tax liability. Werner expressed surprise at Ben's comments that M&As were largely tax-driven. Often the tax people are called in only at a late stage, when the tax dimensions of a deal are hard to sort out.  

Most deals are asset deals or share deals; the seller will likely acquire a capital gain, which is taxable. Intangibles often incur a high tax burden. A share deal doesn't affect the IP at all, though there may be tax issues since the seller has not realised the hidden reserves of the IP which now go to the buyer who cannot depreciate them. This being so, a pre- or post-acquisition restructuring is often undergone. When this is done, the buyer has the option of not only restructuring but of relocating the IP in another jurisdiction and the question is asked: is Austria a good place to hold IP? Austria's company tax, at 25%, is lower than the US and some other places, but higher than Ireland, the United Kingdom and the now acceptable principality of Liechtenstein. Within the EU, cross-border mergers are allowed, though tax criteria may determine which country is the seat of the merged company -- since there may be liability to pay an "exit tax" on the transfer of goodwill or other intangible asset (deferral of payment of the exit tax may be deferred in certain circumstances and, in Austria, ceases to be payable after 10 years under the Austrian law on tax limitations).

How can the valuation of the goodwill be achieved? There are many models for valuation, explained Werner, involving for example comparable transactions. The tax authorities generally have not looked too seriously at this issue in the past, but are now taking a closer interest in it. In particular, it is now asked which part of the value is related to the goodwill in the IP, and which part is attributable to other elements such as the goodwill in the selling company itself. All transactions involving IP licensing are also coming increasingly under scrutiny. Licence royalties paid by Austrian companies to licensors abroad will not be tax deductible where the licensor's country does not tax the incoming royalty payments "properly" (ie if they take less than 15%). This makes tax havens and low-tax countries unattractive for royalty-receiving purposes. 

Transfer pricing regulations require that there be proper, transparent documentation. This can cause problems when documentation relating to past transactions is not available and the staff who were responsible for it have moved on. On the plus side, though, amendments to Austria's tax laws still do not apply retrospectively.

Next to speak were Dieuwerke van der Schalk (Legal Manager, Global Brands, Jacobs Douwe Egberts) and Nunzia Varricchio ( DSM). Dieuwerke spoke about the reorganisation and serial divestment of the Sara Lee brand portfolio, while Nunzia put in a plea for people to talk to one another -- especially when outside counsel and in-housers are concerned. Outside counsel get the instructions at a policy level, but in-house counsel know where the IP is and what stage it has reached.  Dialogue between the legal and tax-and-accounting teams can also be improved.  Much gets lost in translation and reluctance to leave paper trails can cause problems too. All sorts of basics got an airing at this session, including a warning that changes of company data pursuant to transactions should be recorded on the register at the earliest opportunity. 

Regarding sufficiency of resources, little attention is paid to making sure there is enough staff to do the work (unless the company hands everything over to an outside law firm -- in which case you have to decide what level of professional and logistical support you are seeking). Enough time has to be set aside too. Multi-jurisdictional transfers of IP require attention to local legal issues too.