Many different IP-related transactions can have tax implications—from buying and selling businesses to moving assets around within companies. As Chris Huang formerly from Colin Ng and Partners (CNP) explains, the key is not to let tax drive business decisions but to inform them, and avoid unpleasant surprises.
With a degree in finance and experience in PwC’s tax team, Chris Huang is a lawyer strongly focused on commercial realities. Chris routinely advises high net worth individuals and businesses on tax matters, serving corporate clients ranging from start-ups and scale-ups to mid-cap companies (typically turning over $40-100m) and multinationals.
The nature of the legal advice available on tax has changed. It is no longer the case that a good lawyer will simply take instructions: there is much more value to be added. In Chris’s view, legal advice should dovetail with the business strategy. As he puts it:
“The modern lawyer has to be sensitive to how the different disciplines around accountancy, law and business management come together. It is not sufficient to draft the most watertight legal agreement—it has to make commercial sense.”
Chris also emphasises that it is never too early to start thinking about tax planning—even for companies that are at a nascent stage of their development and may have yet to start paying any taxes. This is particularly true for companies that are looking to scale.
“For scale-ups, it is often helpful to consider tax considerations relating to issues like corporate structure and transaction documentation right from the get-go to help optimise business growth and minimise the risk of regulatory compliance issues arising along the way.”
From a tax perspective, Singapore is generally regarded as a favourable jurisdiction in which to do business. Chris highlights three categories of deals where it can be helpful to pay close attention to the interaction between the IP-related aspects of a deal and the relevant tax considerations.
The first category covers merger and acquisition (M&A) deals where companies and/or their assets change hands. It is quite common to see IP assets involved in such deals and there may be certain tax incentives/relief that may be available depending on how these assets are held and transferred. As Chris notes, this is a consideration that is sometimes overlooked when such deals are structured.
The second category concerns joint ventures. As is the case with M&A deals, joint venture deals often involve the transfer of IP assets and similar tax considerations are relevant.
The third category relates to cross-border deals. When IP is transferred or otherwise commercialised between related companies, transfer pricing considerations should be taken into account. This is a process that involves assessing the tax treatment of the payment flow of such deals in the relevant jurisdictions and a failure to do so can give rise to unexpected complications with the tax authorities at home and/or abroad. In this regard, it should be highlighted that domestic transfer pricing policy is significantly influenced by developments in OECD countries relating to Base Erosion and Profit Shifting (BEPS).
Tax is not a specialist area of expertise for many Singapore firms. However, as companies expand, they increasingly come into contact with international companies that are much more ‘tax-savvy’. Chris notes that multinationals from outside the region are taking an increasing interest in technology-based ventures in the region.
“Singapore, along with Hong Kong, is perceived as being a low tax economy. It offers an attractive entry point for multi-nationals, especially those based in the US and Europe, looking to develop a presence in the Asia-Pacific region. The use of the English language, common law tradition and low rate of crime are all factors that increase the attractiveness of dealing in Singapore.”
In terms of the challenges relating to international tax matters, Chris believes that there are 2 key themes to be addressed by international tax regulation. The first is ensuring that countries engage in healthy and sustainable tax competition. The second is balancing such tax competition with the need for harmonisation of domestic tax regulation and fostering cooperative initiatives among the tax authorities of different countries.
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