IP strategies are sometimes tax-motivated

In 2013, Uber grew from a $330 million company to a worth of $3.5 billion due to venture capital investments. However, before pursuing the additional funding, Uber’s co-founder decided to do some tax-planning. According to Fortune, the ridesharing company created a new business in the Netherlands known as Uber International C.V., which essentially moved the company’s intellectual property overseas.

U.S.-based Uber then created an agreement to split profits in half. Thus, when venture capitals sped up Uber’s growth process, it could legally avoid paying taxes on almost all of its non-U.S. rideshare income. Fortune reports that Google and Facebook employed similar strategies for similar reasons. In fact, American companies often find it easier to move their IPs overseas than relocating a physical subsidiary. For tech companies, where so much of their core business takes place online, there is hardly ever a need to attempt a physical move.

Since then, Uber has opened several other subsidiaries in the Netherlands, including Uber B.V. In fact, there are reportedly 10 Netherland subsidiaries now, some of which have no employees. When an Uber driver accepts a ride outside of America, the cab fare allegedly goes straight to Uber B.V., which retains 20% as revenue and remits 80% to the driver. Uber C.V. and Uber B.V. then have an IP license agreement, which compels Uber B.V. to pay royalty fees for use of IP to Uber International C.V.

It is not clear how much longer the Netherlands will remain a tax haven for multinational tech corporations. A New York Times article from 2018 suggests that the Netherlands does not wish to be seen as a tax haven anymore. Proposals have been made that could disrupt this, including taxing MNC profits. In addition to this, new laws passed in America make it difficult for more companies to follow this IP-tax-planning method in the future.

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