Rethinking the Nature of Incorporeal Properties in International Taxation – A Theory of Removable and Non-Removable Incorporeal Properties

Abstract

Globalization of trade and easy movement of money and people across borders, along with the growth of e-commerce, have created an environment where international tax avoidance (“ICTA”) and aggressive tax planning are becoming increasingly important. Over half of world trade passes through tax havens, and over 60% of international trade occurs within MNEs, making ICTA a significant source of revenue loss for governments. ICTA results from misuse of domestic and international laws to separate the earning of revenue from the liability to taxation. By abusing inconsistencies between domestic and international tax rules, MNEs are able to earn large revenues in a country without being liable to full taxation on those revenues. This is achieved by shifting income out of, and expenses into, a country. This artificial movement of money across borders can result in cases where income is earned and not taxed at all in any country.

One common method of shifting income from one jurisdiction to another is through the use of incorporeal properties such as the domestic-statutorily created and protected intellectual property rights such as patents, the mixed statutory-common-law protected intellectual property rights such as copyrights and trademarks, and contractually created and protected intellectual property rights such as trade-secret. This paper attempts to draw a meaningful distinction, at least for international taxation purposes, as between these three categories of incorporeal properties by reference to current Canadian non-resident tax treatment of Taxable Canadian Property.

Keywords: International taxation, Base Erosion and Profit Shifting, International Corporate Tax Avoidance, Multinational Enterprises, tax justice, Tax Fariness, Tax jurisdiciton, Intellectual Property, Incorporeal Property