Taxing Data Disclosures

D&I Quarterly Q1/2019

Posted on

29 Mar

2019

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D&I Quarterly

Welcome to our newest edition of
D&I Quarterly.

This article is part of a selection of our experts’ articles published during Q1 here at D&I Insight, our platform for insight into all the latest in law and business.

Dittmar & Indrenius > Insight > Taxing Data Disclosures

While intra-group licensing can be seen as business as usual for tax professionals around the globe, the role of data in business models is still often ignored. We at D&I predict that, sooner or later, intra-group data disclosures will become the next big tax trend. Because at the end of the day, what is a duly carried out data disclosure if not a licence to data?

Data business

Data comes in many shapes and sizes: raw data, refined data, personal data, big data, location data, data-as-a-service, financial data, statistics, operational data… It is also an asset you can, from a technical perspective, easily collect, share and duplicate. As a result, regardless of what you call it or how you categorise it, data can be a valuable asset.

Making copies of data, analysing it and sending it to the other side of the world can be done with a few clicks of your mouse. What is more difficult is ensuring that by sharing data with other companies near and far, you do not expose yourself to unwanted risks or dilute the value of your data assets – just to name two possible issues.

In other words, you need an airtight set up.

Data – Just another intangible asset ready to be licensed… and taxed

Authorities are showing a growing interest in the value of intangible assets. While licensing and taxing intellectual property has been the norm for years, data is often treated differently. Why is that?

The point of an IP licensing agreement is to grant a right to use intellectual property that would otherwise belong (exclusively) to the party granting the licence. By centralising its IP assets and then licensing them onwards, group companies are, among others, able to maximise the efficient handling of intellectual property, and minimise the risk of neglect in applying for and maintaining registrations.

The same rules of attaining and maintaining the right to process intellectual property apply to many forms of data, especially personal data. Instead of through registration or creation, the control to data is received through oftentimes-complex regimes of information obligations, compliance procedures and even consent. By carrying out such data protection obligations, companies may receive a limited right to process such data. In IP terms, they can get a licence to use the data. By disclosing the data onwards, companies are actually sublicensing it to third parties.

Data structuring done right

Not all data disclosures are the same in the eyes of taxation. While some disclosures are accompanied by a wide service offering, some include a highly limited right to use data only in its current form and for a limited purpose. Depending on their characteristics, such data disclosures may result in very different allocations of taxation rights. In order to manage a group’s tax exposure, careful structuring of transactions and alignment with business model is required.

At the end of the day, intellectual property, data and other intangible assets should be strategically managed and aligned to maximise their commercial value.

3 business-centric reasons to put your intra-group agreements in order

  1. With or without a written agreement the recipient of data is, in principle, bound to the same rights and obligations as the discloser of the data. Operating without an agreement which sets out, if not the exact rights and obligations then at least the mechanisms for how they are determined, can severely increase the risk of data processing gone wrong. With the current data protection and data security hype, why take the risk?
  2. With the roles of traditional IP and data becoming increasingly intertwined, intra-group agreements provide a basis for recognising transactions for tax purposes and, as such, are fundamental for mitigating the risk of costly tax litigation.
  3. Not only can a sloppy disclosure increase risk levels, it can, in worst cases, limit a company’s ability to do business in the future. This is the case if, when disclosing data from one company to another, you end up forfeiting the discloser’s own rights to the data.

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