Tax Planning for “Inbound” Licensing of Intellectual Property

Resident and LOB Provisions
• A foreign person generally will be considered a resident for treaty
purposes if such person is "liable to tax therein by reason of its
domicile, residence, citizenship, place of management, place of
incorporation, or any other criterion of a similar nature.”
• Under most "modern" income tax treaties, a corporate resident of a
treaty country can satisfy the LOB provision if, among other things,
(1) on at least half the days of the tax year at least 50% of each
class of shares in the corporation is owned, directly or indirectly, by
residents of the jurisdiction where the corporation is formed (the
"ownership test"), and (2) not more than 50% of the gross income of
the foreign corporation is paid or accrued, in the form of deductible
payments, to persons who are residents of the U.S. or residents of
the jurisdiction where the corporation is formed (the "base erosion"
test).
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