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BEPS Action Plan

The impact of the Base Erosion and Profit Shifting (BEPS) action plan is already being considered by those looking to structure arrangements for the cross-border licensing of Intellectual Property (IP).

The modified nexus approach considered by the Organisation of Economic Cooperation and Development (OECD) Forum on Harmful Tax Practices (FHTP) under Action 5 of BEPS and supported by the EU, will allow benefits to be granted only where there is substantial economic activity undertaken in a jurisdiction in which a preferential IP regime exists.

Although a clear definition of qualifying expenditure and assets, and their relative treatment, has yet to be provided by the FHTP, jurisdictions such as Spain and Italy, have already announced changes to their current patent box provisions.

Under the Action 5 approach, which will enter into force as from 1 July 2016, the advantages currently enjoyed under leading IP regimes, such as those in the UK and Cyprus, will become limited. It is therefore recommended that Groups transferring IP into any patent box regime, should consider taking advice on the impact of the early closure of such regimes.

Interestingly, the current guidelines provide for ‘grandfathering' which will allow time for transition to a new regime, meaning that a taxpayer will be able to retain the benefits of an existing regime for another five years.

Additionally, ‘new entrants' to a current regime (i.e. new taxpayers not benefiting from a regime and new IP assets owned by taxpayers already benefiting from a regime) must enter an existing regime no later than 30 June 2016 and, subject to enhanced transparency and anti-avoidance measures, will be able to benefit from its current provisions until its eventual abolition on 30 June 2021.

If structured correctly and in a timely fashion, the current Cyprus patent box regime will continue to offer many benefits…….



If structured correctly and in a timely fashion, the current Cyprus patent box regime will continue to offer many benefits, which include:

  • An 80% exemption on royalty income and capital gains upon disposal of IP
  • Gross IP income reduced by expenses incurred for the production of IP income
  • Wide range of qualifying IP rights
  • Effective tax rate of 2.5% or less
  • Benefits of EU Directives/membership
  • A large DTA network
  • IP Protection due to Cyprus being signatory to various conventions including the Madrid Protocol

The information provided in this publication are put forward for further consideration only and are not intended to be acted upon without independent professional advice. Neither Jordans Trust Company Limited nor its associated group companies , nor any employees or directors of these companies can accept any responsibility or liability for any loss occasioned to any person no matter howsoever caused or arising as a result of or in consequence of action taken or not taken in reliance on the contents of this publication.


Richard Melton

Richard Melton

Managing Director
T: + 357 22 767294


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