We own the patent, why is another country taxing the income?
Because legal ownership answers a property question, not a tax one. Entitlement to an intangible's return follows the functions performed in relation to it: who develops and enhances it, who maintains and protects it, who exploits it, and, the part most often overlooked, who controls the risks in those activities and has the means to bear them. A company that holds the title but performs none of this is treated as having funded an asset rather than created it, and is remunerated on that footing. The registration certificate is the starting document, not the conclusion.
Does funding the research entitle us to the profit from it?
Funding is a real contribution and earns a real return, but not automatically the residual profit. The question asked is what the funder actually does: whether it decides which projects proceed, whether it can stop them, whether it evaluates the outcomes, and whether it has the capacity to absorb the loss if the work leads nowhere. A funder exercising those judgements is bearing development risk. One that settles invoices as they arise, with the decisions taken elsewhere, is providing finance, and finance is priced as finance. Evidence of who took the decisions is what separates the two.
How do we prove where the DEMPE functions are actually performed?
With records created while the work was being done, not with an organisation chart. What carries weight: who sat on the body that approved the development budget and where it met, minutes showing options rejected as well as approved, the contracts and roles of the people doing the work, who instructed outside counsel on filings and enforcement, and who signed off product launches and pricing. Where a function is said to be performed in a jurisdiction, there should be identifiable people with the seniority to perform it. We build that evidence list before writing any analysis.
Does a licence agreement decide who is entitled to the return?
It decides what the parties owe each other in contract. For tax it is one piece of evidence among several, and it loses to conduct where the two differ. If an agreement says the licensor maintains and defends the intangible, and in practice the licensee's staff handle renewals, police infringement and instruct the lawyers, the analysis follows what happened. The practical consequence is that agreements should be written to match the operating reality, and revisited when that reality moves, such as after a reorganisation, after a team is hired, or after a product is taken in-house.
Our brand is run from head office but owned elsewhere, is that a problem?
That is the classic marketing intangible split, and it is worth examining before somebody else does. The questions are who decides the brand strategy and approves campaigns, who pays for and controls the spending that builds recognition, who registers and enforces the marks, and who bears the loss when a campaign fails. A holding company with no staff performs none of those things. Where local companies have built the recognition in their own markets, the analysis has to deal with whether they were compensated for that enhancement, or whether their spending simply improved an asset owned elsewhere.
Which of the five functions matters most in an audit?
There is no ranking, and looking for one is how analyses go wrong. The functions are examined together, and the deciding factor is usually control rather than activity: which entity makes and can change the important decisions in each of the five areas, and which has the financial capacity to carry the consequences. Routine performance of a function under somebody else's instruction earns a routine return for that service. So the useful exercise is not scoring the five and adding them up. It is mapping each significant decision to the person who took it.
How would a foreign tax authority know I am resident there?
Mostly from information you or your bank already provided. Account-opening forms ask you to self-certify tax residence, and that certification is reported between authorities under the Common Reporting Standard or, for US accounts, under the FATCA framework. Beyond that: employer and payroll filings, property registries, immigration records and the tax filings of anyone who paid you. The realistic planning assumption is that the data arrives. See FATCA and information reporting.
I have not filed for several years while living abroad — what are my options?
Both countries have routes back, and using one before they contact you is what preserves the relief. On the US side there are procedures aimed at taxpayers whose failure was not wilful, including one designed for people living outside the country, and separate procedures for late account reports and information returns alone. Canada has its voluntary disclosures programme and taxpayer relief for penalties and interest. Filing quietly and hoping is the one approach with no protection attached to it. See catch-up filing.
