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Blurred Lines: the importance of Intellectual Property protection

The 9th US Circuit Court of Appeals ruled, in 22 March, that singers Robin Thicke and Pharrell Williams had copied Marvin Gaye’s 1973 hit Got To Give It Up to create their 2013 smash Blurred Lines. It upheld a 2015 verdict against the stars, which meant Gaye’s family will get to keep a $5m (£3.5m) payout. They will also receive 50% of future royalties from Blurred Lines.

The judges rejected Williams and Thicke’s request to order a new trial, saying Gaye’s copyright was entitled to broad protection. They also accepted the original judge’s decision to instruct the jury to reach their verdict based only on the sheet music to the songs and not the recordings.

Royalties are the payments of licence fees or commissions by one individual or entity to another for the use of Intellectual Property (IP). IP can take several forms:

  • Copyrights, which can include literary works, dramatic works, musical works, scientific works, artistic works, sound recordings, films, broadcasts, published editions, databases, publications, software programmes;
  • Patented inventions;
  • Trademarks (and service marks), designs and models that are used or applied on products.

IP can be one of the most valuable assets of an individual or an organisation. Choosing the right location for the centralisation and management of IP is a highly important commercial decision. Cyprus offers a highly efficient IP tax regime that is coupled with the protections afforded by an EU Member State, as well as being a signatory to all major international IP treaties and protocols.

EU directives and regulations relating to IP protection apply and have been introduced into Cyprus domestic legislation. With a single IP registration process, IP rights owned by Cyprus companies enjoy full protection in all other EU Member States but IPs need not be registered in Cyprus in order to benefit from IP regime.

The aim is to generate the income arising from these rights in the most tax efficient manner possible. Cyprus can be very attractive for establishing a royalty company thanks to its competitive local tax-regime, access to EU Directives and its impressive network of Double Taxation Agreements (DTAs).

The new tax regime provides for favourable tax treatment in relation to income generated from any type of IP rights, patents and trademarks as well as providing for generous capital allowances for acquisition and development of such rights. Cyprus offers an 80% income tax exemption for worldwide royalty income generated from IP owned by Cypriot resident companies, net of any direct expenses. The remaining 20% will then be subject to the standard corporation tax rate of 12.5%, to give an effective tax rate of 2.5% or less.

It is important to note that the 80% exemption also covers capital gains upon disposal of IP. This allows the owners of the IP Rights not only to enjoy tax benefits on the income generated from the use of such rights, but also provides for a tax efficient exit route in the future.

In addition, Cyprus levies no withholding taxes on payment of royalties when distributed out of Cyprus, provided that the holder is not a Cyprus resident and the royalty is used outside Cyprus. The EU Directive on Interest and Royalties provides for nil withholding taxes between EU countries and Cyprus also has an extensive worldwide network of double tax treaties.

In conclusion, the effective tax rate applicable on the Cyprus Royalty Company will be no higher than a maximum of 2.5%. It is also worth remembering that the net profits may then be distributed to a EU/non-EU parent company as dividends, without any WHT being incurred.

Are you getting the most out of your IP rights? For further information, please contact Sovereign Trust (Cyprus) Limited by phone on +357 25 733 440 or by email to cy@SovereignGroup.com.

George Ayiomamitis

Managing Director, Sovereign Trust (Cyprus) Limited

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Sovereign Trust (Gibraltar) Limited
Tel: +350 200 76173