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Accounting Question (1 Viewer)

chet

chet

Footballguy
I own a piece of a hi-tech company that will hopefully be sold in 6-12 months. The CEO met with a partner of an accounting firm who advised him to move his IP offshore. According to the partner, after doing this, a US purchaser of the company will be able to expense the purchase price and should therefore be willing to pay 50% more for the company. This move only works for companies whose value is primarily derived from their IP.  

Is anyone familiar with this?

 
Chemical X said:
by IP, you mean intellectual property?
Click to expand...
He means illegal profits...move your illegal profits offshore.

Sike.

chet, I doubt you're gonna get much help from the FFA on this one. I would suggest the CEO reach out to a another firm for second opinion.

 
eoMMan said:
He means illegal profits...move your illegal profits offshore.

Sike.

chet, I doubt you're gonna get much help from the FFA on this one. I would suggest the CEO reach out to a another firm for second opinion.
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well, intellectual property is an intangible asset IIRC.  no idea as to why this would change the accounting aspect of how its treated.

 
Here's a simplistic overview from someone on Reddit:

The way it works is to have one of your own companies own the IP offshore, then you pay royalties to that entity for use of the IP.

The royalties are a business expense to the onshore entity. They are revenue to the offshore company, which would hopefully be in a low-tax jurisdiction.

Purchasing the offshore company is not expense.

Disclaimer: This is a simplistic overview, there is more to it than that.
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I sold a company a couple years ago that had a good amount of IP. I've never heard of moving the IP offshore to help with the purchase price, but that doesn't mean it's not a good idea (or a bad idea...).

I would only say that there are a lot of different accounting "tricks" that a purchaser can use to help them financially downstream. The company that bought us structured it as asset purchase, which allowed them some future year tax benefits that I can't come close to understanding. I guess I'm saying that it seems like a big PIA to move IP offshore, create a new company, start licensing that IP to the other company, and try to "sell" this to a buyer as a legit way of doing business. I think the less complication you have, the better, and if you are trying to explain some weird arrangement during due diligence, it would seem to hurt your chances of getting a deal done instead of helping it.

But again, I know nothing about this, and if it is standard practice, then I could be way off base.

 
Yeah, as if you don't have an accountant and attorney on retainer to answer these sorts of questions for you...

"LOOK AT ME!!!!!!!!!"

 
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I have seen where companies have a separate company "own" the IP just in case they get acquired they can't acquire the IP also. But maybe there is an accounting slant to it also.

 
Should consider impact of section 367(d) on the transfer, and the application of subpart F to the royalty income (as I'm guessing the IP would be held by a CFC).

 
Phil Elliott said:
I have seen where companies have a separate company "own" the IP just in case they get acquired they can't acquire the IP also. But maybe there is an accounting slant to it also.
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But usually, the IP is what drives the price higher, so it's weird that a company wouldn't want to get their IP acquired. If a company doesn't want a specific IP, you can always carve that out of the deal.

 
You said in the OP chet/CEO met with the partner of an accounting firm. There's probably not a whole lot any of us are going to be able to add that will outrank whatever guidance you received from said partner, unless we have accounting firm partnerguys.

 
kutta said:
But usually, the IP is what drives the price higher, so it's weird that a company wouldn't want to get their IP acquired. If a company doesn't want a specific IP, you can always carve that out of the deal.
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I think it is more related to unfriendly takeovers than trying to get highest price.

 
mquinnjr said:
You said in the OP chet/CEO met with the partner of an accounting firm. There's probably not a whole lot any of us are going to be able to add that will outrank whatever guidance you received from said partner, unless we have accounting firm partnerguys.
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I think you might be surprised at the level of expertise here if you sift through the BS.  I didn't meet with the accounting partner.  The CEO relayed the conversation to me and I thought I'd see if anyone here is familiar with the idea.

 
Ok, this is how it works, Once it's sold by a corporation in the US then it becomes an offshore company. It will not reside in the US anymore and therefore is deemed an offshore entity. The Intellectual Property goes with the sale and is also now considered to be offshore owned. Depending on where it's now located, it's still probably now an offshore company. It can get a little hairy if it's sold to a US company and becomes a division of said US company but it should probably be sold to an offshore owner so it can indeed become an offshore company. he IP (Intellectual Property) would now be US owned unless it was sold to an offshore entity. This can become confusing to a lot of laymen ahow don't understand the concept. Now that's not meant to disrespect anyone it's just the way it is. I hope I answered your question in a way that helps you and your company make a decision and a decision you can all live with. Good luck my friend.

 
chet said:
I own a piece of a hi-tech company that will hopefully be sold in 6-12 months. The CEO met with a partner of an accounting firm who advised him to move his IP offshore. According to the partner, after doing this, a US purchaser of the company will be able to expense the purchase price and should therefore be willing to pay 50% more for the company. This move only works for companies whose value is primarily derived from their IP.  

Is anyone familiar with this?
Click to expand...
Sounds like the beginning of every "How former NBA star X lost his fortune" click bait story

 
Dusty Rhodes said:
Ok, this is how it works, Once it's sold by a corporation in the US then it becomes an offshore company. It will not reside in the US anymore and therefore is deemed an offshore entity. The Intellectual Property goes with the sale and is also now considered to be offshore owned. Depending on where it's now located, it's still probably now an offshore company. It can get a little hairy if it's sold to a US company and becomes a division of said US company but it should probably be sold to an offshore owner so it can indeed become an offshore company. he IP (Intellectual Property) would now be US owned unless it was sold to an offshore entity. This can become confusing to a lot of laymen ahow don't understand the concept. Now that's not meant to disrespect anyone it's just the way it is. I hope I answered your question in a way that helps you and your company make a decision and a decision you can all live with. Good luck my friend.
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LOL read this post with a Dusty Rhodes voice in my head

 
Dusty Rhodes said:
Ok, this is how it works, Once it's sold by a corporation in the US then it becomes an offshore company. It will not reside in the US anymore and therefore is deemed an offshore entity. The Intellectual Property goes with the sale and is also now considered to be offshore owned. Depending on where it's now located, it's still probably now an offshore company. It can get a little hairy if it's sold to a US company and becomes a division of said US company but it should probably be sold to an offshore owner so it can indeed become an offshore company. he IP (Intellectual Property) would now be US owned unless it was sold to an offshore entity. This can become confusing to a lot of laymen ahow don't understand the concept. Now that's not meant to disrespect anyone it's just the way it is. I hope I answered your question in a way that helps you and your company make a decision and a decision you can all live with. Good luck my friend.
Click to expand...
Well duh

 
Last edited by a moderator:
chet said:
I own a piece of a hi-tech company that will hopefully be sold in 6-12 months. The CEO met with a partner of an accounting firm who advised him to move his IP offshore. According to the partner, after doing this, a US purchaser of the company will be able to expense the purchase price and should therefore be willing to pay 50% more for the company. This move only works for companies whose value is primarily derived from their IP.  

Is anyone familiar with this?
Click to expand...
Isn't @Otis an IP lawyer?  

 
I have a counting question: How many licks does it take to get to the center of a Tootsie Pop? I think "3" is a BS answer.

 
Dusty Rhodes said:
Ok, this is how it works, Once it's sold by a corporation in the US then it becomes an offshore company. It will not reside in the US anymore and therefore is deemed an offshore entity. The Intellectual Property goes with the sale and is also now considered to be offshore owned. Depending on where it's now located, it's still probably now an offshore company. It can get a little hairy if it's sold to a US company and becomes a division of said US company but it should probably be sold to an offshore owner so it can indeed become an offshore company. he IP (Intellectual Property) would now be US owned unless it was sold to an offshore entity. This can become confusing to a lot of laymen ahow don't understand the concept. Now that's not meant to disrespect anyone it's just the way it is. I hope I answered your question in a way that helps you and your company make a decision and a decision you can all live with. Good luck my friend.
Click to expand...
Not bad Dusty. What you do stay at a Holiday Inn last night?

 
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