8166 / What is an IP holding company? Are there any tax benefits to using an IP holding company?

An IP holding company is generally a company that holds only rights to intellectual property and then licenses the rights to related parties, as well as to third parties. Many large and small taxpayers use IP holding companies in order to consolidate management of their portfolios of intellectual property, including patents and trademarks.

Further, if the IP holding company is located in a jurisdiction with lower income tax rates than that of the related party-licensees, the company may save significant taxes on a company-wide basis as the IP holding company will report the royalties at a lower tax rate. The licensee will reduce its income tax liability because of the deduction that arises from the payment of the royalty. The IP holding company, therefore, can generate savings with respect to state, federal, and global income taxes.