30 May 2012

Trade Marks and Tax Havens

Having recently returned from a trip to Gibraltar, I thought I'd write a piece on tax havens and intellectual property, specifically trade marks. It'll explore some jurisdictions in western Europe and the Caribbean and won't be an exhaustive tour of all tax havens; the definition of 'tax haven' varies depending on your sources anyway. The term 'tax haven' is often applied negatively these days but my aim is not to label these places - I have visited many of them, visited one regularly on business, and even lived in another and certainly did not regard myself as a tax exile.

Gibraltar

It can be tax efficient to own intellectual property by entities based in such tax havens. It is argued that this deprives Governments of significant income that could aid development, but I won't discuss any ethical issues. I'm also not a tax expert and will not look at the best jurisdiction for tax purposes. Furthermore, I will not advise on how easy it is to incorporate and manage companies in the referred jurisdictions.

I will look at the internal trade mark systems of such tax efficient locations. Given that a home jurisdiction can impact on how protection of trade marks in other countries is obtained there are things to be considered from this perspective, and the work involved in the management of such a trade mark portfolio. Any increases in trade mark costs are likely to be easily offset by the tax savings, but a trade mark owner (specifically those responsible in-house for the trade marks) who is thinking of such an ownership model should consider their additional budget required and resources (e.g. people) required to effectively manage this.

Beginning with Gibraltar, 'the Rock' is rebranding itself as a non-tax haven. Nevertheless, taxes are not as 'invasive' here as they are in other places.

Gibraltar has an ambiguous situation with respect to trade marks. As I have blogged before, OHIM considers Community Trade Marks to cover Gibraltar. This is based on an understanding of Gibraltar's status with the EU under Article 299(4) of the Treaty of Rome. However, there do not appear to have been amendments to Gibraltar's local Trade Marks Act to reflect this. As a Common Law jurisdiction, it should enact local legislation to reflect any European or International arrangements in place and so I believe the enforceability of a CTM in Gibraltar is questionable.

The existing trade marks law provides for the re-registration of United Kingdom National registrations.

Conversely, Gibraltarian companies can own Community Trade Marks and, being a part of the European Union, there is the possibility to file Madrid Protocol applications based on such Community Trade Marks. Perhaps a word of caution - although I admit I do not have personal experience of this situation - I would anticipate some designated countries would issue Provisional Refusals/Office Actions seeking clarification of the applicant's nationality; perhaps this could even come from WIPO. However, I think these could be overcome once and they would not arise again.

This could create a bizarre and unique situation where the home mark you base your Madrid Protocol application on does not actually cover your home jurisdiction.

Remaining on the Iberian Peninsula and the Pyrenean co-principality of Andorra has a trade marks law dating from the 1990s (its first trade mark legislation). Andorra has not joined the Madrid Protocol although it is a quick registration jurisdiction and would have little trouble meeting Madrid Protocol examination deadlines. Despite being sandwiched between France and Spain, neither French or Spanish enjoy official status; Catalan is the official language. Andorra is not part of the European Union and therefore not covered by a Community Trade Mark, although it uses the Euro.

Another mountainous European principality, Liechtenstein, has more registered companies than it does citizens. The local Trade Marks Office works efficiently and Certificates are issued quickly; note that there are no provisions for trade mark oppositions in Liechtenstein. At 400 Swiss francs (around £270/$425/€335) for the initial filing fee it is not the cheapest country around particularly when the population is little over 30,000. If you need to use an agent, quite possible if your Liechtenstein company is just a tax vehicle that employs few people, then expect high agent charges in this extremely wealthy country. However, Liechtenstein is a member of the Madrid System, and its simple domestic trade mark system minimises the risk of "central attack". Liechtenstein is not a member of the European Union although it participates in the European Economic Area.

Neighbouring Switzerland is also famed for its low tax status, most notably the Canton of Zug. Swiss domestic trade mark law is robust and efficient although with many well known and sophisticated businesses and a population attractive to foreign brand owners, its Trade Marks Register is much larger than that of smaller jurisdictions. Switzerland has been at the forefront of international trade marks being an original signatory to the Madrid Agreement effective 15 July 1892. Also dating from 1892 is the 'German-Swiss agreement concerning mutual recognition of patent, design and trade mark protection' that means use of an identical German trade mark, which is registered for the same goods/services in Germany and Switzerland, counts as valid use in Switzerland (and vice-versa) provided the owner has a place of business/legal seat in either country. I am not aware that this agreement would extend to German owned Community Trade Marks, and most will know that the proudly neutral Swiss have not joined the European Union and so CTMs do not provide coverage ordinarily.

Within the EU, the world's only remaining sovereign Grand Duchy, Luxembourg follows Liechtenstein and Switzerland in boasting wealth and low taxes. Covered by a Benelux Trade Mark (covering a market of over 28 million people) or a Community Trade Mark (covering a market of over 500 million) this would be one of the more difficult of tax havens to get a domestic trade mark registered because of larger numbers of existing trade mark registrations. Luxembourg has membership of the Madrid System (in addition to the European Community being a party to the Madrid Protocol).

Maintaining a francophone connection we will move on to the Channel Islands. The French language has official status in Luxembourg and the Channel Islands, albeit most use being in administrative or ceremonial circumstances. The larger of the two Channel Islands, Jersey, is in the midsts of revamping its IP laws. For now, the trade mark law allows for the re-registration of United Kingdom National Registrations (as per Gibraltar) and for the automatic protection of Community Trade Marks. This latter situation is different to Gibraltar as it is due to legislation enacted locally in Jersey. On the contrary, whilst a Jersey company can file for a Community Trade Mark (and it would provide protection to the island), it could not base a Madrid Protocol application based on a Community Trade Mark as it not a part of the European Union.

If it doesn't confuse matters further, International Registrations designating the United Kingdom also have automatic coverage to Jersey but a Jersey company cannot file a Madrid Protocol application based on a United Kingdom National trade mark. It's easy to see why Jersey wants to introduce new IP legislation as currently it is far more straightforward for foreign applicants to protect their trade marks in Jersey than it is for local applicants to protect them at home.

Just to the north, Guernsey has already introduced a far more sophisticated trade mark system, modelled to some extent on how the UK IP Office operates, and it wants to be seen as a very forward thinking and progressive intellectual property hub; it is planning on being the first jurisdiction worldwide to introduce Image Rights registrable protection.

The trade mark system allows for direct applications (although if you have a UK trade mark or CTM in place you can use this to 'support' your Guernsey application and benefit from lower official fees). Guernsey is not a member of the European Union or the Madrid Protocol.

We will remain in the 'Atlantic Archipelago' - the term British Isles, although currently geographically correct, is controversial in Ireland (the British Lions rugby team has been the British and Irish Lions since 2001). Ireland provides similar benefits to Luxembourg in being a member of the European Union and a party to the Madrid Protocol.

Perhaps useful to North American brand owners is that Ireland is an hour closer to them than continental Europe. This might not sound much but consider 09.00 in Los Angeles is 17.00 in Dublin, but 18.00 in Paris, (Gibraltar and Luxembourg). Ireland is also natively English-speaking, although so is Gibraltar and you would be hard pressed to find a business person not fluent in English (or French or German) in multilingual Luxembourg.

Moving to sunnier climes and the Cayman Islands, where there is a need for a UK registration or CTM registration or International Registration designating the UK to form the basis of a local application. Additionally, there is no membership of the Madrid Protocol.

The Bahamas can at least boast an independent trade mark system where registration in the UK or CTM is not a prerequisite. However, a single class system that uses the archaic former British classification is in place. This means you would need to 'translate' specifications of goods into the International Classification when ready to file in most other countries, there is no provision for service marks and the Madrid Protocol is unavailable. It can also take some time to obtain registration; the Registry's indication that this can "take up to 18 months" does not match my experience that has taken around double this timeline at times.

Returning closer to home (well closer to home for me and just a 30 minute flight away) and we have the Isle of Man. The birth place of the late Bee Gees brothers and the resting place of Sir Norman Wisdom, the island also lays claim to having the oldest parliament in the world, The High Court of Tynwald.

The Isle of Man is a self-governing Crown Dependency and the United Kingdom does not normally interfere with its internal legislation. However, when it comes to trade marks, the UK Trade Marks Act 1994 covers the Isle of Man automatically (and there is no separate local registration possible). Under Section 108(2), "references in this Act to the United Kingdom shall be construed as including the Isle of Man", and a Community Trade Mark is also effective although the Isle of Man is not a part of the European Union. Furthermore, the UK Government ratified the Madrid Protocol "with respect to the United Kingdom and the Isle of Man". A Manx company can therefore take advantage of the Madrid Protocol, although as with the EU-Gibraltar nationality entitlement example above, I would not be surprised in receiving the odd Office Action from overly ardent examiners requiring ownership clarification.

As with the examples of Ireland and Luxembourg and, to a lesser extent, Switzerland above, a Manx company (by virtue of its home jurisdiction being effectively the United Kingdom for trade mark purposes) would have to contend with having to deal with more crowded Trade Mark Registers domestically.

Do not overlook a general ownership concern for companies from Gibraltar, Jersey, Guernsey, the Cayman Islands and the Isle of Man. The foreign affairs of all of these are managed by the United Kingdom and the fact they do not have diplomatic recognition themselves can create issues in some foreign countries. Some explanations and proof that Gibraltar, etc. provide reciprocity to nationals of their country may need to be filed with a foreign Trade Marks Office.

Management of trade mark portfolios in tax havens can be complicated at the best of times but when these are your home jurisdictions - and thus impacting on your global trade mark portfolio - you will see there can be some added obstacles to navigate.

I'll conclude with a table summing up various places visited in this blog.

Jurisdiction
Currency
Time Zone
Local registration
Community Trade Mark
Madrid Protocol
Andorra
Euro
CET
Yes
No
No
Bahamas
Bahamian dollar (pegged to US dollar 1:1)
EST
Yes
No
No
Cayman Islands
Cayman Islands dollar (pegged to US dollar 1:1.2)
EST
Yes but must be based on UK National or IR, or CTM Registration
No
No
Gibraltar
Pound sterling (Gibraltar pound also in circulation (same value))
CET
Yes but must be based on UK National Registration
Questionable
Yes (based on a CTM)
Guernsey
Pound sterling (Guernsey pound also in circulation (same value))
GMT
Yes
No
No
Jersey
Pound sterling (Jersey pound also in circulation (same value))
GMT (proposal to switch to CET defeated in 2008 referendum)
Yes but must be based on UK National Registration
Yes
No
Ireland
Euro
GMT
Yes
Yes
Yes (based on national trade mark or CTM)
Isle of Man
Pound sterling (Manx pound also in circulation (same value))
GMT
UK is local
Yes
Yes (based on a UK trade mark)
Liechtenstein
Swiss franc
CET
Yes
No
Yes
Luxembourg
Euro
CET
Benelux is local
Yes
Yes (based on a Benelux trade mark or CTM)
Switzerland
Swiss franc
CET
Yes
No
Yes