James & Wells Take A Leaf Out Of The Rolling Stones’ Book

James & Wells Take A Leaf Out Of The Rolling Stones’ Book On IP

James & Wells Partner, Carrick Robinson writes, “Tax, IP and rock ‘n’ roll. It’s not often you hear about the business lessons 'The Rolling Stones' can teach us but this month we feature an interesting article by Thomas Carden, the founder and director of U.S. Global Tax which takes a look at how 'The Stones' built their empire by leveraging their IP, an abridged version of which is featured below.

“Question: Why is Mick Jagger one of the wealthiest entertainers on earth?

“ Answer: Talent? Longevity? Energy? Hard work? Qualifications? Intellect? Luck?

“The Rolling Stones have created massive wealth as a result of their talent, effective management, energy, hard work, longevity and more importantly a well-considered financial and tax strategy. The Rolling Stones are often labelled the ‘Billion Pound Band’, but that’s a massive understatement — since 1989 they’ve grossed twice that. Mick Jagger is worth £200 million, Keith Richards almost as much.

“It’s not because of MJ’s academic history (or lack thereof) or business acumen but as a consequence of a simple yet effective structure and strategy created by manager Prince Rupert Loewenstein. It was in 1968 that Loewenstein first walked into Jagger’s house in Chelsea. The Stones were already a global phenomenon but, Loewenstein recalled: ‘There was no furniture in the house.’ Jagger admitted that the band, though working its socks off, had no money.

“Recognizing that “The Stones” were financially better off using a company established in a country with a favourable tax regime he set up the new companies in the Netherlands. Loewenstein realised that with a top UK tax rate of 98 per cent at the time, a mountain of debt and years of litigation ahead, he simply had to get the Stones out of the country. Decisions on where to record, and where to tour, were made on the basis of tax benefits.

“He recognized that the fundamental asset owned by “The Stones” was their Intellectual Property. An asset that has real value, is easily transportable and transferrable, has no borders or boundaries, is incredibly difficult to value at (Methods of defining and valuing Intellectual Property are more numerous and diverse than the hits produced by “The Stones”).

“The value in Intellectual Property can be derived from ownership of the actual Intellectual Property and its associated revenue streams and ownership of rights with respect to the Intellectual property. While the actual execution of the Stones strategy is complex and multi layered the basic premise is simple. 1. Well-structured international ownership of Intellectual Property and the rights to the use of Intellectual Property. 2. Appropriate and supportable valuation of the Intellectual Property. 3. Well-structured foundation agreements for the use of and rights to the Intellectual Property. 4. Transparent accounting and pricing structures that are supportable and consistently applied.

“Revenue, via “a transfer pricing mechanism” is directed to the most appropriate entity to ensure maximum (after tax) profit is achieved, concurrently costs are also allocated to ensure maximum after tax profits are achieved (Globally). The companies in the Netherlands owned the rights to the intellectual property “The Stones” created. Any time the intellectual property was used either by a record company or a concert promoter a fee would be paid back to the Dutch companies.

“The result of this pioneering 1960s tax strategy is that the Rolling Stones are to this day not only one of the highest grossing bands of all times, they have also saved hundreds of millions of dollars in taxation over the decades. The story of the Stones tax strategy illustrates one basic fact: Intellectual Property is a very powerful tax planning tool.

“The increased focus on and access to the global market means a product may be designed in New Zealand, manufactured in China and sold in the United States. Intellectual Property has become the preferred method companies use to become tax efficient.”

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ENDS

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