Resolving this by a transfer of rights may result in tax charges where the value of rights is significantly more than the tax basis. The alternative is a centralized model although of course there are many stages in between these two extremes. The development work may be subcontracted to parts of the organization that are directly concerned with the product areas, so that the same people end up doing the development work as would have been the case in the integrated network approach described above. The subcontractor is paid for the work on a commercial basis. However, the developer does not take title to the rights developed as these belong to the commissioning business location.
Subsequent use has to be licensed from the central owner.
Benefits in efficiency and a clearer direction for strategy are evident. Without this, remote locations could pursue their own rights development programmes regardless of the central policy. In terms of management and control of product programmes, funding and other practical issues, a corporate may often prefer to have central management of such a valuable asset located in an environment which corresponds to its corporate headquarters location. However, there will be practical issues, legal issues as to the ownership, registration and enforcement of rights and significant tax issues when choosing a central location. The general principle in the UK is that recurring expenditure relating to a company's trading activity should be tax-deductible as incurred.