The Story

Nike (through subsidiaries) transferred substantial IP (the Nike swoosh, brand, product designs) to Bermuda entities.

Bermuda operating subsidiaries then licensed use of the IP to Nike operating companies worldwide, generating tax-deductible royalty payments from operating jurisdictions and receiving them in Bermuda’s zero-tax environment.

The structure was legally sophisticated, involving multiple entities, arm’s-length transfer pricing analyses, and substance elements (Bermuda office, employees, board governance).

Why It Worked

For decades, several factors aligned:

• Bermuda’s zero corporate tax on the receiving side

• US and other major jurisdictions’ allowed deductibility of royalty payments

• Historical transfer pricing acceptance

• CFC rules with certain deferral opportunities

• Absence of coordinated international response

What Has Changed

1. OECD BEPS actions on IP transfer pricing (Actions 8-10) tightened arm’s-length analysis

2. CFC (controlled foreign companies) rules broadly tightened globally

3. US 2017 reform (GILTI) added minimum tax on foreign profits

4. Pillar Two 15% global minimum caps benefits for Multinational Corporations

5. Bermuda itself introduced 15% corporate tax effective 2025 (in response to Pillar Two) → so Bermuda is no longer a low tax jurisdiction

6. Substance requirements in Bermuda tightened

The Nike-style Bermuda structure has substantially narrowed for large Multinational Corporations.

What Still Works at Smaller Scale

For businesses below MNC scale (multinational corporation as defined by the OECD: below €750M Pillar Two threshold, i.e. below approximately USD$875 million annual global revenue), the principles still apply legitimately:

Legitimate IP holding scenarios:

• Virtual Consulting Services company based in Panama with clients in Europe/Asia/US (0% on foreign-sourced income)

• SaaS company with genuine European presence holding IP in Ireland (12.5%)

• Digital business with Cyprus non-dom owner holding IP in Cyprus (12.5% + IP box)

• UAE Free Zone company with genuine Free Zone operations holding IP (0% qualifying)

• Malta structure with IP box regime

Requirements:

• Real substance in the IP-holding jurisdiction

• Arm’s-length pricing for IP transfers and licensing

• Beneficial owner personal residency aligned with structure

• Documented business rationale beyond tax

The Modern SME Framework

For a SaaS founder or IP-heavy small business:

1. Personal residency first. Where you live drives most of the outcome for most people.

2. Entity in jurisdiction fitting your residency. UAE resident → UAE Free Zone entity holding IP; Cyprus resident → Cyprus entity with IP box; etc.

3. Substance from day one. Even at small scale, real office, employees or contractors, decision-making happens locally.

4. Arm’s-length pricing. Licensing between related entities documented properly.

5. Regular review and compliance check-ins. Rules change.