In discussing Digital Asset Management, we often focus on the technicalities of the system, the software, the hardware etc. And that is to be expected considering the increasing complexity and demands of Digital Asset Management as it becomes so central to so many businesses across so many sectors.
However, sometimes we often forget about the assets themselves and the value inherent in those assets. Even the process of digitizing and inserting them into a Digital Asset Management system makes them more valuable. The more metadata associated with them, the more valuable the asset becomes. This is because these assets are, by and large, intangible intellectual property and to someone, somewhere, they will have a value. The more information you have about the object, the more valuable it is to that end customer.
It’s a common belief now that in the digital age, geography doesn’t matter when it comes to delivering those digital assets. With cloud computing, the servers can be anywhere in the world and the customer will always be at the end of a network, somewhere. In terms of delivery, geography is inconsequential. But in terms of business, it most certainly does matter.
Let me explain. The benefit of a digital asset being intangible is that it can be located in a jurisdiction that is more beneficial to the owner of that intellectual property. For example, if you are delivering a digital asset or licensing a DAM system to a customer overseas and charging them, the likelihood is that you will be hit with a range of taxes from that jurisdiction when invoicing. These include Withholding Tax as well as Value Added Tax. This can have an egregious effect on cash-flow particularly if you are increasingly invoicing internationally. So what’s the solution?
Well, one way to do it is to locate your collection of royalties in an international territory like Ireland or Luxembourg which have double taxation treaties with the countries that you are invoicing to. This is not only pertinent to where you are charging for the asset itself (such as access to an image bank) but also if you are licensing your Digital Asset Management system to a company in another international jurisdiction. All of the above will be considered as intangible intellectual property and with the right advice, you can structure how your company treats that on the balance sheet much more efficiently when operating outside the US.
This is one of the reasons why the majority of US ICT multinationals have set up their European headquarters through Ireland. On average in the US, companies with intangible IP such as software companies are paying far less corporate tax then those bricks and mortar firms. Now many may argue that these companies are avoiding paying their fair share of tax but in truth they are utilizing the intangible nature of their intellectual property to grow their international businesses. By locating international collection of royalties on IP in lower tax jurisdictions – or indeed where revenues can be collected more efficiently – they are increasing their global revenues and creating more value for the company and those shareholders who pay tax in the home jurisdiction. If they stayed at home, the likelihood is that they wouldn’t expand as aggressively outside of their home territory. Certainly compare the amount of global brands emanating from the US in the software and technology field as opposed to Brazil which has a much more punitive regime for international expansion.
The other emerging challenge around Digital Asset Management is around data protection. Increasingly, Digital Asset Management systems may collect data from their customers that have a value in itself – or in some cases, are trying to promote a standard for worldwide use such as DDEX for music or the EIDR for audio-visual content. Recent moves in Europe mean that it will become more difficult to take this data out of Europe. As things stand, no EU company or organization is allowed to send their users’ personal data overseas unless that country has data protection laws that match European standards. The U.S. is not one of those countries – however, it is where many of the best-known cloud providers are based. This is the “Fortress Europe” mentality that is emerging as Europe becomes increasingly a single market trade bloc. Although many US companies operate under a so-called -self-regulating “safe harbour” agreement, the likelihood is that as data becomes increasingly more valuable, Europe will seek to regulate that data within the European Union.
Again, the solution is to locate your Digital Asset Management system in a data centre within Europe. Ireland now, for example, has become a European Hub for cloud computing with IBM, Microsoft, Google, HP and Amazon hosting a large amount of their European data within that territory, due to its relatively cheaper energy costs, connectivity and strong legislative regime which is more in keeping with the US then say, the Netherlands. What is the benefit of this? Well, simply put, Europe has an online customer base of 500 million users. By being strategic and informed about how you operate in this market, companies utilizing Digital Asset Management systems either as clients or providers can reach new customers, maximize revenues and grow their business globally with ease.