It’s quite complicated, but to give an example:
- Company A (US) licenses its toothpaste IP to a child company based in Ireland
- Company B (IR) sub-licenses the expensive formula to a Company C (FR)
- Company C pays another subsidiary Company D (Poland) to manufacture it
- Company C then sell it to a mass retailer in France
- the mass retailer sells it in supermarkets
Company C deduces royalties and production costs from its profits, so the profits go to Company B, based in a tax paradise.