Transfer Pricing and Intangibles, a continuing battlefield

Intangible property is one of the most important areas of Transfer Pricing at the moment. Today, intangible property generally represents between 40 and 80 percent of ‘value-add’ of multinational enterprises (MNEs), making it a key component of a MNEs value-chain. Intangible property includes business rights associated with commercial activities, including marketing activities.

Intangible property will not always be shown on the balance sheet of a company, and often intangible property attracts a considerable risk, e.g. contract or product liability. There are numerous legal, accounting and tax related definitions of intangible property. However, most of these are typically purpose specific. In the context of transfer pricing, the four main questions related to intangibles include:

•          How to label different types of intangibles?

•          How to recognize or identify intangibles?

•          What ownership types of intangibles can exist?

•          How to determine the arm’s length value of intangibles?

General consensus among taxpayers and tax authorities alike is that there is currently insufficient international guidance, in particular regarding the definition, identification and valuation of intangibles for Transfer Pricing purposes. The outcomes of OECD’s project on intangibles are likely to be far reaching and as such this promises to be the most challenging and ambitious project that OECD have undertaken to date.

With the dynamic nature of intangibles and transfer pricing, it is clear that this area of transfer pricing will gain increasing attention from tax authorities and MNEs across the world for the years to come. For this reason, IMF Academy introduced the unique distance learning on Transfer Pricing and Intellectual Property. This course looks at intangibles from the complementary perspectives of Transfer Pricing and valuation.

As there is no single definition of intellectual property in use today by tax authorities or the OECD, the authors provide a framework in order to capture the various characteristics of Intellectual Property. Next, they touch upon the methods that have been provided by the OECD to establish arm’s length pricing or valuation of intra-group transactions of Intellectual Property, as well as the practical implementation of these methods.

For more information on the Transfer Pricing and Intellectual Property course, go to IMF Academy’s website.

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