Transfer Pricing & Intangibles

LESSON I
Transfer Pricing and Intangibles: Introduction
Today, intangible property generally represents between 40-80% of value-add of international 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.

Given that Transfer Pricing issues pertaining to intangibles are a key area of concern to governments and taxpayers, the OECD found that updating Chapter VI and VIII of the OECD Transfer Pricing Guidelines has become an increasingly important issue in the evolution of new business realities and subsequent adaptations to the Transfer Pricing regulations.

• The evolution of the MNE and the importance of intangibles
• OECD Definition of Intangible Property
• How do emerging jurisdictions (i.e. BRICS) deal with intangibles?
• Transfer Pricing and Intangibles: 4 functional variables
• Locating Intellectual Property (IP) in tax advantaged jurisdictions
• Transfer Pricing Risks (I): Court Cases on Intangibles
• Transfer Pricing Risks (II): Corporate Reputation at Risk Through SEC Disclosure of Intercompany Transactions
• Questions & Answers
• Literature

LESSON II
Intangibles: Transfer Pricing Labels, Identification and Ownership
Lesson II evaluates the labels that are applied to intangibles in the context of Transfer Pricing by utilizing 4 functional variables. The definitions of intangibles are evaluated from a legal, tax and accounting perspective. The lesson examines methods for applying labels to intangibles and how to properly identify the rightful owners and which entity is entitled to the returns related to an intangible.

• Definition of intangibles
• Labelling of intangibles
• Questions & Answers

LESSON III
Valuation of Intangibles
Lesson III provides a clear picture of the various aspects of assessing the value of an intangible for Transfer Pricing purposes. This is accomplished through providing relevant background information, introducing components of valuation methods and applying the ideas to real world examples of highly valued companies that utilize intangibles in their business models. After introducing these concepts, practical methods of assessing value are examined.

• When and why Intangible Assets are valuable
• Companies with highly valued intangibles
• Why and when are intangibles valued?
• Price, Value and Cost
• Generally Accepted Valuation Approaches
• Determining the Discount Rate and Capitalization Rate
• Business Restructuring and Valuation, Chapter IX, OECD
• Questions & Answers

LESSON IV
Business Models: Intellectual Property (IP) Configurations
Lesson IV describes how and where intangibles are located in the value chain of multinational enterprises. This is accomplished through evaluating business models from a general business/commercial perspective as well as from a Transfer Pricing perspective. Case studies and questions to evaluate different practical examples are included in this lesson.

• Overview of business models from a commercial perspective
• Transfer Pricing and general corporate tax considerations of each model
• Model implementation – high level guidance on implementing each of the above mentioned models, including a legal framework for managing Intellectual Property
• Case Study
• Questions with model answers
• Multiple choice questions
• Answers to open and multiple choice questions
• Literature

LESSON V
Intellectual Property (IP) Law and Transfer Pricing
Lesson V examines the legal system surrounding Intellectual Property rights. The lesson provides a brief history of Intellectual Property rights in the legal context, discusses the future of Intellectual Property rights, and looks at the different types of legally recognized Intellectual Property rights. The lesson further explores on the legal aspects of Intellectual Property exploitation, Intellectual Property management and Intellectual Property transfer. How to protect intangibles through Intellectual Property law, corporate law, contract law and labour law is also examined.

• Brief History of Intellectual Property
• Future of Intellectual Property
• Appearance of Intellectual Property
• IP exploitation
• IP management
• IP transfer
• Questions & Answers

LESSON VI
Accounting definitions of Intellectual Property (IP) and Transfer Pricing
Lesson VI provides a high level overview of the accounting standards relating to intangible assets. The lesson focuses on the recognition and measurement of intangibles according to accounting principles. The lesson examines the differences in valuation of intellectual property according to IFRS, US GAAP and Canadian Gaap.

• Introduction Intangibles
• Recognition of Intangibles
• Goodwill
• Subsequent measurement
• Questions & Answers
• Literature

LESSON VII
Corporate Income Tax aspects of Intellectual Property (IP) and Transfer Pricing
Lesson VII outlines the corporate income tax aspects related to intangibles and Transfer Pricing. The lesson touches on many tax aspects, including amortization, tax credits, capital gains tax, value-added tax, and more. Several examples from different countries are provided to highlight how intangible property is taxed around the world.

• Initial Intangible Asset Value
• Amortization/Decrease in the Value of Intangible Assets
• R&D Tax Credit
• Innovation Box/other Incentives
• Replacement Reserve
• Withholding Tax on Royalty Payments
• Capital Gains Tax
• Business Restructuring and Related Taxes
• VAT
• Purchase Price Allocation
• Beneficial/Economic/Legal Ownership
• Conclusion
• Questions & Answers