OECD Meeting on the Transfer Pricing Aspects of Intangibles

Transcription

1 OECD Meeting on the Transfer Pricing Aspects of Intangibles Paris, 7-9 November 2011 Session I: Definitional Approach Dr. Stephan Schnorberger Baker & McKenzie Global Tax Practice Group # Contents Definition of intangibles = intangible property Problems of a broadened definition of intangibles Baker & McKenzie, 7 November

2 Definition of intangibles = intangible property Baker & McKenzie, 7 November Definition of intangibles = intangible property Purpose of definition Scope of definition Identify when parties acting at arm s length, engage in specific transactions in intangible property rights Assets of legal or contractual property Baker & McKenzie, 7 November

3 Definition of intangibles = intangible property Assets of legally protected property, Contractual rights, Or other circumstances which allow the enterprise to protect the property, exclude others from its use, and transfer the benefit of that property to another for consideration Baker & McKenzie, 7 November Definition of intangibles = intangible property Scope of definition Legally Assets of legal or contractual property Economically Routine intangibles Non-routine intangibles Proposed focus of Project Baker & McKenzie, 7 November

4 Definition of intangibles: non property factors Location savings Unprotected business opportunities Workforce in place Price premia paid on acquisitions Synergies Effects of good management Effects of supply vs. demand dynamics Something of value Non-property concepts of intangible factors should not be regarded as intangibles or intangible property Baker & McKenzie, 7 November Proposed definition of intangibles: Summary The definition by reference to legal and contractual rights Uses legal title and property rights based on law or contracts Focuses on property rights generating non-routine returns Overlaps with accounting concepts of intangibles, but is not equivalent with these Excludes the deeming of non-property factors as intangibles Allows to reflect non-property factors in valuations of intangible property Baker & McKenzie, 7 November

5 Problems of a broadened definition of intangibles Baker & McKenzie, 7 November Problems of a broadened definition of intangibles: Real life case No. 1 Unprofitable local market commissionaire (paid by commissions) is converted into a sales support service provider (paid at cost plus) Local tax administration assumes transfer of a business opportunity Problem: if non-property notions are included in the definition of intangibles, then intangibles may be invented Baker & McKenzie, 7 November

6 Problems of a broadened definition of intangibles: Real life case No. 2 On establishment of a regional Principal structure organizational control and local, protected technology rights are (largely) transferred to the Principal In assessing the compensation for the defined technology rights transferred, local tax authorities routinely include expected synergies and location savings Problem: in 3rd party dealings it is (exceptionally) conceivable that the parties exchange payment for synergies and location savings together with payment for intangible property but: routinely taxing such elements of value is against economic reality among unrelated parties. Baker & McKenzie, 7 November Problems of a broadened definition of intangibles: Real life case No. 3 Multinational X sells branded consumer goods in a foreign market country Parent company X Co. holds the trademark Sales and distribution subsidiary X Sub. has consistently made very large marketing expenditures in the market country X plans to centralize local market responsibilities on a regional level and to create regional directors for sales and marketing Baker & McKenzie, 7 November

7 Problems of a broadened definition of intangibles: Real life case No. 3 Local market customers shall continue to be invoiced by X Sub. The tax department is concerned that the shifting of market responsibilities may be deemed a transfer of local marketing intangibles For fear of significant exit taxes, X abandons the restructuring and tries to devise a second-best organization Baker & McKenzie, 7 November Problems of a broadened definition of intangibles: Summary (1) Taxpayers have got accustomed to disputes and double taxation of ongoing, current profits Broadening the definition of intangibles creates the potential for an additional class of disputes and double taxation conflicts = double taxation of discounted present values (NPVs) broadening the definition of intangibles leads from double taxation to four-fold taxation of (current and future) profits Baker & McKenzie, 7 November

8 Problems of a broadened definition of intangibles: Summary (2) Economically, optimum business restructurings are deflected and frustrated Distortions in international resource allocation lead to inefficiencies Less global growth, less global wealth Baker & McKenzie, 7 November Contact Dr. Stephan Schnorberger Partner Steuerberater Dipl.-Kfm., M.A. (Economics-USA) Senior Economist Baker & McKenzie Partnerschaft von Rechtsanwaelten, Wirtschaftspruefern, Steuerberatern und Solicitors Neuer Zollhof 2 D Düsseldorf Tel.: Fax: stephan.schnorberger@bakermckenzie.com Baker & McKenzie - Partnerschaft von Rechtsanwälten, Wirtschaftsprüfern, Steuerberatern und Solicitors is a professional partnership under German law with its registered office in Frankfurt/Main, registered with the Local Court of Frankfurt/Main at PR No It is associated with Baker & McKenzie International, a Verein organized under the laws of Switzerland. Members of Baker & McKenzie International are Baker & McKenzie law firms around the world. In common with terminology used in professional service organizations, reference to a "partner" means a professional who is a partner, or equivalent, in such a law firm. Similarly, reference to an "office" means an office of any such law firm. Baker & McKenzie 8