Transfer Pricing: Intangibles

Transcription

1 Transfer Pricing: Intangibles Excelsior Hotel Gallia Piazza Duca D'Aosta, 9 - Milan April 29, 2015

2 Intangibles

3 Revised chapter VI Change in wind direction Approach Definition Topic Old Chapter VI New Chapter VI Entitlement Valuation Only 39 paragraphs Essentially a light touch revision in 1996 of 1979 Guidelines No definitions Description of some commercial and marketing intangibles Concept of Legal and Economic ownership If not legal owner, criterion of sharing in the potential benefits No explicit consideration of methodologies, but CUP gets most coverage Reflects influence of Chapter IX and BEPS Action Plan More than 200 paragraphs (more than 30 examples) Additional methods Reflects interests of newer economies A more systematic approach Potentially more scope to re-characterize transaction Definitions (but not legal and accounting definitions) Illustrations of what is and what is not an intangible Legal ownership does not inherently command economic returns Centrality of control functions to economic attribution More explicit recognition of valuation techniques (e.g., DCF) Focus on CUP comparability issues; acquisition price as potential CUP Potentially greater use of profit split 2

4 Key implications Do You Old Chapter VI New Chapter VI fund development of IP? have contract R&D services in the group? have high marketing expenditure in sales/marketing operations? Is funding sufficient to create entitlement to intangible related returns? Is the low-risk contract sufficient to determine that the principal has entitlement and not the service provider? Does the level of expenditure create entitlement? Probably Probably Possibly No No Possibly 3

5 Key themes what intangibles are we talking about? Definition (Paragraph 5) intangible is something that is not a physical asset or a financial asset, and which is capable of being owned or controlled (or transferred) for use in commercial activities Rather than focusing on accounting or legal definitions, the thrust of a transfer pricing analysis in a matter involving intangibles should be the determination of the conditions that would be agreed upon between independent parties for a comparable transaction Broad definition Internal inconsistencies (synergies, workforce) Helpful exclusion of some fuzzy intangibles 4

6 Key themes who is entitled to the return? Keep off the grass sign... neither legal ownership, nor the bearing of costs related to intangible development, taken separately or together, entitles an entity within the MNE group to retain the benefits or returns with respect to intangibles without more. For a member of an MNE group to be entitled to intangible related returns, it should, Perform and control important functions related to the development, enhancement, maintenance and protection of the intangibles And control related functions performed by independent or associated enterprises Bear and control costs and risk related to developing and enhancing the intangibles Bear and control risk and costs associated with maintaining and protecting its entitlement to intangible related returns 5

7 Key themes who is entitled to the return?(cont.) Still some questions Focused on intangibles under development, rather than intangibles already developed Control functions and allocation of risks in line with action 9. Still incoherent discussion about the role of investment in intangible development Seems to require physical performance of functions beyond what is observed in third-party situations in line with action 9. 6

8 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International.