“Intangibles are an essential part of the value creation in today’s economy and they raise complex and challenging issues in the transfer pricing area,” Caroline Silberztein, head of transfer pricing at the OECD’s Centre for Tax Policy and Administration, told TPWeek in October.
“It became obvious that countries have differing approaches to some of the issues related to intangibles, and that the existing international guidance in this area is insufficient,” Silberztein said.
The document identifies a number of areas for further work including the possibility of describing an overall framework for analysing intangible-related transfer pricing issues; the definition of intangibles; guidance on R&D activities; the relevance of differentiating differentiation between intangible transfers and services; and guidance on the marketing intangibles.
The document also states that the OECD intends to develop guidance on how to determine whether an intangible has been transferred and how to characterise it. The Organisation clarifies that the arm’s length principle does not apply differently depending on the tax rate of the associated enterprise.
Another area for further work within the scope of the project is the question over the right of an enterprise to share in the return from an intangible that it does not own, perhaps because it has incurred significant risk and expenses related to the development of an intangible or the enhancement of its value.
The document notes the need to clarify the meaning of economic ownership, which is used inconsistently in the guidelines.
The OECD recognises that controversies have arisen from the guidance on cost contribution arrangements (CCA), including issues relating to the characterisation of intangibles transfers made at the inception of a CCA and issues related to the valuation of the contributions made by the participants in a CCA.
The scoping document also highlights the question of whether further guidance should be given on the valuation of intangibles. The OECD will consider the extent to which financial valuation methods, particularly the discounted cash flow method, should be given greater recognition in the transfer pricing guidelines (TPG).
The consultation received 50 written responses. Officials from OECD member states and business representatives met in Paris in October to discuss the project. It is a dialogue that the OECD intends to maintain throughout the process.
The OECD expects its work will lead to an update of the existing guidance on intangibles in Chapter VI of the TPG. It hopes to release a discussion draft for public comment by the end of 2013.
The work will be carried out by Working Party No 6 of the Committee on Fiscal Affairs on the Taxation of Multinational Enterprises, through a Special Session on the Transfer Pricing Aspects of Intangibles, open to all interested member states and observers, as well as Brazil, Indonesia, Malaysia and Singapore.
