Key areas of the debate
There was a significant amount of debate around the meaning of paragraph 40, in particular the reference to the performance of functions: "It is expected ... the entity claiming entitlement to intangible related returns will physically perform, through its own employees, the important functions related to the development, enhancement, maintenance and protection of the intangibles."
Many delegates had taken this statement at face value and had assumed that outsourcing of functions would not constitute performance of a function by the owner of the intangible.
In a welcome set of comments, Joe Andrus, the head of the OECD's transfer pricing unit, confirmed the OECD WP6 had assumed that controlling or managing an outsourced function was akin to the performance of a function. Joe put his comments in the context of CROs (contract research organisations), where the IP owner frames the terms of reference for the service provider who nevertheless has to be independent and have autonomy in the conduct of clinical trials.
There was also a degree of acceptance by the attendees that when considering the options realistically available to the parties, there was no need to consider an exhaustive list of all and every available alternative.
The desirability and possibility of closely defining the term intangible remains an area where business and advisers appear to have a difference of opinion with WP6. The latter (for example, the IRS) generally suggested that any definition needed to be very broad to combat potentially abusive behaviour whereas business and advisers wanted clear definitions to ensure certainty and avoid double taxation.
One further example was the position noted by the representative of the Indian tax authority. India considers, where a local Indian company has built up a local market, it is entitled to the intangible returns arising from doing business in that market. Delegates around the table were generally of a different view.
Overall, Grant Thornton strongly welcomed the opportunity for business to participate in the debate while the draft is still being fine-turned and trusts that the final version will be improved as a result of the more open process that Joe Andrus and WP6 engaged in.
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