Intangibles are one of the most challenging topics in the transfer pricing area, both from a theoretical perspective and because of the number and size of the disputes that arise in relation to their recognition and valuation. This became obvious in the OECD project on the transfer pricing aspects of business restructuring. The OECD Committee on Fiscal Affairs decided to commence a new project examining the transfer pricing aspects of intangibles, to be carried out by Working Party No. 6 on the Taxation of Multinational Enterprises.
Existing guidance on intangibles is found in Chapters VI and VIII of the OECD Transfer Pricing Guidelines which were approved in 1996 and 1997. They still provide good guidance on intangibles and cost contribution arrangements. However, new issues have emerged which were not foreseen or fully addressed when these Chapters were released, especially in relation to the definition, identification and valuation of intangibles.
The OECD Transfer Pricing Guidelines provide guidance to multinational enterprises and governments to apply the arm’s length principle. Under the arm’s length principle, the conditions of transactions between associated enterprises (e.g. members of a multinational enterprise) should not differ, for tax purposes, from the conditions that would have been agreed by independent parties in comparable circumstances.
An open invitation to comment was posted on 2 July 2010, seeking input from interested parties on what they see as the most significant issues encountered in practice in relation to the transfer pricing aspects of intangibles; what shortfalls, if any, they identify in the existing OECD guidance; what the areas are in which they believe the OECD could usefully do further work; and what they believe the format of the final output of the OECD work should be. The Working Party decided that it will discuss responses received in November 2010 in order to inform the final scoping of the project.