Transfer Pricing and Intangibles

S. VPreface

Intellectual property or, more generally speaking, intangibles, have become increasingly significant for multinational enterprises (MNE) and their global businesses. The relevance of intangibles for MNEs can be confirmed with many statistics. Looking at the value of S&P 500 firms, Ocean Tomo, a merchant bank, showed that intangibles accounted for 84% of the value of S&P 500 firms in 2015 (up from just 17% in 1975). Therefore, it is no surprise that such relevance of intangibles increased the interest of tax authorities on to how treat intangibles for tax purposes, in particular when applying transfer pricing rules.

The increasing relevance of intangibles in transfer pricing can be seen in the development of OECD Transfer Pricing Guidelines (TPG). The OECD 1979 Report dedicated 25 pages to this specific topic in Chapter III titled “Transfers of technology and trademarks”. At that time, this was the Report’s longest chapter, and it was focusing on problems involving patents, know-how, and trademarks since these were considered “of most concern to tax authorities in connection with the taxation of MNEs”. Moreover, the Report, at that time, was mostly focusing on issues related t...