How to Identify

Intangibles provide future economic benefit but lack physical substance. The distinguishing economic characteristics of intangibles involving (a) inherent uncertainty (b) partial excludability and (c) non-separability render it extremely complex to define and to provide recognition/identification criterion.

Identifying or recognizing different types of intangible property is a critical step as it enables the subsequent step of attributing ownership of the intangibles, which then enables the appropriate amount of income to be attributable in an accounting, legal, or tax/transfer pricing context. Again, all three disciplines differ in the way each identifies intangibles. These approaches are presented in more detail by following the links below. Several aspects need to be taken into account when starting the identification process, including:

Intangibles can sometimes be identified on the balance sheet, i.e. a tradename bought from a third party. However, most internally generated IP will not be recognized on the balance sheet.
Intangibles can sometimes be protected, i.e. a patent.
Intangibles can either be remunerated, i.e. a royalty fee payment, or used free of charge by other group companies (often in good faith).

If intangibles are not protected or visible on the balance sheet, alternative procedures are possible:

Review of the annual report and other relevant information that is publicly available.
Interview relevant people involved in the development and/or usage of the IP, which will in turn provide more detailed information.

When attempting to identify intangibles within their company, multinational enterprises should consider these aspects:

Incur R&D cost
Incur marketing cost
Registrations of patens/brands etc.
Secrecy clauses in labor contracts
IP law defined ownership
Corporate law agreements protection intangibles
Not allowed to physically enter production/process environment
Aspects of bargaining theory/power
High industry thresholds
Licensing agreements
IT roadmaps
Product development roadmap
Artificial intelligence through database
Artificial/Human intelligence through trained workforce
Expressions of products – process – marketing intangibles on the website