How to Label: Tax/Transfer Pricing

From a tax or transfer pricing perspective, intellectual property has a more boarder perspective and more than often, it is hard to label the intangibles since not all valuable intangible assets are legally protected and registered or recorded in the accounts. OECD guidelines doesn’t provide any specific definition of intangibles; however, it lists different kinds of intangibles:

Ø  Rights to use industrial assets such as patents, trademarks, trade names, designs or models;

Ø  Literary and artistic property rights, and

Ø  Intellectual property, such as know-how and trade secrets

In order to better understand intangibles from a tax and transfer pricing perspective the OECD guidelines categorizes different types of intangibles into commercial intangibles and marketing intangibles.

Commercial Intangibles:include patents, know-how, designs, and models that are used for the production of a good or the provision of a service, as well as intangible rights that are themselves business assets transferred to customers or used in the operation of business (e.g. computer software).

Marketing Intangibles: include trademarks and trade names that aid in the commercial exploitation of a product or service, customer lists, distribution channels, and unique names, symbols, or pictures that have an important promotional value for the product concerned. Commercial intangibles other than marketing intangibles are considered as trade intangibles.

Trade intangibles: often are created through risky and costly research and development (R&D) activities, and the developer generally tries to recover the expenditures on these activities and obtain a return thereon through product sales, service contracts, or license agreements.

Due to the increasing demand for clarifications of the defintion of intangibles, OECD is planning to revise or expand some of its contents. The OECD has started a process in 2010 to update the definitions of intangibles. A potential wider definition of identifiable intangibles from a tax and transfer pricing perspective will be developed , for example, embedded workforce (e.g. R&D workforce), supply chain allocation and location savings will be considered as intangible under the revised OECD guidelines. 

For more information, please visit: http://www.oecd.org/topic/0,3699,en_2649_34597_1_1_1_1_37427,00.html ;