Transfer Pricing Documentation for Intangible Property
Arm’s length royalty rates and transfer prices for trademarks, domain names, databases, software, technology, patents and other intellectual property
Drawing on our vast databank of royalty rates and experience of intellectual property/intangible assets, American Appraisal provides a rigorous analysis to assist clients with their transfer pricing documentation and any subsequent negotiations with tax authorities.
The OECD Guidelines
The OECD Guidelines recommend that the arm’s length principle be adhered to in determining transfer prices between related parties. However, Section 6.13 of the OECD Guidelines recognises that:
“This principle can… be difficult to apply to controlled transactions involving intangible property because such property may have a special character complicating the search for comparables and in some cases making value difficult to determine at the time of the transaction.”
Arm’s Length Royalty Rates
Therefore, an assessment of arm’s length royalty rates, will typically involve consideration of the following methods:
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Comparable Uncontrolled Price method
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Profit Split method
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Transactional Net Margin method
The individual results of each method are then compared against each other in order to determine a final robust conclusion to form part of our client’s transfer pricing documentation.
Multi Year Data Examination
Sections 1.49 and 1.50 of the OECD Guidelines, state:
“In order to obtain a complete understanding of the facts and circumstances surrounding the controlled transaction, it generally might be useful to examine data from both the year under examination and prior years. The analysis of such information might disclose facts that may have influenced (or should have influenced) the determination of the transfer price. For example, the use of data from past years will show whether a taxpayer's reported loss on a transaction is part of a history of losses on similar transactions, the result of particular economic conditions in a prior year that increased costs in the subsequent year, or a reflection of the fact that a product is at the end of its life cycle. Such an analysis may be particularly useful where as a last resort a transactional profit method is applied.
“Multiple year data will also be useful in providing information about the relevant business and product life cycles of the comparables. Differences in business or product life cycles may have a material effect on transfer pricing conditions that needs to be assessed in determining comparability. The data from earlier years may show whether the independent enterprise engaged in a comparable transaction was affected by comparable economic conditions in a comparable manner, or whether different conditions in an earlier year materially affected its price or profit so that it should not be used as a comparable.”
Our Work
American Appraisal performs many assignments for transfer pricing purposes each year. American Appraisal consultants, both in the UK and across our network of global offices, offer transfer pricing expertise across all industries
We have played a key role in a variety of transfer pricing engagements in recent years, including:
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Providing documentation to support transfer pricing for an IT business for tax years 05 to 09 in relation to: cash-pooling; loans; wholesale distribution; advisory services; company acquisition; admin services
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Providing documentation to support historic transfer pricing for an investment bank’s real estate department
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TP documentation for an energy supply business (i.e. industrial water, gas, electricity, etc.)
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Strategic advice to a global media business looking to establish a service center in Europe that would be responsible for the distribution of copyrights outside the US.
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Assessment of an inter company charge for use of the trade name for a confectionary business
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Assisting an insurance company in updating an existing license and inter company charge for the use of a trade name
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Updating an existing license fee paid for the use of technology and trade name for an engineering & construction company
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Assisting a fund manager who was moving outside the UK in setting a transfer price to be paid for the recharge of his services to the UK fund.
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Assisting in setting the transfer price at which to charge for the use of a UK based business with a global telecom brand that was held in Luxembourg
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Assisting in setting the transfer price that a food manufacturer with a brand held in Luxembourg would charge its global entities