Transfer Pricing of Intangibles in Cases of Post-merger Reorganization: Lessons from the Revised OECD Draft

Abstract

On 30 July 2013 the Organisation for Economic Cooperation and Development (OECD) submitted a revised discussion draft on transfer pricing aspects of intangibles. As the OECD's work on intangibles is specifically listed as an item in the OECD's Action Plan relating to Base Erosion and Profit Shifting (BEPS), the OECD makes it clear that the revised discussion draft on transfer pricing aspects of intangibles should be considered as work in process that may be further revised during the course of the work on BEPS. Although the period for interested parties to provide written comments has elapsed, the OECD might well be interested in further comments. This should hold all the more as the time period since the introduction of the revised discussion draft allows these new rules to be tested out with regard to their practical feasibility and enforceability ('the proof of the pudding is in the eating'). On this note, this article on 'transfer pricing of intangibles in cases of post-merger reorganization' looks into the relevant guidance from the revised discussion draft and analyses the extent to which the OECD's revised discussion draft serves to resolve the issues of a typical tax audit case dealing with a post-acquisition transfer of intangible assets. The analysis may indicate that the revised discussion draft lacks particular guidance on the treatment of goodwill and other special characteristics that deserve particular attention in a comparability analysis. Revision is also needed with respect to the OECD's considerations on uncertainty of future developments that can affect the application of valuation techniques to the hypothetical arm's length price.