Intangible Transfers Research Articles

Within firm supply chains: Evidence from India

There are competing theories on whether vertical ownership is motivated by the transfer of physical inputs or the transfer of intangibles. Using administrative data on the universe of goods shipments in Karnataka, India, we show that the supply of goods along the production chain is an important rationale for vertical integration. First, we develop and estimate a gravity model of input sourcing, and find that: (1) establishments have a strong preference for sourcing their physical inputs from suppliers within the same firm relative to other frictions such as distance and state borders, and (2) the share of within-firm trade would be near 2% absent this preference for internal suppliers. Next, we compare this to the data and find that 38% of products are sourced by establishments exclusively from within the firm when a vertically integrated supplier exists; an order of magnitude higher than our 2% benchmark. Finally, we validate that within-firm sourcing is associated with determinants of physical supply chain transaction costs such as product specificity and R&D investment.

The role of management practices in acquisitions and the FDI location decision

AbstractThis paper investigates how management practices as intangible transfers are associated with the performance of multinational business groups. Differences in the management level across source countries are predictive for multinationals’ investment patterns for a given destination country. This study argues that acquisitions are a means to transplant management practices from parents to affiliates abroad. It finds that better‐managed parents decrease employment and increase productivity post‐acquisition. The productivity gains are driven by targets with less‐developed management practices and by targets of larger parents. Better‐managed parents are also more likely to install or retain a manager from the parent country post‐acquisition.

A Critical Analysis of the Viability of Advance Pricing Agreement Regime –The Indian Experience

The Government of India and the CBDT rolled out one of the most ambitious reforms in 2012 – the introduction of the Advance Pricing Agreement (APA) programme. The intention behind taking this step was to dismantle the idea of India as jurisdiction where the tax administration ran an aggressive transfer pricing regime. This reform was also aimed at providing certainty to MNEs in respect of their transfer pricing of international transactions, while providing them an incentive to invest in India. These ideas have slowly manifested themselves into reality. Hundreds of APAs have been signed in the last seven odd years, which in turn has extended comfort and certainty to MNEs. The complexity of the cases has been proportionally increasing with each passing year. In the year 2018-19 India has undertaken agreements such as, payment of royalty, transfer of intangibles, and Advertisement, Marketing and Promotion (AMP) expenses in respect of international transactions. Concomitantly, the adoption of transfer pricing mechanisms such as profit splitting and CUP became imperative. Ensuring that issues of such complex nature are resolved would bode well for the future of the Programme. Through this paper, the researcher aims to trace the inception, evolution, and the historical background of the Advance Pricing Agreement programme in India. The paper then goes on to look into the procedure and compliance requirements under APAs. The next part of the paper examines the different kinds of agreements, i.e., unilateral and bilateral agreements, and their features and differences. In the next section, the researcher attempts to analyze Indo-USA relations with respect to APAs. Lastly, the paper concludes by appreciating the present position of the APA regime in India, and by presenting some suggestions that would help achieve the objectives more effectively and efficiently for which APA was introduced.

Nigeria's Income Tax (Transfer Pricing) Regulations 2018: Conceptualizing the Elephant and “Plucking the Goose”

AbstractIn 2015, the OECD gave the world a template to address base erosion and profit shifting and ensure that profit is taxed in the jurisdiction of value addition and / or where economic activities take place. The world's jurisdictions then embarked on implementing the template. Examining the legal framework subsequently put in place for the taxation of intangibles in Nigeria, this article argues that the distinct regimes for connected and unconnected persons’ transactions create flaws. It further asserts that these flaws are consequences of the conflict between the policy that underpins the legal framework and other policies in the country. It concludes that the legal framework may not be a “Swiss army knife” (providing Nigeria with all that is needed to combat transfer pricing issues associated with the transfer of intangibles by connected persons), as it creates issues that have undesired consequences for the taxation as well as the economic system.

Revisiting Section 367(d): How Treasury Took the Bite Out of Section 367(d) and What Should Be Done About It

Section 367(d) seeks to prevent residual profits related to U.S. developed intangible assets from migrating out of the U.S. tax jurisdiction via the outbound contribution or transfer of intangibles to a foreign corporation. There has been a great hue and cry over the outbound migration of intangibles in recent years, which by implication has created significant agitation about whether section 367(d) is effective. For at least a decade, the Treasury Department and IRS have identified section 367(d) as an area in need of regulatory reform, and recent comments by government officials indicate that guidance may be forthcoming in the future. Concurrently, the Obama administration has proposed amendments to section 367(d) and the U.S. subpart F rules to address outbound migration of intangible value.The debate over the efficacy of section 367(d) to prevent IP migration is being waged along two fronts. As to the first front of this debate, the central question is whether a fatal loophole (a “goodwill loophole”) exists within the architecture of section 367(d) that allows the outbound migration of intangible value under the protective cloak of “goodwill” with the consequence that a substantial portion of the ongoing residual profits related to the transferred goodwill items escape the application of section 367(d)’s super royalty obligation. In Subparts II.A. through II.B., this Article addresses why this “goodwill loophole” that has received so much attention is nonexistent. All that is needed is for the courts to correctly apply section 367(d) as it should be applied, and once this is done the “goodwill loophole” should be defrocked of all of its purported cloaking capabilities.The second front in this ongoing debate about the efficacy of section 367(d) to prevent IP migration concerns the role that cost sharing agreements play in facilitating the outbound migration of residual profits away from the U.S. functions that create the high-profit potential intangibles. Section 367(d) is clear on its face as to what should be the correct outcome in these instances, but the Treasury Department’s existing cost sharing regulations create a “cost sharing loophole” that provides the means for substantial profit-shifting. In Subpart II.C., infra, this Article sets forth how the Treasury Department should amend its existing Treasury regulations in order to close this inappropriate “costs sharing loophole.”Moreover, as an entirely separate debate, the Treasury Department and IRS have retrofit section 367(a) and (b) as a means to attack the tax-free repatriation of cash from foreign subsidiaries in transactions that utilize the recovery of high stock basis. Part III addresses how section 367(a) and (b) have been substantially altered and how section 367(d) is now being rethought in light of this expanding omnibus strategy that is redefining the contours of all of section 367.Calm reflection about the contours of section 367(d) is needed because the raging debate about section 367(d) threatens to run it off the road and into a ditch. This Article seeks to provide illumination of the way forward so that section 367(d) achieves its intended purpose.

Implementation of Export Control Regulations - Status and Prospects of the Legislation for the Intangible Transfer of Technology(ITT) Control on Nuclear Related Items -

Implementation of Export Control Regulations - Status and Prospects of the Legislation for the Intangible Transfer of Technology(ITT) Control on Nuclear Related Items -

Intangible Controlled Transactions

This paper is about the controlled transactions in the case of intangibles. The intangibles have characteristics which are similar with than of tangibles. Through transfer pricing we have rights which granted from some companies to other, to achieve the appropriate profits and to minimize the losses. The transfer of intangibles allows the allocation of profits and losses, with that way to comply with the arm’s length principle. Thereupon, intangibles are included in the property or services to serve the business plan of enterprises which participate in controlled transactions.

The Transfer of Intangible Assets and Intangible Rights: Talmudic, Medieval post-Talmudic, and Islamic Legal Literatures

This study explores how legal institutions have the potential to change economic development outcomes. Talmudic law ostensibly precludes the transfer (sale) of intangible assets and intangible rights thereby limiting an agricultural society’s ability to hedge risks and to raise financing. We argue that the Talmud itself found a fairly reasonable “rental contract” solution for enabling the transfer of intangible assets. We further maintain that the motivation for this solution arose out of economic pressure on rabbinical service providers by Jewish farmers in Roman-Palestine for whom Roman law arguably provided an alternative more sympathetic transfer model. The transfer of intangible rights proved to be a more difficult issue to resolve, however. Nevertheless, by the high and late middle ages, at least some post-Talmudic scholars suggested alternative mechanisms to effect the transfer of intangible assets/rights such as the Hitchayvut and the Situmta. The Situmta mechanism would have been particularly favorable to merchants involved in the transfer of intangibles on an ongoing basis. The relationship of these ideas to Islamic conceptions of intangibles, especially as it relates to Islamic commerce and commodity forward markets, is also explored.

Singapore: Transfer Pricing Guidance Released

Whether they are sales or purchase of goods, provision of services, borrowing or lending of money or use and transfer of intangibles, transactions between related parties present a high concern regarding possibilities to shift profits and to evade taxation, as related parties transacting with each other are highly exposed to set their pricing at a level which does not reflect market conditions due to a lack of independence in their commercial and financial relations. It is the case basically when related parties are located in different jurisdictions with different tax rates.

Herding Smart Cats: Applying Export Controls on Intangible Transfers of Technology in UK Universities

Trade controls on software and technology are essential to controls on sensitive goods. But deciding whether the transfer of a particular piece of 'know how' is subject to controls is challenging, particularly when it might be made simply in an email or even, in some cases, face-to-face conversation. These challenges are compounded by decentralized structures, competition for research funds and strong traditions of academic freedom in UK universities. Few of the top twenty-four research universities in the UK have a formal export controls policy in place, underlining the need for renewed efforts1 to develop more, and more practical, guidance for the universities. This article looks at the controls which apply to intangible transfers of technology by UK universities and the challenges in implementing them, and suggests some approaches to achieve compliance in a practical, proportionate way.

Business in troubled waters: Does adverse attitude affect firm value?

This paper investigates the relationship between US MNCs' valuations and anti-Americanism in countries where MNCs' foreign subsidiaries are located. We find that MNCs suffer value-destruction when they enter markets where people express severe anti-Americanism. However, we uncover that geographic diversification into these high anti-Americanism countries significantly increases firm value if the MNC has high levels of intangibles such as technological know-how and marketing expertise. Our findings are consistent with the notion that the advantages from internalizing the cross-border transfer of intangibles are greater when barriers to competition are higher.

The 2009 Transfer Pricing Regulations: Where is the Line to Distinguish Services under S.1.482-9 from Transfer of IP under S.1.482-4?

In spite of the prominent and elaborate treatment accorded the subsections under ss. 1.482-9 and 1.482-4 of the Internal Revenue Code, an in-depth exploration of the above provisions unearth a surprising similarity which if drilled further reveals a bluriness between the two provisions. Thus depending on the method employed in the assessment of arm's length transactions in services as well as transfer of intangibles, the result of establishing transfer pricing sometimes turn out to be the same.

Transfer Pricing, Business Restructurings and Intangibles - Case Studies: UPS v. Commissioner; DSG Retail Ltd. v. HMRC

United Parcel Service of America, the largest motor carrier in the US, and DSG Retail the largest retailer of electrical goods in the UK, restructured operations and established captive insurance companies in offshore tax havens. In both instances, these restructurings removed sizeable amounts of income from the domestic tax base. The IRS and HMRC opened transfer pricing audits. The UPS case involved tax year 1984 and was settled in 2003; DSG Retail involved 1997 through 2005 and was settled in 2009. Both settlements came on the heels of government-favorable court decisions, and prior to the addition of Chapter IX to the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (the Guidelines). The OECD added Chapter IX on Transfer Pricing Aspects of Business Restructurings, to the Guidelines on July 22, 2010. The core transfer pricing issue in a captive insurance case (in OECD terms) is the measure of compensation that should be returned to a domestic company by its captive on the transfer to it of (a) the business opportunity, or (b) the right to provide re-insurance on policies that underwrite risks of retail customers. Twenty days prior to announcing business restructuring additions to the Guidelines, the OECD initiated a new project on transfer pricing and intangibles. The stated reason for the project was that the OECD had experienced considerable difficulty with the treatment of intangibles in the business restructuring meetings. UPS and DSG are case studies for the application of transfer pricing rules in a business restructuring context where a critical element involves the transfer of an intangible. This paper considers how the arguments and outcomes in these cases inform the present discussion on transfer pricing and intangibles. UPS and DSG, when read in conjunction with the new OECD Guidelines on business restructurings, present a full range of analytical approaches to transfer pricing and captive insurance companies. There is Judge Ruwe’s sham transaction approach; there is the profit split approach followed in DSG; there is the possibility of CUPs and TNMMs; then there are the more recent approaches suggested by the OECD – transferring a going concern, and transferring an intangible asset. It will be interesting to see how the new OECD project on the Transfer Pricing Aspects of Intangibles will deal with question like this. It may well be that the answer to an intangible transfers may bring us back full circle to the return on capital profit splits from Grenada Industries and DSG.

Computing Close to the Iron Curtain: Inter/national Computing Practices in Czechoslovakia and Finland, 1945-1970

The development and transfer of computing technology in postwar Czechoslovakia and Finland, two countries lying directly on the border between the two cold war blocs, were shaped by a mix of factors, from the political to the technological, in both countries. This article describes and analyzes the factors influencing the transfer of computing technology in cold war Europe on the basis of comparison of the national histories of these two frontier countries. Although the first computers were put into operation in the two countries during the second half of the 1950s, Czechoslovakia's industrial tradition concealed its gradual lagging behind Finland. During the postwar decade, the possibility of the transfer of computing technology and practices was a crucial factor in the spreading of computing technology in both countries. It was the commercial transfer of computers from the West to Finland that made their availability there, until the mid-1970s, relatively grow to three times that of Czechoslovakia. However, while the physical transfer of actual computers across the Iron Curtain was difficult, the intangible transfer of related ideas, designs, and practices was much easier. Moreover, it was not only politics that affected this technological development, but technology was also used to affect politics and form political ties.

Corruption and valuation of multinational corporations

Abstract This paper examines the relationship between U.S. MNCs' valuation and corruption in countries where the MNCs' foreign subsidiaries are located. We uncover that country-level corruption has a multi-dimensional impact on MNCs' valuation. We find that the impact of intangibles is less pronounced for MNCs operating primarily in corrupt countries, consistent with the view that the lack of property rights protection and information asymmetry problems are more prevalent in corrupt environments. We also find that the expansion of a MNC network dominated by corrupt countries negatively affects MNCs' valuation, suggesting that investors may recognize it as an additional risk. However, more importantly, we find that geographic diversification in corrupt countries significantly increases firm value if the MNC has high levels of intangibles such as technological know-how and marketing expertise. Assuming that transactions costs in corrupt countries are higher, our findings are consistent with the notion that the advantages from internalizing the cross-border transfer of intangibles are greater in the presence of corruption. Our findings remain unchanged when we account for endogeneity at the country-and firm-level, when we use alternative corruption measures, and when we re-estimate models by omitting MNCs with operations in locations with big “negative” shocks during the sample period. Moreover, we show that firms with expertise in dealing with corruption enjoy greater benefits from internalization.

Arm's Length Intragroup Intangible Transfers: Economics, Regulations and Actual Behaviors

Despite coherence between the economic arm's length principle and fiscal regulations about intragroup intangible transfers, some studies suppose that multinationals shift profits to affiliates where they are taxed lightly; the reaction of Countries' Administrations seems to be to arrange audits only to raise revenues, but holding arm's length principle in contempt. This situation into a spin because the conduct of multinationals is also stimulated by non-arm's length Administration audits. A way to mitigate this problem (at least to stop the going into a spin) could be for different Countries to agree, in International Tax treaties, that their disputes on enforcing the arm's length principle should be arbitrated by a Third party Authority and not by internal Tax Courts. However in doing so, Countries would loose part of their fiscal sovereignty and they do not seem ready for that yet.

Government Regulations Concerning ITT and Constitutional Rights – A Conflict?

The traditional state function of providing security is being challenged by two developments: the state-legitimising function as a guarantor of security becomes a more and more international task and the complexity and the globalization of social interactions are increasing. These developments are reflected in the field of export control, where, for example, Intangible Transfers of Technology (ITT) are concerned. In particular with regard to the assessment of foreign and security policy concerns during the licensing procedure, a fundamental role is played by the prognosis and theassociated difficulties in the ascertaining of the circumstances. If there is any uncertainty in this respect, the question arises of to what extent the state can resort to the “Precautionary Principle” in the context of ITT control. As a result, the existence of a licensing requirement can only be checked on the basis of the concrete individual case. Nothing more than rules-of-thumb can be formulated in this respect, and these complement the other rules-of-thumb for the weighing of freedom and security mentioned above (direct or indirect reference to the physical security; defence against concrete dangers or prevention of abstract risks) in the field of ITT control: The less obvious or useful the use of transferred knowledge is for certain military purposes (rather appearing uncommon, remote or irrational), the more likely that it is part of basic scientific research and therefore simply not subject to licensing. On the other hand, licensing requirements should exist where the research is directed towards a specific practical goal or a specific practical purpose related to military use that is subject to export controls. Finally, controls are justified depending on how dangerous the type of armament based on it is, and on the degree to which there is a concrete danger to the physical security of the citizens and the peaceful coexistence of the nations. On the basis of real-life circumstance surveys, a catalogue should be developed in the light of the rules-of-thumb mentioned above, forming the basis for the setting up of guidelines for future proceedings.

Intangible Transfer Pricing and Penalties after DHL

Intangible Transfer Pricing and Penalties after <i>DHL</i>

Transfer pricing of intangible property: Harmony and discord across five countries

Transnational corporations (TNCs) regard transfer pricing as the most important tax issue confronting them in the immediate future. Coupled with the increase in the number and type of cross-border transfers of intangible property, concerns arise about the adequacy of current transfer pricing regulations, and the harmony, or lack thereof, of such regulations when a TNC must address both host- and home-country tax authorities. This study of TNCs domiciled in Canada, Germany, Japan, the United Kingdom, and the United States (US) reveals a similarity in corporation approaches to valuing intangible property that transcends national borders. This is in stark contrast to current practices regarding the transfer of tangible goods, which vary by country, rather than by industry or nature of the transferred good. However, in many cases, this agreement is reached because TNCs are using transfer pricing methods for intangible transfers that do not follow the Organization for Economic Cooperation and Development (OECD) and/or US Internal Revenue Service (IRS) guidelines.

Does Location Matter? An Empirical Analysis of Geographic Scope and MNC Market Valuation

This study examines the relationship between market valuation and the geographic scope of U.S. multinational corporations' (MNCs) foreign operations by focusing on the importance of the location of MNC operations. The location factors utilized here capture the degree of segmentation/integration between the United States and the foreign regions where the MNC operates. The results indicate that MNCs with presence in countries with developing economies have significantly higher market values than MNCs that operate only in countries with advanced economies. Furthermore, the market value impact of intangible assets increases with the degree of an MNC's expansion into developing locations only; this result is consistent with the notion that internalizing markets for the cross-border transfer of intangibles leads to competitive advantages.