Transfer Pricing and Intellectual Property: Identifying Issues and Reviewing the Existing and Alternative Solutions

Purpose The purpose of this paper is to discuss tax and accounting issues related to the evolution of the intellectual property box in Portugal and present a preliminary view of its impact. In 2014, Portugal adopted an Intellectual Property (IP) box, exempting from corporate taxation half of the gross revenue obtained from selling IP rights. In 2016, the country adopted a new IP regime, in line with BEPS’ recommendations, with stricter rules for exempting income. The “modified nexus approach”, recommended by the OECD, was the cornerstone of legal changes. The research questions addressed in this paper are as follows: was the Portuguese IP box, set up in 2014, internationally competitive in terms of the scope of qualifying assets and the tax rate when compared to other EU countries? Could its legal design induce potential corporate tax avoidance? Does the new IP box framework reduce avoidance opportunities and does it increase tax and accounting complexity for companies and tax auditors? Design/methodology/approach The methodology used in this paper is based on the legal research method combined with a case study analysis of the IP box in Portugal. The economic motivation for legal changes, the interaction between the tax authorities and the policy makers in the wake of BEPS’ recommendations, and the economic crisis that Portugal faced, influenced legislative options. A multidisciplinary approach is required to analyse the IP box modifications, and the methodology follows this line of enquiry. Findings The author concludes that the 2014 IP box was not competitive in terms of the scope of qualifying assets and the tax rate. However, it could be a potential tool for tax avoidance, mainly linked to transfer pricing strategies. Legal changes, introduced in 2016, by enacting stricter rules for granting tax benefits, fit a worldwide trend of restraining profit shifting opportunities linked to intangibles. The new framework clearly impacts tax and accounting complexity, for companies and tax auditors. Preliminary data, for 2014 and 2015, show a negligible impact of the IP box on corporate taxation. Practical implications The “modified nexus approach” is not a definitive panacea for fighting tax avoidance. Multinationals may move resources (e.g. highly specialized persons) to entities that are developing IP, curtailing the restriction associated with acquiring services from related parties. Tax authorities may fight these schemes, but face a challenging task. The grandfathering option and new accounting choices related to expense allocation are delicate issues. Not all countries adopted BEPS’ recommendations at the same time, which may impact international profit shifting activities and increase tax authorities’ costs to control them. The paper also provides preliminary and exploratory evidence that IP boxes, per se, do not suddenly raise the R&D activity of firms. Originality/value The analysis highlights legal, accounting and economic issues in dealing with changes in investment incentives and can or may be a useful remainder for countries in the process of setting up, or amending, IP boxes.

Download Full-text

Patents and Related Rights

10.1093/oxfordhb/9780198758457.013.22 ◽

2017 ◽

Author(s):

Dan L. Burk

Keyword(s):

Intellectual Property ◽

Technological Innovation ◽

Patent Law ◽

Patent System ◽

Technical Innovation ◽

Utility Models ◽

Alternative Solutions ◽

Theoretical Issues ◽

Widespread Interest ◽

Plant Breeders Rights

Patents, along with the related systems of utility models and plant breeders’ rights, are the forms of intellectual property most closely associated with technological innovation. Some form of patent system is found in essentially all modern states, and patents have become a ubiquitous feature of the global legal and technical environment. Patents and related rights are therefore highly dynamic areas of law, displaying constant evolution of doctrine simultaneously in multiple jurisdictions. The shifting diversity of national approaches offers an opportunity to consider how characteristic themes and problems of patent law have been approached from different perspectives, and lend a sense of better, worse, and alternative solutions to the problem of prompting technical innovation. Consequently, this chapter surveys particular doctrinal problems in patent law and allied laws, uses them to illustrate both broad theoretical issues endemic to such laws, and ties those issues to ongoing controversies that have attracted widespread interest.

Download Full-text

International Transfer Pricing and Intellectual Property: The PrimeCo Case

Issues in Accounting Education ◽

10.2308/iace.2007.22.4.769 ◽

2007 ◽

Vol 22 (4) ◽

pp. 769-774

Author(s):

Mark J. Myring ◽

Robert Bloom

Keyword(s):

Intellectual Property ◽

Cell Phone ◽

Transfer Pricing ◽

Asia Pacific ◽

Pacific Region ◽

Ethical Aspects ◽

Asia Pacific Region ◽

Foreign Markets ◽

Cellular Telephone ◽

Transfer Prices

This case introduces students to issues related to international transfer pricing for intellectual property. PrimeCo is a manufacturer of cellular telephone (cell phone) components. The firm has invested extensively in research and development activities. As a result, it has received many patents for innovative cell phone parts. PrimeCo recently established a subsidiary (SubCo) to manufacture its products for the Asia-Pacific region. The establishment of SubCo raises many difficult questions. Specifically, students are asked to address issues related to modes of entry into foreign markets, methods of transfer pricing in royalty arrangements, tax laws underlying transfer pricing, and ethical aspects of applying transfer prices.

Download Full-text

CONTROLLED TRANSACTIONS WITH INTANGIBLE ASSETS IN THE CONTEXT OF THE BEPS ACTION PLAN

Herald of Kyiv National University of Trade and Economics ◽

10.31617/visnik.knute.2021(135)08 ◽

2021 ◽

Vol 135 (1) ◽

pp. 101-118

Author(s):

UMANTSIV Halyna ◽

SHUSHAKOVA Iryna

Keyword(s):

Intellectual Property ◽

Scientific Knowledge ◽

Development Process ◽

Intangible Assets ◽

Transfer Pricing ◽

Action Plan ◽

Economic Relations ◽

Business Transactions ◽

Tax Legislation ◽

Transfer Prices

Background. The Organization for Economic Co-operation and Development has launched a number of initiatives to solve global tax problem, since there are inconsistencies and gaps in the international tax legislation. The BEPS Plan is the most significant of these initiatives. Analysis of recent researches and publications. The review of scientific articles and publications revealed the relevance of the study of the analysis of the conditions of operations controllability with intangible assets and the choice of transfer pricing method through the identification of potential signs of comparability. The aim of the article is to study the approaches to the transfer pricing of intangible assets in the BEPS context in accordance with the concept of their implementation of the "outstretched hand" principle. Materials and methods. Different methods of scientific knowledge such as analysis, synthesis, deduction and induction, as well as methods of comparison, generalization and systematization have been used in the article. Results. Modern tendencies of development of the sphere of intellectual property have been analyzed. The globalization dimension of the processes of intellectual property formation has been studied and the place of Ukraine in these processes is revealed. The main trends of foreign economic transactions with intangible assets are identified. Business transactions with intangible assets for the purposes of transfer pricing are specified. The main measures for the implementation of the BEPS Action Plan in Ukraine are presented. Conclusion. It is identified that the results of comparability of the conditions of the controlled operation, the parties to the controlled operations with intangible assets should receive compensation based on the value they create through the performed functions, used assets and risks assumed in the development process, strengthening, maintenance, protection and use of such assets. This necessitates the formation of approaches to the tax administration of transfer prices, which will ensure the creation of competitive economic relations, the introduction of clear and transparent mechanisms for determining contract prices. Keywords: transfer pricing, related parties, controlled transactions, BEPS, intangible assets, royalties, international trade in services.

Download Full-text

Patents and Allied Rights: A Global Kaleidoscope

10.31235/osf.io/9prg2 ◽

2016 ◽

Author(s):

Dan Burk

Keyword(s):

Intellectual Property ◽

Technological Innovation ◽

Patent Law ◽

Patent System ◽

Technical Innovation ◽

Utility Models ◽

Alternative Solutions ◽

Theoretical Issues ◽

Widespread Interest ◽

Plant Breeders Rights

Patents, along with the related systems of utility models and plant breeders' rights, are the forms of intellectual property most closely associated with technological innovation. Currently some form of patent system is found in essentially all modern states, and patents have grown to be a ubiquitous feature of the global legal and technical environment. Patents and related rights are therefore highly dynamic areas of law, displaying constant evolution of doctrine simultaneously in multiple jurisdictions. The shifting diversity of national approaches offers an opportunity to consider how characteristic themes and problems of patent law have been approached from different perspectives, and lend a sense of better, worse, and alternative solutions to the problem of prompting technical innovation. Consequently, this chapter surveys particular doctrinal problems in patent law, using them to illustrate both broad theoretical issues endemic to the patent system, and tying those issues to ongoing controversies that have attracted widespread interest.

Download Full-text