Technology, licensing, and economic issues in transfer pricing

The tax treatment of intellectual property under Section 482 has seen significant changes in recent years, partly in response to an explosion in technological development throughout the US economy. There are many different classes of intangible, some of which are more valuable than others. Manufactu...

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Bibliographic Details
Published in:Corporate Business Taxation Monthly 2002-01, Vol.3 (4), p.10
Main Authors: Rosenberg, Joel B, McLennan, Barbara N
Format: Article
Language:English
Subjects:
Cost sharing
Intangible assets
Intellectual property
Internal Revenue Code
Licensing
Section 482
Transfer pricing
Online Access:Get full text
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Summary:The tax treatment of intellectual property under Section 482 has seen significant changes in recent years, partly in response to an explosion in technological development throughout the US economy. There are many different classes of intangible, some of which are more valuable than others. Manufacturing intangibles include patents and know-how. Marketing intangibles include brand name identification, relationships with suppliers and retailers, reputation, and customer lists. When corporations transfer intangibles to controlled subsidiaries in such a manner that the subsidiaries earn income from products that contain these intangibles, the subsidiaries are obligated to reimburse the owner for the intangibles transferred to them, in accordance with the income received from the intangibles. The reimbursement for the transfer of intangible property for controlled transactions should be commensurate with the income generated by the property and Section 482. Other issues to consider are the economic analysis of the commensurate with income standard, methods used to measure commensurate with income, and cost sharing agreements.
ISSN:1528-5294