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

Abstract

One of the main problems in evaluating intangibles is that the existing Arm Length Standard (ALS) methods are based on evaluation of future value of intangibles in their very early development stage before there is sufficient information on its value. When all the information and control is in hands of the multinational companies, it is relatively easy to control the results of the evaluation, and to facilitate the over or under estimation of such intangibles’ value to satisfy their needs. According to this paper opinion, the solution to this problem is found in the ability to coordinate the evaluation in the present time with the evaluation in the future. In order to solve the problem without steering away from the ALS, the paper proposes a solution in the form of a progressive “safety net”, which can be applied on all the transfer pricing evaluation methods, and will provide multinationals incentives to improve the accuracy of their intangibles’ future value evaluation. All in all, creating a link between the present and future values allows us to use of much simplified ALS methods with more certain results.

Keywords: International Taxation, Transfer Pricing, Arm Length Standard, Formulary apportionment, Intangibles, Intelectual Property

JEL Classification: F38, H21, H26, K34