Tax and IP: follow the money

The release of the final BEPS reports may prompt a detailed analysis of a corporation’s global tax structure, including the location of IP ownership and profit-generating activities, says Linda Pfatteicher of Squire Patton Boggs.

In the wake of the October 5, 2015 release of the final package of “Base Erosion and Profit Shifting (BEPS)” reports from the OECD, as well as the European Commission’s decision on October 21 accusing Fiat and Starbucks of violating EU state aid rules, multinational corporations are looking at their intangible property ownership globally and assessing what, if any, changes need to be made to their global transfer pricing structures. 

Actions 8 to 10 (“Aligning transfer pricing outcomes with value creation, actions”) focus on the idea that profits attributable to value creation should be closely aligned with the economic substance of the transaction, while action 13 (“Transfer pricing documentation and country-by-country reporting”) focuses on more detailed transfer pricing documentation and provides a template for providing financial information on a country-by-country basis (CBC template).

In actions 8 to 10, the report indicates that the focus of any analysis should be on allocation of risk and intangible ownership. In discussing allocation of risks, the OECD focuses on aligning risk-taking with the entity that actually is bearing the risks, can control such risks, and has the financial ability to assume those risks. For intangibles, the report highlights the point that legal ownership of intangibles alone will not be sufficient to justify an allocation of profits and notes that bearing economic risks and rewards associated with intangible ownership should be the driver of profit allocation.