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OECD Revises Special Considerations for Intangibles
On 6 June 2012, following a process which started in 2010, the OECD published an interim draft Revision of the Special Considerations for intangibles in Chapter VI of the OECD Transfer Pricing Guidelines and Related Provisions, concerning the transfer pricing aspects of intangibles. The purpose of the draft is to provide guidance specially tailored to determining arm's length legal conditions for transactions that involve the use or transfer of intangibles. In a nutshell, when determining the arm's length principle, a transaction is evaluated on the basis of whether it conveys economic value from one associated enterprise to another. Taxand Finland discusses the key issues addressed in the draft revision of the Transfer Pricing Guidelines.
According to the draft, intangible is something that is capable of being owned or controlled for use in commercial activities. Intangible benefit can derive from a variety of items, including but not limited to patents, know-how and trade secrets, trademarks, trade names and brands. However, the definition of intangible is open for interpretation and needs to be evaluated on a case-by-case basis. For example, contractual rights and obligations may be recognised as intangibles and thus a commitment to make available the services of a particular group of uniquely qualified employees may constitute an intangible.
The draft is also incomplete in its scope and does not address several key issues and topics related to intangibles such as necessary modifications to cost contribution arrangements, transfer pricing of e.g. market specific advantages, location-based advantages and corporate synergies. These are anticipated in future. Even in its current form, however, the draft highlights the need for a detailed evaluation of the existing transfer pricing valuation techniques. Similarly, a review of the definition of intangible property for transfer pricing purposes is recommended.