Early this month the Organization for Economic Cooperation and Development (OECD) published the draft of their revised chapter on intangibles for the OECD Transfer Pricing Guidelines. PWC has produced a summary of the revised chapter here.
The importance ktMINE’s database of licenses in full-text with non-redacted variable royalty rates in transfer pricing decision-making is underlined with what PWC calls the very “cornerstone” of any analysis: how would independent third parties behave in similar circumstances? OECD discouraged use of rules-of-thumb in valuations, flatly stated purchase price allocation valuations are not relevant to transfer pricing, and holds a dim view of the cost-based approach.
It appears OECD is no longer bogged down by accounting definitions or market conditions, describing intangibles as assets other than physical or financial assets that are “capable of being owned or controlled for use in commercial activities.” This is critical to the ultimate ownership issues that determine the entitlement to returns from the assets. Here, OECD reiterates the key test is conduct of the parties having control over functions (and risks), looking at control, oversight, and responsibility over development, maintenance and protection of the asset (including the assumption of associated costs and risks).