The transfer of intangible property from one enterprise to an affiliate resident in a different country can significantly reduce the tax burden of a company. Conversely, such transfers reduce the tax revenues in countries where higher tax rates are being avoided. Countries on the short end are attempting to expose the transfer of the intangibles as improper, unfairly priced, not “arm’s length.”
How does it work? One way is to attribute revenue to a marketing intangible, transfer the intangible to the lesser tax state (and a fair price) and allocate accordingly. Writing in TheLawyer.com, international transfer pricing attorney Stefano Simontacchi offered another example:
Marketing intangibles is one example: in recent cases a major reduction of the effective tax rate was achieved by centralizing the intellectual property in a company resident in a low tax jurisdiction and charging the other group companies - mostly resident in high tax jurisdictions - with royalties.
In effect, this is income transfer to the lower-taxed jurisdiction. It’s not surprising ktMINE is a favorite of revenue authorities and corporate tax departments alike, as there are huge tax dollars at stake in proving such transactions are arm’s length, and ktMINE is the best tool available for locating similar (arm’s length) licenses and comparable royalty rates.