Reports are surfacing (see Sophie Ashley) on the OECD debates last year on transfer pricing. Two things stick out: the definition of an intangible is still being debated, along with approaches to valuation.
Arwed Crueger, of WTS, an advisory firm in Germany, testified that he was glad to see a revival of the CUP (comparable uncontrolled price) method in valuation.
David Jarczyk, President of ktMINE, agreed that there appeared to be a general consensus that the CUP method should be considered by OECD for IP value analysis:
“Experts should use independent license agreements to determine the appropriate structure of IP transactions as well as to assist in determining a price for the transactions. The use of these benchmarks answers the critical questions raised by the discussion draft: how would independent parties structure an IP transaction given the tested transaction's facts and circumstances, and what price would be agreed upon given this structure?”
The parallel “discussion” in the states surrounds choices available in Treas. Reg. 1.482.4. Alvarez and Marsal describe what might happen with the transfer of U.S.-based IP to a related party in a foreign jurisdiction. Once the IP is clearly identified and vetted in terms of ownership, an arm’s length price must be determined. IP assets are typically valued individually, and regulations provide for several methodologies:
The Comparable Uncontrolled Transaction (CUT) Method under section 1.482-4(c);
The Comparable Profits Method (CPM) under section 1.482-5;
The Profit Split Methods (PSMs) under section 1.482-6; and
Unspecified methods under section 1.482-4(d).