The IRS has 160 pages of transfer pricing regulations. They can
appear intimidating, but they can also offer a powerful tool to
lower the taxes of a multi-national corporation.
Although the IRS regulations provide a lengthy list of
intellectual property for tax purposes, IP can be broken down into
trade intangibles (i.e., patents, trademarks, designs, models),
marketing intangibles (i.e., brands), and know-how (i.e., trade
secrets).
Transfer pricing professionals consider IP as anything not
tangible that provides a return in excess of routine.
The author explains several methods of transfer pricing and
analyzes their relationship to the IRS methods for determining the
royalty for IP. They involve inter-company transactions and focus
on the tax impact of differentiating between the appropriate
transfer pricing methodology for a royalty from licensing the IP,
or in the alternative, entering a cost sharing arrangement that
shares the ownership of the IP.
