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ARTICLE · 25 MARCH 2021

Transfer Pricing For AI-Generated Intellectual Property

Mayer Brown
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Consider the following hypothetical: Researchers at a US-parented drug company develop an artificial intelligence (or "AI") system that can identify new therapeutic targets with minimal human intervention.

United StatesTax
Richard Assmus
Richard Assmus
Jason Osborn
Jason Osborn
Anthony D. Pastore
Anthony D. Pastore
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Consider the following hypothetical: Researchers at a US-parented drug company develop an artificial intelligence (or "AI") system that can identify new therapeutic targets with minimal human intervention. The drug company sells the system to its foreign affiliate in a lower-tax jurisdiction. What is the appropriate valuation of the system on this outbound transfer (e.g., based on the cost to create it or based on the value of the IP it is likely to generate)? And, when the AI system later successfully creates a new therapeutic, which entity will be entitled to the non-routine returns from sales of the therapeutic: the US parent that developed the system, the foreign subsidiary that owns the system that developed the therapeutic, or some combination of both?

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