US tax law with respect to the development, ownership, and licensing of intellectual and intangible properties including trademarks, trade names, franchises and patents involves the marriage of both valuation and transfer pricing principles.

Transfer pricing embodies the arms-length standard and is essentially the value determination of such standard. As we know it today, valuation is part “art” and part “science”, thus fostering the outcome of the ultimate tax treatment of such transactions involving intellectual and other intangible properties, with the final result hinging on the facts and circumstances of each particular case.

• The Internal Revenue Code contains many traps in its maze of related provisions which are pertinent to these processes, yet our expertise with the Code, amplified by regulations, rulings and case law, lends structure and guidance as well as global tax efficiency to the valuation and transfer of your intellectual properties.
• Although the outbound provisions of the Code appear generally unfavorable at first blush, our expertise provides you with significant non-recognition opportunities which economically facilitate cross-border transfers of intellectual properties, prompting successful navigation of this maze.
• The transfer of intangibles to a foreign corporation or partnership may qualify for special nonrecognition treatment, subject to certain rules applicable under the Code if it constitutes a “transfer of property” to either a foreign corporation or a foreign partnership.

In a period in which the prices that companies can charge for their goods and services are permanently under pressure, it appears that only companies that have valuable intangibles can actually offer unique products and services and thus escape the continuing process of price erosion.

This explains why large companies especially perform much better financially as they appear to be the preeminent owners of distinctive intangibles, in particular strong brand names. Moreover the rapidly increasing significance of trademarks and other intangibles has given rise to the necessity or desirability of including the value of trademarks developed by a company itself in that company’s annual accounts.

A trademark’s commercial exploitation on an international scale obviously has major cost advantages. Not only are international groups ideally positioned to develop and exploit trademarks in a regional or global context, but they can also introduce a successful trademark that was developed locally in other markets.

In various countries, the financial significance of trademarks to trade and industry, and in particular the above-described tendency towards the development and use of trademarks on a regional or even global scale, has led to detailed tax rules, including the U.S. transfer pricing rules and the OECD transfer pricing guidelines. Cherry, Bekaert & Holland (CB&H) navigates for you the complex intellectual property transfer and source of income rules, including:

• “Fixed Payment” & “Contingent” Sales
• Depreciable/Amortizable Property
• Property Sales Governed by Source Rule
• Transfers of Intangible Assets Between Associated Enterprises

Read Full: Intellectual Property Opportunities

PDF format, 421KB.

Cherry, Bekaert & Holland, L.L.P.
International Tax Group

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