Tax in a Changing World: The Transfer Pricing of Intangible Assets

While transfer pricing has risen to the forefront of international tax issues in the last two decades, this has coincided with a concomitant increase in the importance of intangibles in the global economy. The so-called 'new economy' of the 21st century has seen business enterprises, particularly multinational business enterprises, divesting themselves of tangible assets while turning to intangible assets to enhance their standing in a world increasingly focused on technological innovation. The spiralling cross-border trade in intangibles has compelled revenue authorities to scrutinize the tax treatment of these assets, along with the realisation that traditional tax practices may be difficult or even impossible to apply to such inter-affiliate transactions. This is especially the case where unique or high-value intangibles are concerned. There is a need to investigate relevant, creative and flexible solutions to this issue. This paper will look at the problems inherent in dealing with the transfer pricing of intangible assets in the context of the uncertainties and challenges surrounding the taxation of such assets in a changing world. Certain measures taken by the US and Australian revenue authorities, countries at the forefront of this rapidly evolving area of taxation law, along with views expressed in the OECD's Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (the OECD Guidelines) will be examined on a comparative basis.