Transfer Pricing of Intangibles : A Comparison between the Netherlands and the United States

The IRS's position should not be considered to conflict with the arm's length principle. The OECD countries can always hold this view against the U.S., by stating that highly valuable marketing intangibles were created in the hands of OECD distributors. Now that it has been determined that U.S. views are in accordance with actual arm's length evidence, it is useful to reconsider the other example mentioned in the introduction to this thesis, the Rolling Stones and their holding companies. Every Dutch lawyer knows why Dutch holding companies are very useful in a tax-planning strategy: royalties that flow in or out of the holding companies are exempt of taxes and the Netherlands has a wide network of tax treaties. According to the author, these characteristics, rather than a lenient transfer pricing regime, are the main reason for the perception of the Netherlands as a tax haven for royalties. Summarizing, the author concludes that differences between the Netherlands and the United States as regards the transfer pricing of intangibles are insignificant. The reason is that both countries adhere to the arm's length principle. If both countries continue to do so, and make a strong commitment to use economic analyses to determine arm's length consideration, the author expects no significant disputes between these countries. After all, observing what unrelated parties under similar circumstances would have done, will always provide the right answers. It is now up to the international tax lawyers to create a mutual agreement procedure that does have effect.Analysis of the Courts' decisions: Below is an overview of the transfer pricing cases discussed in this thesis. Especially in the United States, a ‘common-law' country, case law creates precedents and often provides useful insights. In the Netherlands, unfortunately, transfer pricing cases involving intangibles have been exceptional. Since this thesis provides insight in how a transfer pricing analysis should be structured, it is illustrative to see how the Courts performed this analysis. The cases were therefore compared on five issues: 1 What was the issue at stake? 2 Which transfer pricing standards were applied (e.g. 1994 Regulations or OECD Guidelines)? 3 Did the Court perform a functional analysis? 4 Did the Court perform a comparability analysis? 5 Who won?