Migrating Intangibles in a Transfer Pricing Setting: More Complex than Just the Movements of Functions, Assets, and Risks
9 Pages Posted: 5 Jun 2006
Date Written: January 1, 2006
Recently, there have been significant discussions regarding government crackdowns on tax havens related to multinational organizations moving profits offshore. From a tax perspective, any financial planning that involves moving profits offshore by multinational organizations is justifiable if the corresponding functions, assets, and risks borne to earn these profits are also shifted offshore. The incentive to minimize taxes by shifting these functions, assets, and risks to low tax jurisdictions are to be expected. After all, the world economy has become increasingly globalized and the need to minimize after-tax profits is not only advantageous to improving corporate profits, but is also necessary in order to stay competitive. While implementing such a framework is a long and complex process, if done correctly, it is beneficial for all involved. However, we often find that companies are too quick to decide on migrating intangibles without fully understanding the economic environment that these low tax jurisdictions provide. Yet, it may be the case that migrating intangibles to low tax countries could result in a fall in a company's after tax profits. Understanding whether or not the jurisdictions to which the assets are being migrated can protect multinational corporations' legal ownership and consequently their ability to exploit profits from assets protected, must be evaluated. There is not much use in migrating intangibles to a foreign jurisdiction unless the jurisdiction has the ability to protect the asset. Otherwise, anyone could infringe on the asset and reduce the profits associated with it.
Keywords: Transfer Pricng, Migrating Intangibles
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