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Leveraging Public Data to Monitor Tax Positions

Since the release of the Organisation for Economic Co-operation and Development (OECD) Base Erosion Profit Shifting (BEPS) guidelines, there have been a lot of questions regarding the existence and availability of pertinent information to support tax positions. There have been numerous calls for comment on various aspects of the original document, each with its own host of questions and issues.

The recent discussion draft BEPS Action 8 Implementation Guidance on Hard-to-Value Intangibles (HTVI) is no different. Specifically, the draft discusses “information asymmetry” between the information corporations have on the movement of their own intangibles and the availability of that information to tax administrations. A common misconception, one perpetuated in the BEPS Action 8 (HTVI) discussion, is that corporations have all the data, while tax administrations must waitoften too longto receive the same information on intercompany transactions.

Historically, tax administrations have been forced to rely upon taxpayers to provide information when the economic ownership of intangibles shifts between entities. Global regulations and the rise of intangible data providers have leveled the playing field.

Data is available for tracking the movement of intercompany IP. The information is on a global scale and does not discriminate between public or private companies. Tax administrations no longer need to wait for corporations to provide details about their intercompany transactions; they have them at their fingertips on a daily basis.

Inventorying Agreements – Not as Easy as it Seems

A major component of a corporation’s intellectual property (IP) and business strategy is to monetize their IP. It falls upon the legal department to handle and negotiate IP transactions, including buying, selling, and in- or out- licenses. However, tax administrations and consultants often do not have a direct line to a company’s legal department. Most rely upon the tax department to provide them with all relevant agreement data in order to benchmark their transactions.

Many times, those tax departments do not have access to all of the relevant information, or their legal department fails to produce the most appropriate set of information. It becomes increasingly difficult to have a complete set of agreement data with which to work.

Importance of Public Agreement Data

Public data becomes paramount, both for the mitigation of internal communication failures and for tax administrators attempting to track this movement of intercompany IP. The ability to access publicly available sets of agreements for taxpayers enables tax administrations to further limit this “information asymmetry.”

Agreements are available for public and private companies. This data contains valuable information for tax administrations to understand:

▪        the structure of transactions

▪        the value of IP

▪        potential intercompany agreements that are available in the public domain

 

Needless to say, tax administrations are already using this data to challenge consultants and corporations. This forces practitioners to acquire this information in order to properly defend their clients during audits from evolving tax administrations. Access to the same information is paramount in creating a thorough and defensible transfer pricing analysis.

For example, a tax administration researching a company such as Blackberry Corporation would find that since 2013, Blackberry Corporation, a US corporation, transferred or assigned the legal ownership of over 60 patents to Blackberry Ltd., a Canadian corporation. This information enables tax administrations and transfer pricing professionals to ask certain questions, such as:

▪        Since the legal ownership has transferred, has there been a change in the economic owner of the intangibles?

▪        Was the transfer part of a new cost-sharing arrangement?

▪        Was there an intercompany purchase agreement for the intangibles drafted to support the transaction?

▪        What was the compensation received by the U.S. corporation for the transfer of the legal ownership of the intangible?

Supplementing Your IP Data

The gap between what companies know and what tax administrations have access to is closing. The scale is no longer tipped in favor of corporations, which often left consultants surprised with the details available to tax administrations. The good news is that the same information available to tax administrations is available to consultants. Make sure you are accessing all available information by utilizing resources for research regarding inter-company transactions.

Author:

John Wiora, COO, ktMINE

As Chief Operating Officer, John oversees strategic initiatives for the company’s growth, manages partner and reseller relationships, and supports product enhancement strategies. John started at ktMINE in 2010 as an Expert Analyst with experience in strategic economic analysis. Having researched trends, patterns and relationships surrounding specialized facets of IP intangibles transactions for a broad range of customers, he is well versed in the needs of our broad customer base. Through his work with ktMINE, and his previous life as a transfer pricing professional, John has personally analyzed thousands of IP license agreements. He has conducted research and contributed to various publications including International Tax Review, Licensing Executive Society (LES), Intellectual Asset Management (IAM), and Business Valuation Resources.  

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