Contents - AL-Tax

Chapter 9Sale of Assets with Embedded IntellectualPropertyOur fifth case study involves a foreign parent based in Japan (FP) and its U.S.subsidiary (USS). FP has developed, manufactures and sells key elements of anelectronic toll collection (ETC) system, certain of which incorporate proprietarytechnology. USS purchases these ETC system components and assets, and, in someinstances, resells them to tolling authorities and performs ongoing program implementationand maintenance services. In other instances, USS retains ownership ofthe ETC equipment and infrastructure assets, and is responsible for maintainingthese assets and implementing the toll collection program. We analyze this caseunder the resale price method and the required return method.9.1 Summary of Key FactsIn the United States and elsewhere, the private sector has played an increasinglyimportant role in the provision of public works and services, traditionally thepurview of federal, state and municipal governments. This trend is evident in: The private construction and ownership of Internet backbones and other coreassets that enable the Internet to function; The sale of major infrastructure assets that were formerly government-owned innumerous countries (e.g., gas and electric utilities, telephone systems, railroads,seaports and water and wastewater systems); Long-term franchises, whereby the private sector provider, or concessionaire,undertakes a large infrastructure project for public use, pays a substantial feeto the governmental authority for the franchise, and retains user fees (or otherrevenue sources); and, The outsourcing of certain services to the private sector that governmental agenciespreviously performed (e.g., the management of welfare programs, garbagecollection, food services, etc.).The construction and/or operation of private toll roads and electronic toll collectionsystems are additional examples of governmental authority being cededto the private sector. ETC systems (e.g., E-Z Pass in much of the NortheasternE. King, Transfer Pricing and Corporate Taxation,DOI 10.1007/978-0-387-78183-9 9, C○ Springer Science+Business Media, LLC 2009125