Contents - AL-Tax

136 9 Sale of Assets with Embedded Intellectual Property(However, this downside is not an issue in those instances where a tested party hasbeen valued recently in the normal course of business for non-tax purposes.)In short, from a practical perspective, the required return methodology representsan improvement over existing methods only under certain circumstances, assummarized below:Scenario A The tested party has recently been valued in the normal course of businessfor non-tax purposes, and the valuation is not potentially distortedby intercompany pricing; and, Tax authorities agree on the use of industry betas, safe harbor loan rates,risk-free rates and the market price of risk, and publish all of the latter ona monthly basis.Scenario B Taxing authorities accept a baseline valuation done at multi-year intervals(e.g., every three years), absent significant changes in the business, withinformed estimates of percentage increases or decreases in value in theinterim; and, Tax authorities agree on the use of, and publish, industry betas, safe harborloan rates, risk-free rates and the market price of risk.Scenario C A sufficient number of comparable companies can be found to calculatevaluation multiples, and these multiples fall within a reasonably narrowrange; and, Tax authorities agree on both (a) industry-specific valuation multiples,and (b) the use of industry betas, safe harbor loan rates, risk-free ratesand the market price of risk, and publish all of the latter on a monthlybasis.