Contents - AL-Tax

11.4 Analysis Under Alternative Regime 157of alumina and aluminum, and, where feasible, to assign ownership of each suchasset to individual Group members. However, as discussed at greater length below,functionally fully integrated trading groups generally develop important intangibleassets jointly, in the normal course of their business. As a result, ownership (and theassociated income) cannot be ascribed to an individual Group member.Consider first the intangible assets employed in alumina and aluminum trading.As discussed at Section 11.1, the key prerequisites to commodities trading include: Access to financing; Access to product; A reputation for reliability; A set of administrative controls that prevents enormously costly errors and facilitatesthe effective management of risk; A sophisticated IT system that enables traders and risk managers to track activityin real time; and, Expertise in market fundamentals, trading strategies, risk management and logistics.Access to financing in and of itself does not constitute an intangible asset incompetitive financial markets. Expertise in market fundamentals and the like doesnot exist separate and apart from the traders that possess this expertise; as such,it too does not constitute an intangible asset. 9 Administrative procedures, systemsand controls, while critical, are not proprietary, and, as such, should be considered“routine” intangible assets (in the parlance of the U.S. regulations).A reputation for reliability is also centrally important, in that it is a preconditionof access to product, financing and, ultimately, counterparties. Moreover, it constitutesan intangible asset. However, a reputation for reliability is a natural outgrowthof conducting a successful global dealing operation over a period of years. 10In this instance (and in virtually all cases involving functionally fully integratedglobal trading operations), individual Group members have contributed equally tothe development of the Group’s reputation. As such, the “reputational” intangibleasset cannot be used to allocate income among Group members.Access to product constitutes an intangible asset under some circumstances. Forexample, if pre-payment arrangements, coupled with long-term offtake agreements,ensure access to alumina or aluminum in tight markets or on favorable terms, suchcontracts should be considered valuable intangible assets. However, as discussedat length above, long-term offtake arrangements are largely a thing of the past,replaced by direct investment in upstream hard assets. Established relationships that9 The Section 482 regulations define intangible assets as patents, inventions, designs, processes,copyrights, trademarks, franchises, methods, programs, etc., that have “substantial value independentof the services of any individual.” See Treas. Reg. Section 1.482-4(b).10 For this reason, the capitalization–amortization approach often used to value intellectual propertyfor residual profit split purposes cannot be used to value this intangible asset (leaving aside thefact that a cost-based valuation method often yields results that bear no relationship to fair marketvalue).