Contents - AL-Tax

Chapter 12Decentralized Ownership of IntellectualPropertyThis case study involves an Internet-based multinational firm with operations innumerous countries. Its intangible assets consist largely of discrete user communities,which have been developed by separate legal entities operating in varioustaxing jurisdictions, and secondarily of an IT platform used in all locations.Hence, ownership of intangible assets is not concentrated in a single Groupmember.Diffuse ownership of intangible assets other than trademarks is comparativelyunusual (and trademarks can generally be addressed in a transfer pricingcontext through methods other than profit splits). This fact pattern arises primarilywhen one established company acquires another, and has not yet integratedthe separate research and marketing groups within each organization. Amultinational firm that has been built up in part through acquisitions may alsodecide not to integrate the separate research and/or marketing groups. For example,this may be the case if (a) the research groups have complementary, butclearly distinct, areas of expertise, (b) consumers in individual countries havemarkedly different preferences (as is often the case vis-a-vis the United Statesand Europe), or (c) the firm manufactures electronics products and must thereforedeal with different voltage requirements and standard-setting and certificationbodies.In short, contrary to several examples in the Section 482 regulations (e.g., theexample under Treas. Reg. Section 1.482-6 and Example 8 under Treas. Reg.Section 1.482-8), it is relatively uncommon for individual members of a multinationalgroup that has developed organically to maintain separate research facilities,or otherwise independently develop intangible assets other than trademarks. (Thelarge fixed costs associated with many types of research facilities create a compellingincentive to centralize the research function. Additionally, in many instances,research activities are, by their nature, cooperative, and face-to-face interactionamong researchers can be extremely important.) Some notable exceptions to thisgeneral observation, ironically, are e-commerce companies. Despite the fact thatsuch firms often have a limited physical presence, and national boundaries do notexist in cyberspace, there are numerous impediments to the formation of genuinelyborder-free e-commerce websites. Such obstacles include:E. King, Transfer Pricing and Corporate Taxation,DOI 10.1007/978-0-387-78183-9 12, C○ Springer Science+Business Media, LLC 2009161