David Jarczyk - Doing Business After BEPS - ktMINE
® Doing Business After BEPS: Intangibles Arm’s Length Pricing Arm’s Length Deal Structures David R. Jarczyk Founder & CEO, ktMINE www.ktmine.com
- Page 2 and 3: ® Think About. . . Intangibles, Ar
- Page 4 and 5: ® Think About. . . Intangibles, Ar
- Page 6 and 7: ® Think About. . . Intangibles, Ar
- Page 8 and 9: ® Think About. . . Intangibles, Ar
- Page 10 and 11: ® Types of Intangibles??? Intangib
- Page 12 and 13: ® About ktMINE Intangibles, Arm’
- Page 14 and 15: ® Intercompany Movement of Intangi
- Page 16 and 17: ® Intercompany Movement of Intangi
- Page 18 and 19: ® Royalty Rates & Market Rates (Ar
- Page 20 and 21: ® Royalty Rates & Market Rates (Ar
- Page 22 and 23: ® Royalty Rates & Market Rates (Ar
- Page 24 and 25: ® Intangibles, Arm’s Length Pric
- Page 26 and 27: ® Intercompany Deal Structures Int
- Page 28: ® About ktMINE Intangibles, Arm’
®<br />
<strong>Doing</strong> <strong>Business</strong> <strong>After</strong> <strong>BEPS</strong>:<br />
Intangibles<br />
Arm’s Length Pricing<br />
Arm’s Length Deal Structures<br />
<strong>David</strong> R. <strong>Jarczyk</strong><br />
Founder & CEO, <strong>ktMINE</strong><br />
www.ktmine.com
®<br />
Think About. . .<br />
Intangibles, Arm’s Length<br />
Pricing, and Arm’s Length<br />
Deal Structures<br />
<strong>Doing</strong> <strong>Business</strong><br />
<strong>After</strong> <strong>BEPS</strong><br />
RSM Romania<br />
April 4, 2017<br />
www.ktmine.com<br />
2
®<br />
Think About. . .<br />
Intangibles, Arm’s Length<br />
Pricing, and Arm’s Length<br />
Deal Structures<br />
<strong>Doing</strong> <strong>Business</strong><br />
<strong>After</strong> <strong>BEPS</strong><br />
RSM Romania<br />
April 4, 2017<br />
www.ktmine.com<br />
3
®<br />
Think About. . .<br />
Intangibles, Arm’s Length<br />
Pricing, and Arm’s Length<br />
Deal Structures<br />
<strong>Doing</strong> <strong>Business</strong><br />
<strong>After</strong> <strong>BEPS</strong><br />
RSM Romania<br />
April 4, 2017<br />
www.ktmine.com<br />
4
®<br />
Think About. . .<br />
Intangibles, Arm’s Length<br />
Pricing, and Arm’s Length<br />
Deal Structures<br />
<strong>Doing</strong> <strong>Business</strong><br />
<strong>After</strong> <strong>BEPS</strong><br />
RSM Romania<br />
April 4, 2017<br />
www.ktmine.com<br />
5
®<br />
Think About. . .<br />
Intangibles, Arm’s Length<br />
Pricing, and Arm’s Length<br />
Deal Structures<br />
<strong>Doing</strong> <strong>Business</strong><br />
<strong>After</strong> <strong>BEPS</strong><br />
RSM Romania<br />
April 4, 2017<br />
www.ktmine.com<br />
6
®<br />
Think About. . .<br />
Intangibles, Arm’s Length<br />
Pricing, and Arm’s Length<br />
Deal Structures<br />
<strong>Doing</strong> <strong>Business</strong><br />
<strong>After</strong> <strong>BEPS</strong><br />
RSM Romania<br />
April 4, 2017<br />
www.ktmine.com<br />
7
®<br />
Think About. . .<br />
Intangibles, Arm’s Length<br />
Pricing, and Arm’s Length<br />
Deal Structures<br />
<strong>Doing</strong> <strong>Business</strong><br />
<strong>After</strong> <strong>BEPS</strong><br />
RSM Romania<br />
April 4, 2017<br />
www.ktmine.com<br />
8
®<br />
Think About. . .<br />
Intangibles, Arm’s Length<br />
Pricing, and Arm’s Length<br />
Deal Structures<br />
<strong>Doing</strong> <strong>Business</strong><br />
<strong>After</strong> <strong>BEPS</strong><br />
RSM Romania<br />
April 4, 2017<br />
www.ktmine.com<br />
9
®<br />
Types of Intangibles???<br />
Intangibles, Arm’s Length<br />
Pricing, and Arm’s Length<br />
Deal Structures<br />
▲<br />
▲<br />
▲<br />
Patents<br />
Trademarks<br />
What is missing from this list?!?<br />
<strong>Doing</strong> <strong>Business</strong><br />
<strong>After</strong> <strong>BEPS</strong><br />
RSM Romania<br />
April 4, 2017<br />
www.ktmine.com<br />
10
®<br />
IP Inventory<br />
Intangibles, Arm’s Length<br />
Pricing, and Arm’s Length<br />
Deal Structures<br />
<strong>Doing</strong> <strong>Business</strong><br />
<strong>After</strong> <strong>BEPS</strong><br />
RSM Romania<br />
April 4, 2017<br />
▲<br />
▲<br />
▲<br />
▲<br />
▲<br />
▲<br />
▲<br />
▲<br />
Manufacturing intangibles such as patents, inventions, formulations,<br />
recipes, processes, technical information, designs, patterns, or knowhow<br />
Marketing intangibles such as trademarks, trade names, trade dress,<br />
brand names, or service marks<br />
Copyrights and literary, musical, or artistic compositions<br />
Franchises (or business systems)<br />
Software or source code<br />
Methods, programs, systems, procedures, campaigns, surveys,<br />
studies, forecasts, estimates, customer lists, training materials, future<br />
sales/order books, or use rights<br />
Strategic and defensive patents, trademarks, etc. (patent trolls)<br />
Intangible generating services such as research and development,<br />
engineering, or marketing<br />
www.ktmine.com<br />
11
®<br />
About <strong>ktMINE</strong><br />
Intangibles, Arm’s Length<br />
Pricing, and Arm’s Length<br />
Deal Structures<br />
▲ Royalty Rates & Market Rates<br />
Factors of comparability can be used to determine the arm’s length pricing for<br />
comparable transaction.<br />
- Grants - Agreement Type - Filing Company<br />
- Industry - Parties - Exclusivity<br />
- Effective Date - Payments - Term<br />
<strong>Doing</strong> <strong>Business</strong><br />
<strong>After</strong> <strong>BEPS</strong><br />
RSM Romania<br />
April 4, 2017<br />
▲ Independent Party Agreements<br />
How would independent parties structure transactions involving intangibles? This<br />
information is important to understand market deal structures and payment terms.<br />
▲ IP Portfolios<br />
Patent filings, trademark filings, licensing rights and other intangible rights are<br />
numerous for any one entity. Determining the legal ownership is imperative to:<br />
1. Inventorying the intangibles under analysis<br />
2. Providing a starting point in determining economic ownership and benefit<br />
www.ktmine.com<br />
12
®<br />
Intercompany Movement of Intangibles<br />
Intangibles, Arm’s Length<br />
Pricing, and Arm’s Length<br />
Deal Structures<br />
▲<br />
Market Intelligence:<br />
• Tax auditors monitor the intercompany movement of intangibles<br />
• Tax auditors research potential internal comparables<br />
<strong>Doing</strong> <strong>Business</strong><br />
<strong>After</strong> <strong>BEPS</strong><br />
RSM Romania<br />
April 4, 2017<br />
www.ktmine.com<br />
13
®<br />
Intercompany Movement of Intangibles<br />
Intangibles, Arm’s Length<br />
Pricing, and Arm’s Length<br />
Deal Structures<br />
<strong>Doing</strong> <strong>Business</strong><br />
<strong>After</strong> <strong>BEPS</strong><br />
RSM Romania<br />
April 4, 2017<br />
▲<br />
▲<br />
Market Intelligence:<br />
• Tax auditors monitor the intercompany movement of intangibles<br />
• Tax auditors research potential internal comparables<br />
Data Facts:<br />
• Data monitored: patents, trademarks, license agreements, M&A transactions, etc.<br />
• Geography coverage: Global<br />
• Companies coverage: Multi-millions, public and private<br />
www.ktmine.com<br />
14
®<br />
Intercompany Movement of Intangibles<br />
Intangibles, Arm’s Length<br />
Pricing, and Arm’s Length<br />
Deal Structures<br />
<strong>Doing</strong> <strong>Business</strong><br />
<strong>After</strong> <strong>BEPS</strong><br />
RSM Romania<br />
April 4, 2017<br />
▲<br />
▲<br />
▲<br />
Market Intelligence:<br />
• Tax auditors monitor the intercompany movement of intangibles<br />
• Tax auditors research potential internal comparables<br />
Data Facts:<br />
• Data monitored: patents, trademarks, license agreements, M&A transactions, etc.<br />
• Geography coverage: Global<br />
• Companies coverage: Multi-millions, public and private<br />
Implication:<br />
• This information is used as the starting point of discussions regarding economic<br />
ownership<br />
• “Legal ownership is the start of the discussion regarding economic ownership”<br />
• Protect yourself by monitoring your own intercompany movements of intangibles<br />
www.ktmine.com<br />
15
®<br />
Intercompany Movement of Intangibles<br />
Intangibles, Arm’s Length<br />
Pricing, and Arm’s Length<br />
Deal Structures<br />
<strong>Doing</strong> <strong>Business</strong><br />
<strong>After</strong> <strong>BEPS</strong><br />
RSM Romania<br />
April 4, 2017<br />
1/20/2017<br />
SHARP LABORATORIES OF AMERICA<br />
INC assigned 1 US Patent to SHARP<br />
KABUSHIKI KAISHA<br />
1/16/2015<br />
NOKIA CORP assigned 25 US Patents to<br />
NOKIA TECHNOLOGIES OY<br />
3/10/2017<br />
KONICA MINOLTA HOLDINGS INC<br />
assigned 1 US Patent to KONICA<br />
MINOLTA INC<br />
www.ktmine.com<br />
2/26/2015<br />
Licensor: Wynn Resorts Holdings, LLC,<br />
Wynn Resorts, Limited<br />
Licensee: Wynn Las Vegas, LLC<br />
Multi-exclusive Marketing Intangible<br />
16
®<br />
Royalty Rates & Market Rates (Arm’s Length Pricing)<br />
Intangibles, Arm’s Length<br />
Pricing, and Arm’s Length<br />
Deal Structures<br />
▲<br />
Market Intelligence:<br />
• The CUP Method remains the preferred method, even if inexact comparables are used<br />
• There is a misnomer that one must jump to using a profit-split method. (See recent ruling<br />
on Amazon)<br />
<strong>Doing</strong> <strong>Business</strong><br />
<strong>After</strong> <strong>BEPS</strong><br />
RSM Romania<br />
April 4, 2017<br />
▲<br />
Data Facts:<br />
• Geography coverage: Over 75% of observations are outside the U.S.<br />
• Companies coverage: Millions of public and private companies<br />
• Industry coverage: All industries, including agriculture, software, pharmaceutical,<br />
telecommunications, semiconductors, consumer products, etc.<br />
Manufacturing Services Research and Development Trademark Licensing Intangible Property<br />
Technology Licensing Buying Agent Services Toll Manufacturing Contract Manufacturing<br />
R&D Cost Sharing Marketing Distribution Franchise Administrative Services<br />
Joint Development Software International Distributor &<br />
Marketing Services<br />
Commissionaire Services<br />
Sub-License Asset Purchase Cross License Commission Agent<br />
www.ktmine.com<br />
▲<br />
Implication:<br />
• Protect your position by researching market rates<br />
• You should at least know what is available in the public domain<br />
17
®<br />
Royalty Rates & Market Rates (Arm’s Length Pricing)<br />
Intangibles, Arm’s Length<br />
Pricing, and Arm’s Length<br />
Deal Structures<br />
▲<br />
Market Intelligence:<br />
• The CUP Method remains the preferred method, even if inexact comparables are used<br />
• There is a misnomer that one must jump to using a profit-split method. (See recent ruling<br />
on Amazon)<br />
<strong>Doing</strong> <strong>Business</strong><br />
<strong>After</strong> <strong>BEPS</strong><br />
RSM Romania<br />
April 4, 2017<br />
▲<br />
Data Facts:<br />
• Geography coverage: Over 75% of observations are outside the U.S.<br />
• Companies coverage: Millions of public and private companies<br />
• Industry coverage: All industries, including agriculture, software, pharmaceutical,<br />
telecommunications, semiconductors, consumer products, etc.<br />
Manufacturing Services Research and Development Trademark Licensing Intangible Property<br />
Technology Licensing Buying Agent Services Toll Manufacturing Contract Manufacturing<br />
R&D Cost Sharing Marketing Distribution Franchise Administrative Services<br />
Joint Development Software International Distributor &<br />
Marketing Services<br />
Commissionaire Services<br />
Sub-License Asset Purchase Cross License Commission Agent<br />
www.ktmine.com<br />
▲<br />
Implication:<br />
• Protect your position by researching market rates<br />
• You should at least know what is available in the public domain<br />
18
®<br />
Royalty Rates & Market Rates (Arm’s Length Pricing)<br />
Intangibles, Arm’s Length<br />
Pricing, and Arm’s Length<br />
Deal Structures<br />
▲<br />
Market Intelligence:<br />
• The CUP Method remains the preferred method, even if inexact comparables are used<br />
• There is a misnomer that one must jump to using a profit-split method. (See recent ruling<br />
on Amazon)<br />
<strong>Doing</strong> <strong>Business</strong><br />
<strong>After</strong> <strong>BEPS</strong><br />
RSM Romania<br />
April 4, 2017<br />
▲<br />
Data Facts:<br />
• Geography coverage: Over 75% of observations are outside the U.S.<br />
• Companies coverage: Millions of public and private companies<br />
• Industry coverage: All industries, including agriculture, software, pharmaceutical,<br />
telecommunications, semiconductors, consumer products, etc.<br />
Manufacturing Services Research and Development Trademark Licensing Intangible Property<br />
Technology Licensing Buying Agent Services Toll Manufacturing Contract Manufacturing<br />
R&D Cost Sharing Marketing Distribution Franchise Administrative Services<br />
Joint Development Software International Distributor &<br />
Marketing Services<br />
Commissionaire Services<br />
Sub-License Asset Purchase Cross License Commission Agent<br />
www.ktmine.com<br />
▲<br />
Implication:<br />
• Protect your position by researching market rates<br />
• You should at least know what is available in the public domain<br />
19
®<br />
Royalty Rates & Market Rates (Arm’s Length Pricing)<br />
Next door?<br />
Wood floors?<br />
Intangibles, Arm’s Length<br />
Pricing, and Arm’s Length<br />
Deal Structures<br />
<strong>Doing</strong> <strong>Business</strong><br />
<strong>After</strong> <strong>BEPS</strong><br />
RSM Romania<br />
April 4, 2017<br />
Better schools?<br />
Updated kitchen?<br />
www.ktmine.com<br />
20
®<br />
Royalty Rates & Market Rates (Arm’s Length Pricing)<br />
Next door?<br />
Wood floors?<br />
Same technology?<br />
Similar payment?<br />
Intangibles, Arm’s Length<br />
Pricing, and Arm’s Length<br />
Deal Structures<br />
<strong>Doing</strong> <strong>Business</strong><br />
<strong>After</strong> <strong>BEPS</strong><br />
RSM Romania<br />
April 4, 2017<br />
www.ktmine.com<br />
Better schools?<br />
Updated kitchen?<br />
Same functions<br />
and risks?<br />
Same industry?<br />
21
®<br />
Royalty Rates & Market Rates (Arm’s Length Pricing)<br />
Intangibles, Arm’s Length<br />
Pricing, and Arm’s Length<br />
Deal Structures<br />
<strong>Doing</strong> <strong>Business</strong><br />
<strong>After</strong> <strong>BEPS</strong><br />
RSM Romania<br />
April 4, 2017<br />
US$234 million<br />
www.ktmine.com<br />
22
®<br />
Intangibles, Arm’s Length<br />
Pricing, and Arm’s Length<br />
Deal Structures<br />
<strong>Doing</strong> <strong>Business</strong><br />
<strong>After</strong> <strong>BEPS</strong><br />
RSM Romania<br />
April 4, 2017<br />
Intercompany Deal Structures<br />
▲<br />
▲<br />
Market Intelligence:<br />
• Per <strong>BEPS</strong>: It is important to emphasize that comparability analyses are not always primarily<br />
focused on the actual price of the transaction. In many instances, transfer pricing rules operate<br />
to consider whether a transaction has … occurred in a way that is substantively different from<br />
that which is described in contracts or documentation; in ways that are substantively different<br />
from those which would occur at arm’s length; or are not commercially rational.<br />
• This represents the true arm’s length standard<br />
Data Facts:<br />
• Geography coverage: Over 75% of observations are outside the U.S.<br />
• Companies coverage: Millions of public and private companies<br />
• Industry coverage: All industries, including agriculture, software, pharmaceutical,<br />
telecommunications, semiconductors, consumer products, etc.<br />
Manufacturing Services Research and Development Trademark Licensing Intangible Property<br />
Technology Licensing Buying Agent Services Toll Manufacturing Contract Manufacturing<br />
R&D Cost Sharing Marketing Distribution Franchise Administrative Services<br />
Joint Development Software International Distributor &<br />
Marketing Services<br />
Commissionaire Services<br />
Sub-License Asset Purchase Cross License Commission Agent<br />
www.ktmine.com<br />
▲<br />
Implication:<br />
• To protect your position, research market transaction structures (a.k.a. arm’s length)<br />
• Should your transaction be structured differently than those in the market, be prepared to<br />
discuss the reasons for inconsistencies 23
®<br />
Intangibles, Arm’s Length<br />
Pricing, and Arm’s Length<br />
Deal Structures<br />
<strong>Doing</strong> <strong>Business</strong><br />
<strong>After</strong> <strong>BEPS</strong><br />
RSM Romania<br />
April 4, 2017<br />
Intercompany Deal Structures<br />
▲<br />
▲<br />
Market Intelligence:<br />
• Per <strong>BEPS</strong>: It is important to emphasize that comparability analyses are not always primarily<br />
focused on the actual price of the transaction. In many instances, transfer pricing rules operate<br />
to consider whether a transaction has … occurred in a way that is substantively different from<br />
that which is described in contracts or documentation; in ways that are substantively different<br />
from those which would occur at arm’s length; or are not commercially rational.<br />
• This represents the true arm’s length standard<br />
Data Facts:<br />
• Geography coverage: Over 75% of observations are outside the U.S.<br />
• Companies coverage: Millions of public and private companies<br />
• Industry coverage: All industries, including agriculture, software, pharmaceutical,<br />
telecommunications, semiconductors, consumer products, etc.<br />
Manufacturing Services Research and Development Trademark Licensing Intangible Property<br />
Technology Licensing Buying Agent Services Toll Manufacturing Contract Manufacturing<br />
R&D Cost Sharing Marketing Distribution Franchise Administrative Services<br />
Joint Development Software International Distributor &<br />
Marketing Services<br />
Commissionaire Services<br />
Sub-License Asset Purchase Cross License Commission Agent<br />
www.ktmine.com<br />
▲<br />
Implication:<br />
• To protect your position, research market transaction structures (a.k.a. arm’s length)<br />
• Should your transaction be structured differently than those in the market, be prepared to<br />
discuss the reasons for inconsistencies 24
®<br />
Intangibles, Arm’s Length<br />
Pricing, and Arm’s Length<br />
Deal Structures<br />
<strong>Doing</strong> <strong>Business</strong><br />
<strong>After</strong> <strong>BEPS</strong><br />
RSM Romania<br />
April 4, 2017<br />
Intercompany Deal Structures<br />
▲<br />
▲<br />
Market Intelligence:<br />
• Per <strong>BEPS</strong>: It is important to emphasize that comparability analyses are not always primarily<br />
focused on the actual price of the transaction. In many instances, transfer pricing rules operate<br />
to consider whether a transaction has … occurred in a way that is substantively different from<br />
that which is described in contracts or documentation; in ways that are substantively different<br />
from those which would occur at arm’s length; or are not commercially rational.<br />
• This represents the true arm’s length standard<br />
Data Facts:<br />
• Geography coverage: Over 75% of observations are outside the U.S.<br />
• Companies coverage: Millions of public and private companies<br />
• Industry coverage: All industries, including agriculture, software, pharmaceutical,<br />
telecommunications, semiconductors, consumer products, etc.<br />
Manufacturing Services Research and Development Trademark Licensing Intangible Property<br />
Technology Licensing Buying Agent Services Toll Manufacturing Contract Manufacturing<br />
R&D Cost Sharing Marketing Distribution Franchise Administrative Services<br />
Joint Development Software International Distributor &<br />
Marketing Services<br />
Commissionaire Services<br />
Sub-License Asset Purchase Cross License Commission Agent<br />
www.ktmine.com<br />
▲<br />
Implication:<br />
• To protect your position, research market transaction structures (a.k.a. arm’s length)<br />
• Should your transaction be structured differently than those in the market, be prepared to<br />
discuss the reasons for inconsistencies 25
®<br />
Intercompany Deal Structures<br />
Intangibles, Arm’s Length<br />
Pricing, and Arm’s Length<br />
Deal Structures<br />
<strong>Doing</strong> <strong>Business</strong><br />
<strong>After</strong> <strong>BEPS</strong><br />
RSM Romania<br />
April 4, 2017<br />
▲<br />
▲<br />
▲<br />
▲<br />
▲<br />
▲<br />
How do third parties agree to fund R&D and how is ownership of any<br />
existing and subsequent intellectual property treated?<br />
How is a true contract manufacturing agreements structured?<br />
What type of compensation terms are found in third party distribution<br />
agreements?<br />
Would a payment structure differ when engaging in a transaction with<br />
a developing country versus a developed one?<br />
Do licensors or licensees bear the cost of advertising expenditures?<br />
Is the licensor or licensee assuming the risk?<br />
www.ktmine.com<br />
26
®<br />
Intercompany Deal Structures<br />
Intangibles, Arm’s Length<br />
Pricing, and Arm’s Length<br />
Deal Structures<br />
<strong>Doing</strong> <strong>Business</strong><br />
<strong>After</strong> <strong>BEPS</strong><br />
RSM Romania<br />
April 4, 2017<br />
US$3.4 Billion<br />
US$105.7 Million<br />
US$106 Million<br />
www.ktmine.com<br />
27
®<br />
About <strong>ktMINE</strong><br />
Intangibles, Arm’s Length<br />
Pricing, and Arm’s Length<br />
Deal Structures<br />
▲ Royalty Rates & Market Rates<br />
Factors of comparability can be used to determine the arm’s length pricing for<br />
comparable transaction.<br />
- Grants - Agreement Type - Filing Company<br />
- Industry - Parties - Exclusivity<br />
- Effective Date - Payments - Term<br />
<strong>Doing</strong> <strong>Business</strong><br />
<strong>After</strong> <strong>BEPS</strong><br />
RSM Romania<br />
April 4, 2017<br />
▲ Independent Party Agreements<br />
How would independent parties structure transactions involving intangibles? This<br />
information is important to understand market deal structures and payment terms.<br />
▲ IP Portfolios<br />
Patent filings, trademark filings, licensing rights and other intangible rights are<br />
numerous for any one entity. Determining the legal ownership is imperative to:<br />
1. Inventorying the intangibles under analysis<br />
2. Providing a starting point in determining economic ownership and benefit<br />
www.ktmine.com<br />
28