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Overview of IP Migration Models

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Intangibles in the World of Transfer Pricing

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Abstract

Globalization, along with increased digitalization, often leads to the need for business restructurings of multinationals, in particular with regard to consolidation of the group’s intangibles for a number of reasons. Connected with this need, different questions arise from a business perspective as well as from a tax perspective. This chapter will outline the various aspects of an IP migration from different angles and highlight typical IP migration models seen in practice. Further, the history and recent developments on an international level with regard to the competition between tax systems for IP will be outlined as well as typical limitations and drawbacks.

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Notes

  1. 1.

    OECD Transfer Pricing Guidelines, Chapter IX, section 9.4.

  2. 2.

    Development, Enhancement, Maintenance, Protection, Exploitation.

  3. 3.

    OECD Transfer Pricing Guidelines, Chapter VI, sections 6.32 ff.

  4. 4.

    OECD Transfer Pricing Guidelines, Chapter VI, section 6.32.

  5. 5.

    OECD (2015a), Aligning Transfer Pricing Outcomes with Value Creation, sections 6.32 ff.

  6. 6.

    See also Engler and Kachur (2015), Chapter O, paragraphs 161–180.

  7. 7.

    OECD Transfer Pricing Guidelines, Chapter IX.

  8. 8.

    OECD Transfer Pricing Guidelines, section 9.683.

  9. 9.

    OECD Transfer Pricing Guidelines, section 9.39.

  10. 10.

    OECD Transfer Pricing Guidelines, section 9.42.

  11. 11.

    OECD Transfer Pricing Guidelines, section 9.59.

  12. 12.

    OECD Transfer Pricing Guidelines, section 9.93.

  13. 13.

    Council Directive (EU) 2016/1164 of July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market, Official Journal of the European Union.

  14. 14.

    Regulation on the Application of the Arm’s Length Principle under §1(1) of the Foreign Transactions Tax Law in Instances of Cross-Border Transfers of Function (Transfer of Function Regulation—FVerlV), BGBl I 2008, p. 1680, section 3. See in detail: Heidecke et al. (2017).

  15. 15.

    See income tax handling of lease contracts regarding movable assets, BMF IV B/2-S 2170-31/71, BStBl. I p. 264.

  16. 16.

    Section 1253(a) of the Internal Revenue Code.

  17. 17.

    See Section 1 paragraph 3 sentence 9 of the Foreign Transaction Tax Act in connection with Section 1 paragraph 2 sentence 1 of the Transfer of Function regulation.

  18. 18.

    Administrative Principles on the Guidelines for the Examination of Income Allocation between Affiliated Persons in Cases of Cross-Border Relocations of Functions, dated October 13, 2010, BMF IV B 5—S 1341/08/10003, BStBl. I p. 774, recital 100.

  19. 19.

    See OECD Transfer Pricing Guidelines, Section 9.39 ff. for the OECD definition of profit potential.

  20. 20.

    In practice, a Weibull function is frequently used for modelling the obsolescence curve of IP, based on the useful average life and the gradient of obsolescence, i.e., the scale and shape parameters that reflect the characteristics of the IP. The scale parameter can be thought of as where the total expected life of a particular IP is the average area under the distribution function for which the IP has value. The implied average failure rate, or rate of obsolescence, is then obtained from the inverse of the scale parameter.

  21. 21.

    OECD Transfer Pricing Guidelines, section 8.1 ff.

  22. 22.

    OECD Transfer Pricing Guidelines, section 2.114 ff.

  23. 23.

    OECD (2015a), Aligning Transfer Pricing Outcomes with Value Creation, Actions 8-10—2015 Final Reports, OECD Publishing, Paris, Sections 6.32 ff.

  24. 24.

    OECD Transfer Pricing Guidelines, section 8.5.

  25. 25.

    OECD Transfer Pricing Guidelines, section 8.44.

  26. 26.

    OECD Transfer Pricing Guidelines, section 8.45.

  27. 27.

    OECD Transfer Pricing Guidelines, section 8.47.

  28. 28.

    OECD Transfer Pricing Guidelines, section 8.14.

  29. 29.

    OECD Transfer Pricing Guidelines, section 8.12.

  30. 30.

    In the following referred to as “IP box.”

  31. 31.

    Hill (2016).

  32. 32.

    See OECD (1998), Harmful Tax Competition: An Emerging Global Issue.

  33. 33.

    Evers et al. (2015), International Tax Public Finance, 22: 502.

  34. 34.

    OECD (2015b), Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance.

  35. 35.

    OECD (2015b), Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance, point 26.

  36. 36.

    OECD (2015b), Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance, point 28.

  37. 37.

    OECD (2015b), Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance, point 30.

  38. 38.

    OECD (2015b), Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance, point 41.

  39. 39.

    OECD (2015b), Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance, point 34.

  40. 40.

    OECD (2015b), Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance, point 39.

  41. 41.

    An overview of classified harmful tax regimes is provided under “Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance, Action 5—2015 Final Report,” p. 63 table 6.1 IP regimes.

  42. 42.

    OECD (2015b), Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance, point 63.

  43. 43.

    See Liechtenstein (2016), Tax authorities to prepare consultation on implementation of BEPS measures, News IBFD.

  44. 44.

    See Schrievers and Emonts (2016), p. 363 ff.

  45. 45.

    See also an older overview of European IP box regimes in: Evers et al. (2013).

  46. 46.

    German Income Tax Act (EStG), section 4j paragraph 1 sentence 1.

  47. 47.

    German Income Tax Act (EStG), section 4j paragraph 1 sentence 4.

  48. 48.

    See Kaeser et al. (2018).

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Authors and Affiliations

  1. Deloitte GmbH, Frankfurt am Main, Germany

    Martin Schmitt & Merten Zenker

  2. Deloitte, Hamburg, Germany

    Anna-Katharina Christen

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  1. Martin Schmitt
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Correspondence to Martin Schmitt .

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  1. Deloitte GmbH, Hamburg, Germany

    Björn Heidecke  & Marc C. Hübscher  & 

  2. Deloitte GmbH, Munich, Germany

    Richard Schmidtke

  3. Deloitte GmbH, Frankfurt am Main, Germany

    Martin Schmitt

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Schmitt, M., Christen, AK., Zenker, M. (2021). Overview of IP Migration Models. In: Heidecke, B., Hübscher, M.C., Schmidtke, R., Schmitt, M. (eds) Intangibles in the World of Transfer Pricing. Springer, Cham. https://doi.org/10.1007/978-3-319-73332-6_3

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