Wednesday, 9 March 2016

IP taxation and BEPS: what's in store?

Three weeks or so ago ("When no opportunity for misunderstanding is missed: the case of IP taxation", here), this weblog flagged a forthcoming roundtable on 23 March on the taxation of intellectual property, an event that is both topical and relevant as businesses address the new and little-understood base erosion and profit-shifting (BEPS) regime. Backed by the OECD, BEPS is seen by the European Commission as a key element in its fight to combat corporate tax avoidance on an EU-wide basis. 

Ahead of this month's event, here's a thought-taster in the form of a brief exchange between Aistemos CEO Nigel Swycher and members of the roundtable's expert panel Paul Morton (Head of Tax, RELX), Kelvin King (Valuation Consulting) and Dominic Robertson (Tax Partner, Slaughter and May):

Nigel: What do you think is the greatest challenge is when it comes to the taxation of intangibles and intellectual property?

Dominic: In many cases, the biggest difficulty lies in defining what counts as an intangible. Is a brand, for example, a single intangible or a series of related intellectual property rights, where the value of the sum of the parts is much less than the value of the whole?

Paul: It is increasingly difficult to identify where intangibles should be regarded as owned. In more and more cases, intangibles are the result of cross-border collaboration.

Nigel: So, apart from not being able to define or locate intangibles, it sounds like we are off to a good start. Will the latest OECD and other reforms make things better or worse?

Paul: Worse. The BEPS project has given some credibility to many new ideas about taxing the digital economy!

Dominic: I agree - the move from allocating value based on contract to allocations based on the location of “significant people” is understandable, but creates much more scope for disputes. 
Kelvin: Better. IP tax valuation principles have always acknowledged subjectivity and need to put your case for negotiation. At least OECD have moved us away from the farcical exemplars of market, comparability and worse, previous practice as bearing a relationship to the required arm’s length price determination which will now be based on valuation techniques. 
Nigel: Oh dear. Why do you think international tax issues generate so much controversy?

Paul: International tax is quite hard to understand because it is rooted in businesses which are increasingly complex and diffused. It is easy to express simplistic ideas about fairness and much harder to articulate the real underlying issues and problems. There are no simple answers!

Dominic: No country will ever believe that a multinational is paying it too much tax. And, in an age of budget austerity, raising more tax from companies (which obviously don’t vote) will always be popular. 
Kelvin: Tax authorities have become more aggressive with some countries also introducing criminal penalties. Transfer Pricing compliance reviews in multinationals must regularly review for impairment and now focus globally not country by country. That is complex, costly and burdensome. 
Nigel: Sounds like things may get harder before they get easier. I look forward to continuing the discussion on 23 March.
The roundtable is sufficiently spacious to accommodate a few more dedicated souls. Those who carry the burden of responsibility for corporate tax strategy are particularly welcome.

For further details click here.

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