We are therefore pleased to see that our friend and occasional blog contributor Donal O'Connell (Chawton Innovation Services Ltd) has put together a short but very helpful paper with the assistance of Dr Alla Sakharova. This paper appears below. While it is written as prose, it will be poetry in the ears of those whose call to take heed of BEPS has so far received the most muted of responses. This is what he writes:
OECD BEPS Guidelines
The global tax policy landscape is changing dramatically, and the emphasis on intangible assets will shift the scope of service provided by IP professionals. The new international tax rules are closely watched by the tax professionals but the IP community has yet to really recognise the challenges and opportunities it offers to them.
The Organization for Economic Co-Operation and Development (OECD) is at the forefront of efforts to improve international tax co-operation between governments to counter international tax avoidance and evasion.
The OECD/G20 Base Erosion and Profit Shifting (BEPS) package of measures has been agreed upon and over 100 countries and jurisdictions have confirmed their commitment to the consistent implementation of this comprehensive package. The package provides 15 Actions that range from new minimum standards to revision of existing standards, common approaches which will facilitate the convergence of national practices and guidance drawing on best practices. Described by the OECD as
“the most significant re-write of international tax rules in a century”,
the BEPS package provides countries with the powerful tools to standardize compliance requirements and force firms to be transparent about where they generate income.This paper, one of a series on this theme, is a gently edited version of the original, which Donal first posted on LinkedIn here.
An essential new feature of the new regulations is an emphasis on intangible assets. It is increasingly recognized that intangible assets create a substantial part of the business value. However, until now there has been no single definition of intangible assets in use by tax authorities or the OECD, and no proper guidance on how such assets should be reported.
The accurate and complete identification, taxation and valuation of intellectual property and other intangible assets is now recognized as one of the most important areas of the international tax reform and transfer pricing legislation.
OECD BEPS guidelines from an IP management perspective
In the OECD guidelines, it defines intangible assets as including the following categories
• Know-how and trade secrets;
• Trade marks, trade names and brands;
• Rights under contracts and government licences;
As a result of these OECD guidelines, multi-national enterprises (MNEs) will now or in the near future need to recognize the value of intangible assets for their businesses. Businesses will need to consider a regular assessment of their value chains to ensure that intangible assets have been correctly identified, including existing contracts and arrangements for the development, enhancement, maintenance, protection and exploitation of intangibles in light of the new international tax rules. These functional and economic assessments and analyses will require a depth of knowledge of definitional aspects of intangibles, ownership issues, identification and characterisation of intangibles and valuation that identifies arm’s length prices for transactions involving intangibles.
MNEs will need to conduct an exercise rather sooner than later to determine if they are OECD BEPS compliant and to take the necessary actions. This part of the conformity assessment checks if the MNE has the skills and competencies, knowledge and experience, process and systems in place to enable the MNE to complete these IP data management related tasks, and if not, what actions need to be taken to remedy the situation.
Challenge and opportunity
This provides a unique opportunity for IP professionals to extend their service offering and aggressively occupy this no man’s land – the area of Intangible Assets and OECD BEPS compliance.
The market research shows that, until recently, transfer pricing and Intangibles have been mostly in focus of the Big Four accounting firms and transfer pricing professionals. However, there are examples of some law firms and intellectual property firms showing interest towards this new area.
OECD BEPS Compliance offers a great opportunity to IP professionals, but to win it requires a cross discipline team with knowledge and understanding of the different forms of intangible assets, their identification and valuation in the context of business strategy and value chain, with experience of the different IP activities as listed by the OECD, with insights into how MNE organise and operate their IP activities, and with an appreciation of the goals and objectives of the OECD BEPS guidelines.