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It is the diversity in definition as to what constitutes an intangible or intellectual property that often leads to difficulties in identifying intangibles within a multinational group, often resulting in the adoption of transfer pricing positions that are at odds with the OECD Guidelines.
In the third instalment in our series on ‘Intangibles and Intellectual Property from a Transfer Pricing perspective’, we consider the breadth of activities that can be considered intangibles or intellectual property from a transfer pricing perspective, including some examples of practical ‘day to day’ scenarios that are often missed in assessing the use of intangibles within a multinational group.
What is an Intangible?
The Oxford English Dictionary provides a definition of intangibles that most people would be familiar with, being “something that is unable to be touched; not having a physical presence”. This definition is broad and while it does define the term ‘intangible’, it does not provide much guidance from a transfer pricing perspective.
A more defined definition of ‘intangible’ can be found in the world of accounting, in particular within the Australian Accounting Standards Board AASB 138. AASB 138 defines ‘intangible assets’ as “a non-monetary asset, without physical substance”. AASB 138 goes on to provide examples of intangibles from an accounting perspective, including:
In addition to the general and accounting definition of ‘intangible’, there are also legal definitions (many of which relate to rights that are able to be registered) and tax definitions. In relation to the definition of intangibles for tax purposes, it is important to note that Chapter VI of the OECD’s Transfer Pricing Guidelines for Multinational Enterprises and Tax Administration 2017 (the 2017 OECD Guidelines) specifically states that the guidance material in Chapter VI of the OECD Guidelines relates to transfer pricing purposes only and is not intended to have any relevance to other tax matters, such as Article 12 of the OECD Model Tax Convention (which contains a detailed discussion of the definition of whether a particular payment should be subject to royalties and withholding tax).