TPguidelines

Where the business restructuring provides for a transfer of an intangible followed by a new arrangement whereby the transferor will continue to use the intangible transferred, the entirety of the commercial arrangement between the parties should be examined in order to accurately delineate the transaction. If an independent party were to transfer an asset that it intends to continue exploiting, it would be prudent for it to negotiate the conditions of such a future use (e.g. in a license agreement) concomitantly with the conditions of the transfer. In effect, there will generally be a relationship between the determination of an arm’s length compensation for the transfer, the determination of an arm’s length compensation for the post-restructuring transactions in relation to the transferred intangible, such as future licence fees that may be payable by the transferor to be able to continue using the asset, and the expected future profitability of the transferor from its future use of the asset. For instance, in an arrangement whereby a patent is transferred for a price of 100 in Year N and a licence agreement is concomitantly concluded according to which the transferor will continue to use the patent transferred in exchange for a royalty of 100 per year over a 10-year period, it is likely that at least one of the two prices is not arm’s length or that the arrangement should be delineated as something other than a sale and concomitant license back. In some circumstances, the accurate delineation of the transaction might conclude that the arrangements reflect the provision of financing, as illustrated in Example 16 of the Annex to Chapter VI.