TPG2017 Chapter VI paragraph 6.75

Category: C. Transactions involving the use of intangibles, OECD Transfer Pricing Guidelines (2017), TPG2017 Chapter VI: Special Considerations for Intangibles | Tag: , , , , , ,
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The principles set out in this Section B must be applied in a variety of situations involving the development, enhancement, maintenance, protection, and exploitation of intangibles. A key consideration in each case is that associated enterprises that contribute to the development, enhancement, maintenance, protection, or exploitation of intangibles legally owned by another member of the group must receive arm’s length compensation for the functions they perform, the risks they assume, and the assets they use. In evaluating whether associated enterprises that perform functions or assume risks related to the development, enhancement, maintenance, protection, and exploitation of intangibles have been compensated on an arm’s length basis, it is necessary to consider (i) the level and nature of the activity undertaken; and (ii) the amount and form of compensation paid. In assessing whether the compensation provided in the controlled transaction is consistent with the arm’s length principle, reference should be made to the level and nature of activity of comparable uncontrolled entities performing similar functions, the compensation received by comparable uncontrolled entities performing similar functions, and the anticipated creation of intangible value by comparable uncontrolled entities performing similar functions. This section describes the application of these principles in commonly occurring fact patterns.






Related Guidelines

  1. TPG2022 Chapter VI paragraph 6.76A common situation where these principles must be applied arises when an enterprise associated with the legal owner of trademarks performs marketing or sales functions that benefit the legal owner of the trademark, for example through a marketing arrangement or through a distribution/marketing...
  2. TPG2022 Chapter VI paragraph 6.52Where associated enterprises other than the legal owner perform relevant functions that are anticipated to contribute to the value of the intangibles, they should be compensated on an arm’s length basis for the functions they perform under the principles set out in Chapters...
  3. TPG2022 Chapter VI paragraph 6.55The relative value of contributions to development, enhancement, maintenance, protection, and exploitation of intangibles varies depending on the particular facts of the case. The MNE group member(s) making the more significant contributions in a particular case should receive relatively greater remuneration. For example,...
  4. TPG2022 Chapter VI paragraph 6.49The relative importance of contributions to the creation of intangible value by members of the group in the form of functions performed, assets used and risks assumed will vary depending on the circumstances. For example, assume that a fully developed and currently exploitable...
  5. TPG2022 Chapter VI paragraph 6.51The need to ensure that all members of the MNE group are appropriately compensated for the functions they perform, the assets they contribute and the risks they assume implies that if the legal owner of intangibles is to be entitled ultimately to retain...
  6. TPG2022 Chapter VI paragraph 6.72The entitlement of any member of the MNE group to profit or loss relating to differences between actual (ex post) and a proper estimation of anticipated (ex ante) profitability will depend on which entity or entities in the MNE group in fact assumes...
  7. TPG2022 Chapter VI paragraph 6.33Applying the provisions of Chapters I – III to address these questions can be highly challenging for a number of reasons. Depending on the facts of any given case involving intangibles the following factors, among others, can create challenges: i) A lack of...
  8. TPG2022 Chapter VI paragraph 6.35Legal rights and contractual arrangements form the starting point for any transfer pricing analysis of transactions involving intangibles. The terms of a transaction may be found in written contracts, public records such as patent or trademark registrations, or in correspondence and/or other communications...
  1. EU JTPF, March 2017, Report on the Use of Comparables in the EUIn March 2017 the JTPF agreed the Report on the Use of Comparables in the EU. The report establishes best practices and pragmatic solutions by issuing various recommendations for both taxpayers and tax administrations in the EU and aims at increasing in practice...
  2. OECD releases text of the new MLC to Implement Amount A of Pillar One11 October 2023 the OECD/G20 Inclusive Framework has released the text of a new multilateral convention that updates the international tax framework to co-ordinate a reallocation of taxing rights to market jurisdictions, improve tax certainty, and remove digital service taxes.  The Multilateral Convention to...

Related Case Law

  1. US vs GlaxoSmithKline Holdings, September 2006, IR-2006-142In September 2006 the Internal Revenue Service announced that it has successfully resolved a transfer pricing dispute with Glaxo SmithKline. Under the settlement agreement, GSK will pay the Internal Revenue Service approximately $3.4 billion, and will abandon its claim seeking a refund of...
  2. US vs Medtronic, August 2018, U.S. Court of Appeals, Case No: 17-1866In this case the IRS was of the opinion, that Medtronic erred in allocating the profit earned from its devises and leads between its businesses located in the United States and its device manufacturer in Puerto Rico. To determine the arm’s length price...
  3. India vs. Maruti Suzuki India Ltd.Maruti Suzuki India manufactures and sells cars and spare parts. A license agreement had been entered with the group parent for use of licensed information and trademark for the manufacture and sale of the products. Hence, Maruti Suzuki paid royalties to the parent for trademark...
  4. Germany vs “Group Name GmbH”, August 2000, I R 12/99A German group company’s payment for use of the group name was not found to be deductible under German transfer pricing regulations. Guidance on payments for use of the group name has been provided in the Transfer Pricing Guidelines 6.81 – 6.85 and...