Tag: Definition of intangible

§ 1.482-4(b) Definition of intangible.

For purposes of section 482, an intangible is an asset that comprises any of the following items and has substantial value independent of the services of any individual – (1) Patents, inventions, formulae, processes, designs, patterns, or know-how; (2) Copyrights and literary, musical, or artistic compositions; (3) Trademarks, trade names, or brand names; (4) Franchises, licenses, or contracts; (5) Methods, programs, systems, procedures, campaigns, surveys, studies, forecasts, estimates, customer lists, or technical data; and (6) Other similar items. For purposes of section 482, an item is considered similar to those listed in paragraph (b)(1) through (5) of this section if it derives its value not from its physical attributes but from its intellectual content or other intangible properties ...

TPG2022 Chapter VI paragraph 6.6

In these Guidelines, therefore, the word “intangible†is intended to address something which is not a physical asset or a financial asset, which is capable of being owned or controlled for use in commercial activities, and whose use or transfer would be compensated had it occurred in a transaction between independent parties in comparable circumstances. Rather than focusing on accounting or legal definitions, the thrust of a transfer pricing analysis in a case involving intangibles should be the determination of the conditions that would be agreed upon between independent parties for a comparable transaction ...

TPG2017 Chapter VI paragraph 6.6

In these Guidelines, therefore, the word “intangible†is intended to address something which is not a physical asset or a financial asset, which is capable of being owned or controlled for use in commercial activities, and whose use or transfer would be compensated had it occurred in a transaction between independent parties in comparable circumstances. Rather than focusing on accounting or legal definitions, the thrust of a transfer pricing analysis in a case involving intangibles should be the determination of the conditions that would be agreed upon between independent parties for a comparable transaction ...

TPG2010 Chapter VI paragraph 6.12

It is sometimes difficult to make a clear-cut distinction between income from trade and marketing intangibles. For instance, in research- oriented industries, the trademark and trade name are vital components in securing sufficient income to reward past research and undertake new projects, particularly as patents are time-limited. Building up brand confidence and trademark recognition is therefore vitally important to ensure that the product continues to be commercially viable after the patent expires or even in cases where no patent was developed. See Section D describing arm’s length arrangements involving marketing intangibles ...

TPG2010 Chapter VI paragraph 6.11

A trademark may be sold, licensed, or otherwise transferred by one person to another. Various kinds of licence contracts are concluded in practice. A distributor could be allowed to use a trademark without a licence agreement in selling products manufactured by the owner of the trademark, but trademark licensing also has become a common practice, particularly in international trade. Thus, the owner of a trademark may grant a licence to the trademark to another enterprise to use for goods that it produces itself or buys from other sources (or from the licensor, e.g. where goods or components are purchased generically in a separate transaction without a trademark). The terms and conditions of licence agreements may vary to a considerable extent ...

TPG2010 Chapter VI paragraph 6.10

Trademarks may be established for goods, either for specific products or for a line of products. They are perhaps most familiar at the consumer market level, but they are likely to be encountered at all market levels. Trademarks may also be acquired for services. The ownership of a trademark would normally be vested in one person, for example, a legally independent company. A tradename (often the name of an enterprise) may have the same force of penetration as a trademark and may indeed be registered in some specific form as a trademark. The names of certain MNEs in pharmaceutical or electronic industries, for example, have an excellent sales promotion value, and they may be used for the marketing of a variety of goods or services. The names of well-known persons, designers, sports figures, actors, people working in show business, etc., may also be associated with tradenames and trademarks, and they have often been very successful marketing instruments ...

TPG2010 Chapter VI paragraph 6.9

Patents are usually the result of risky and costly research and development and the developer will try to recover its costs (and earn a return) through the sale of products covered by the patent, licensing others to use the invention (often a product or process), or through the outright sale of the patent. The legal creation of a new trademark (or one newly introduced to a given market) is usually not an expensive matter. In contrast, it will very often be an expensive business to make it valuable and to ensure that the value is maintained (or increased). Intensive and costly advertising campaigns and other marketing activities will ordinarily be necessary as will expenditure on the control of the quality of the trademarked product. The value and any changes will depend to an extent on how effectively the trademark is promoted in the markets in which it is used. Value will also depend on the reputation of the owner for quality in production and rendering of services and on how well this reputation is maintained. In certain cases, the value for the licensor may increase as the result of efforts and expenditure by the licensee. In some cases patents, because of their outstanding quality, may also have a very strong marketing effect similar to that of a pure trademark and payments for the right to use such patents may have to be looked at in much the same light as payments for the right to use a trademark ...

TPG2010 Chapter VI paragraph 6.8

The differences between trade and marketing intangibles can be seen in a comparison of patents and trademarks. Patents are basically concerned with the production of goods (which may be sold or used in connection with the provision of services) while trademarks are used in promoting the sale of goods or services. A patent gives an exclusive right to its owner to use a given invention for a limited period of time. A trademark may continue indefinitely; its protection will disappear only under special circumstances (voluntary renunciation, no renewal in due time, cancellation or annulment following a judicial decision, etc.). A trademark is a unique name, symbol or picture that the owner or licensee may use to identify special products or services of a particular manufacturer or dealer and, as a corollary, to prohibit their use by other parties for similar purposes under the protection of domestic and international law. Trademarks may confer a valuable market status on the goods or services to which they are attached, whether or not those goods or services are otherwise unique. Patents may create a monopoly in certain products or services whereas trademarks alone do not, because competitors may be able to sell the same or similar products so long as they use different distinctive signs ...

TPG2010 Chapter VI paragraph 6.7

For example, marketing activities may encompass a wide range of business activities, such as market research, designing or planning products suitable to market needs, sales strategies, public relations, sales, service, and quality control. Some of these activities may not have an impact beyond the year in which they are performed, and so would properly be treated as current expenses rather than as capitalisable expenditures. Other activities may have both short-term and long-term effect. The treatment of such activities is likely to be important in a functional analysis carried out in order to establish comparability for the purposes of transfer pricing. In some cases, the costs of marketing activities and, with respect to trade activities, R&D expenditures, may be sought to be recovered through the charging for associated goods and services, whereas in other cases there may have been created intangible property on which a royalty is separately charged, or a combination of the two ...

TPG2010 Chapter VI paragraph 6.6

Care should be taken in determining whether or when a trade or marketing intangible exists. For example, not all research and development expenditures produce a valuable trade intangible, and not all marketing activities result in the creation of a marketing intangible. It can be difficult to evaluate the degree to which any particular expenditure has successfully resulted in a business asset and to calculate the economic effect of that asset for a given year ...

TPG2010 Chapter VI paragraph 6.5

Intellectual property such as know-how and trade secrets can be trade intangibles or marketing intangibles. Know-how and trade secrets are proprietary information or knowledge that assists or improves a commercial activity, but that is not registered for protection in the manner of a patent or trademark. The term know-how is perhaps a less precise concept. Paragraph 11 of the Commentary on Article 12 of the OECD Model Tax Convention gives the following definition: “[Know-how] generally corresponds to undivulged information of an industrial, commercial or scientific nature arising from previous experience, which has practical application in the operation of an enterprise and from the disclosure of which an economic benefit can be derivedâ€. Know-how thus may include secret processes or formulae or other secret information concerning industrial, commercial or scientific experience that is not covered by patent. Any disclosure of know- how or a trade secret could substantially reduce the value of the property. Know-how and trade secrets frequently play a significant role in the commercial activities of MNE groups ...

TPG2010 Chapter VI paragraph 6.4

Marketing intangibles include trademarks and trade names that aid in the commercial exploitation of a product or service, customer lists, distribution channels, and unique names, symbols, or pictures that have an important promotional value for the product concerned. Some marketing intangibles (e.g. trademarks) may be protected by the law of the country concerned and used only with the owner’s permission for the relevant product or services. The value of marketing intangibles depends upon many factors, including the reputation and credibility of the trade name or the trademark fostered by the quality of the goods and services provided under the name or the mark in the past, the degree of quality control and ongoing R&D, distribution and availability of the goods or services being marketed, the extent and success of the promotional expenditures incurred in order to familiarise potential customers with the goods or services (in particular advertising and marketing expenditures incurred in order to develop a network of supporting relationships with distributors, agents, or other facilitating agencies), the value of the market to which the marketing intangibles will provide access, and the nature of any right created in the intangible under the law ...

TPG2010 Chapter VI paragraph 6.3

Commercial intangibles include patents, know-how, designs, and models that are used for the production of a good or the provision of a service, as well as intangible rights that are themselves business assets transferred to customers or used in the operation of business (e.g. computer software). Marketing intangibles are a special type of commercial intangible with a somewhat different nature, as discussed below. For purposes of clarity, commercial intangibles other than marketing intangibles are referred to as trade intangibles. Trade intangibles often are created through risky and costly research and development (R&D) activities, and the developer generally tries to recover the expenditures on these activities and obtain a return thereon through product sales, service contracts, or licence agreements. The developer may perform the research activity in its own name, i.e. with the intention of having legal and economic ownership of any resulting trade intangible, on behalf of one or more other group members under an arrangement of contract research where the beneficiary or beneficiaries have legal and economic ownership of the intangible, or on behalf of itself and one or more other group members under an arrangement in which the members involved are engaged in a joint activity and have economic ownership of the intangible (also discussed in Chapter VIII on cost contribution arrangements). Reciprocal licensing (cross-licensing) is not uncommon, and there may be other more complicated arrangements as well ...

TPG2010 Chapter VI paragraph 6.2

For the purposes of this chapter, the term “intangible property†includes rights to use industrial assets such as patents, trademarks, trade names, designs or models. It also includes literary and artistic property rights, and intellectual property such as know-how and trade secrets. This chapter concentrates on business rights, that is intangible property associated with commercial activities, including marketing activities. These intangibles are assets that may have considerable value even though they may have no book value in the company’s balance sheet. There also may be considerable risks associated with them (e.g. contract or product liability and environmental damages) ...

TPG2010 Chapter VI paragraph 6.1

This chapter discusses special considerations that arise in seeking to establish whether the conditions made or imposed in transactions between associated enterprises involving intangible property reflect arm’s length transactions. Particular attention to intangible property transactions is appropriate because the transactions are often difficult to evaluate for tax purposes. The chapter discusses the application of appropriate methods under the arm’s length principle for establishing transfer pricing for transactions involving intangible property used in commercial activities, including marketing activities. It also discusses specific difficulties that arise when the enterprises conducting marketing activities are not the legal owners of marketing intangibles such as trademarks and trade names. Cost contribution arrangements among associated enterprises for research and development expenditures that may result in intangible property are discussed in Chapter VIII ...