TPG2022 Chapter VI paragraph 6.146

Category: D. Determining arm’s length conditions in cases involving intangibles | Tag: , , , ,
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Where reliable comparable uncontrolled transactions can be identified, the CUP method can be applied to determine the arm’s length conditions for a transfer of intangibles or rights in intangibles. The general principles contained in paragraphs 2.14 to 2.26 apply when the CUP method is used in connection with transactions involving the transfer of intangibles. Where the CUP method is utilised in connection with the transfer of intangibles, particular consideration must be given to the comparability of the intangibles or rights in intangibles transferred in the controlled transaction and in the potential comparable uncontrolled transactions. The economically relevant characteristics or comparability factors described in Section D. 1 of Chapter I should be considered. The matters described in Sections D.2. 1 to D.2.4 of this chapter are of particular importance in evaluating the comparability of specific transferred intangibles and in making comparability adjustments, where possible. It should be recognised that the identification of reliable comparables in many cases involving intangibles may be difficult or impossible.






Related Guidelines

  1. TPG2022 Chapter VI paragraph 6.147In some situations, intangibles acquired by an MNE group from independent enterprises are transferred to a member of the MNE group in a controlled transaction immediately following the acquisition. In such a case the price paid for the acquired intangibles will often (after...
  2. TPG2022 Chapter VI paragraph 6.162The following sections identify some of the specific concerns that should be taken into account in evaluating certain important assumptions underlying calculations in a valuation model based on discounted cash flows. These concerns are important in evaluating the reliability of the particular application...
  3. TPG2022 Chapter VI paragraph 6.145The transfer pricing methods most likely to prove useful in matters involving transfers of one or more intangibles are the CUP method and the transactional profit split method. Valuation techniques can be useful tools. Supplemental guidance on the transfer pricing methods most likely...
  4. TPG2022 Chapter VI paragraph 6.139Where information regarding reliable comparable uncontrolled transactions cannot be identified, the arm’s length principle requires use of another method to determine the price that uncontrolled parties would have agreed under comparable circumstances. In making such determinations, it is important to consider: The functions,...
  5. TPG2022 Chapter VI paragraph 6.138However, it will often be the case in matters involving transfers of intangibles or rights in intangibles that the comparability analysis (including the functional analysis) reveals that there are no reliable comparable uncontrolled transactions that can be used to determine the arm’s length...
  6. TPG2022 Chapter VI paragraph 6.58Because the important functions described in paragraph 6.56 are often instrumental in managing the different functions performed, assets used, and risks assumed that are key to the successful development, enhancement, maintenance, protection, or exploitation of intangibles, and are therefore essential to the creation...


Related Case Law

  1. US vs. Medtronic Inc. June 2016, US Tax CourtThe IRS argued that Medtronic Inc failed to accurately account for the value of trade secrets and other intangibles owned by Medtronic Inc and used by Medtronic’s Puerto Rico manufacturing subsidiary in 2005 and 2006 when determening the royalty payments from the subsidiary....
  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. M/s Redington (India) Limited, December 2020, High Court of Madras, Case No. T.C.A.Nos.590 & 591 of 2019Redington India Limited (RIL) established a wholly-owned subsidiary Redington Gulf (RG) in the Jebel Ali Free Zone of the UAE in 2004. The subsidiary was responsible for the Redington group’s business in the Middle East and Africa. Four years later in July 2008,...
  4. US vs. Amazon, March 2017, US Tax Court, Case No. 148 T.C. No 8Amazon is an online retailer that sells products through Amazon.com and related websites. Amazon also sells third-party products for which it receives a commissions. In a series of transactions  in 2005 and 2006, Amazon US transferred intangibles to Amazon Europe, a newly established...
  5. India vs BG Exploration and Production Ltd., April 2017, Income Tax Appellate Tribunal Delhi, Case no. 2227/Del/2014 & CO 13/Del/2015BG Exploration and Production Ltd. had determined the remuneration for various services provided on an aggregated basis by applying the TNMM method using profit to sales as the Profit Level Indicator. The tax authorities found that a CUP method was the most appropriate...