New Study Sheds Light on How Law Firms and Companies are Managing and Valuing Intangible Assets for Transfer Pricing Purposes

NEW YORK, Oct. 30, 2014 (GLOBE NEWSWIRE) -- As scrutiny by tax authorities mounts, the identification and documentation of intangible assets, such as patents, trademarks and business methods for transfer pricing purposes, is becoming an increasingly significant focus of law firms representing tax clients, according to a new report released by ALM Legal Intelligence and Edgeworth Economics. The report, "Transfer Pricing: Intangible Property, Tangible Profits," explores several key trends related to how transfer pricing groups, international tax groups, tax directors and CFOs are managing and valuing intangible assets in connection with transfer pricing.

"Intangible assets have become a competitive advantage for many companies," said Kevin Iredell, Vice President, ALM Legal Intelligence. "As a result, tax authorities are working to ensure taxes are appropriately captured on associated profits, while multinational corporations are seeking to maximize profits for shareholders. This report reveals a number of interesting insights into how in-house counsel and law firms are approaching new developments, while adhering to existing regulatory requirements."

Among its key findings:

  • 66 percent of law firms work with at least some of their tax clients to identify and document all relevant intangible assets for transfer pricing.
  • 23 percent of law firms surveyed had clients with effective tax rates between 31 percent and 35 percent, and half had clients with tax rates between 21 percent and 30 percent.
  • Almost three-quarters (73 percent) of law firms recommend that their clients align intangible transactional arrangements around business operations, with 75 percent also suggesting the client locate managerial functions with the owner of the intangibles.
  • While 52 percent of firms suggest that clients wait for further developments before shifting substantive operations around intangibles in response to recent OECD recommendations, 76 percent of companies reported themselves as already doing so. Nevertheless, only 3 percent of law firm respondents say they see managerial functions and ownership together "most of the time" in agreements between independent parties.
  • No law firms or companies characterized their tax positions as "very aggressive." Still, 40 percent of law firms expect anywhere from 26 percent to 75 percent of their tax clients to see a significant tax adjustment on intangible asset transfer pricing over the next three to five years. But 59 percent of law firms expect less than a quarter of their clients to see a significant tax adjustment in that time frame. Among companies, 67 percent were somewhat or very concerned about tax adjustments.

"This survey highlights some of the disconnect between what the OECD thinks companies do—or thinks they should do—at arm's length versus what they actually do at arm's length," said George Korenko, Partner, Edgeworth Economics. "A number of companies are already addressing many of the things the OECD is concerned about, and we have helped clients do that by mirroring closely their behavior in transactions with third parties when determining arm's length prices for intercompany transfers."

A link to the full report can be found here:

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About Edgeworth Economics

Edgeworth Economics LLC provides quantitative and economic consulting in the course of litigation and business to its clients, which include world-class law firms, Fortune 500 companies, and government agencies. Edgeworth experts apply their knowledge and experience, along with state-of-the-art computing infrastructure, to help clients efficiently manage complex issues including antitrust litigation, transfer pricing, intellectual property, mergers and acquisitions, class certification, labor, and data management. As a rapidly growing firm with a fresh approach, Edgeworth attracts leaders and teachers from across the industry including PhD economists, MBAs, statisticians, programmers, and engineers. Edgeworth Economics currently has offices in Washington, DC, and Pasadena and San Francisco, CA.

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Source: ALM