Critical Concerns in Transfer Pricing and Practice

By Wagdy M. Abdallah | Go to book overview

8

Intangible Assets and International Taxation
In the twenty-first century, multinational companies (MNCs) have changed their ways of conducting global business from the traditional way on a country-by-country basis to the adoption of new global business models, such as e-commerce and shared services or intangible assets. Globalization of MNCs is always accompanied by more and more cross-border business transactions of goods, services, and technology. For MNCs, transfer pricing systems, of both tangible and intangible assets, should be designed to meet the new challenges more effectively than before.An international transfer pricing is a source of conflict of objectives within MNCs. CEOs and corporate controllers do not agree on the use of transfer pricing techniques for cost allocation of resource decisions, eco nomic business decisions, performance incentives, performance evaluation of foreign and domestic subsidiaries, and overall tax strategies. However, for all MNCs, one common objective of strategic tax planning for intellectual property is to reduce their worldwide long-term tax liabilities. This can only be achieved if three conditions are met (Walsh 2001):
1. The net earnings or profits generated by the intellectual property must be sheltered from income tax in the country or tax jurisdiction in which these profits arise.
2. The low-tax profits must be sheltered from current taxation in the home country or tax jurisdiction where the headquarters of an MNC is established.

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