Intangible assets are a source of competitive advantages for many companies, whether it be through a patent for a new active compound in a pharmaceutical product or a novel business process for executing transactions. As these assets have become more important, tax authorities have become increasingly strident in their efforts to capture taxes on an appropriate share of the associated profits. In turn, multinational companies and their advisors have worked to structure transactions to keep more of these profits for shareholders.
This tension is one reason for the Organization for Economic Cooperation and Development’s Action Plan on Base Erosion and Profit Shifting and subsequent associated releases.This and similar activities by tax authorities, legislative bodies, and other organizations have created increased uncertainty around transactional structures and pricing for transfers of intangibles. As a result, in-house and law firm tax groups must carefully monitor and assess new developments while at the same time must execute rigorous policies under existing requirements.
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