Tax & Accounting Blog

Can Tax Reform Legislate Economic Analysis?

Global Tax Compliance, ONESOURCE, Transfer Pricing February 19, 2013

The Tax Council Policy Institute (TCPI) hosted the 14th annual Tax Policy and Practice Symposium, “Taxation of Intangibles: Implications for Growth, Jobs and Competitiveness,” on February 13-14 in Washington, DC. In attendance were tax leaders from business, government, and academia who provided perspectives of issues regarding intangible assets, intellectual property, and business processes that are important to the competitiveness of the U.S. as a global economic leader.

The Symposium provided varied viewpoints on the importance and business considerations of many types of intangible asset transactions and discussion of how future guidance on intangibles could be improved for enforcement purposes. It was expressed that economic analysis often considers only one side of the transaction. When valuing intangibles, a willing buyer has to purchase at the price, or higher, than the value perceived by the seller; otherwise the transaction does not occur. Analyses of related party transactions only provide one part of that equation and, therefore, it was suggested that this is not always indicative of third party negotiations. In order to demonstrate results of real world buyers and sellers (i.e. third party transactions), it was suggested that third party comparables provide a ‘common sense’ example of the facts of an industry and parties engaging in similar transactions.

Additional viewpoints suggested that economic principles associated with intangible property analysis often do not coincide with principles embedded in the law. It was stated that analysis of intangible property needs a deep understanding of the facts of each transaction specific to the functions employed versus the risks undertaken by each party. It was shared that economic perspective tends to favor risks, whereas the law tends to favor the functions.  Dialogue at the Symposium suggests that tax reform is needed which ensures that sound economic principles coincide with enforcing the future laws guiding the taxation of intangibles.

Have questions on any of the topics shared at last week’s symposium? Share them below or tweet @ktMINEglobal!