Tax & Accounting Blog

Your Questions Answered #1: SIC Codes and the Inherent Risks of Conducting IP Analysis

Global Tax Compliance, ONESOURCE, Transfer Pricing, US Income Tax Compliance August 27, 2012

Following last month’s webcast “SIC Codes: Inherent Risks When Conducting IP Analyses,” dozens of transfer pricing leaders who attended asked key questions that we would like to share in a Q&A discussion. Follow us over the next few weeks as we address the most frequently asked questions on the complex topic of SIC Codes. 

Q1: Why do analysts still use SIC codes as search criteria when such a methodology is fundamentally flawed?

 A1: We’ve run across many reasons why analysts default to SIC code searches, but most tend to fall into three common rationales:

1)  An analyst is trying to replicate a legacy search that was performed for a prior analysis. Some find it useful to recreate an SIC search when converting their methodology to searching by Industry. They will often compare SIC results to Industry results to assess the overlap vs. oversight and also to identify any new related-industries that may provide additional areas for research and analysis.

2)  Analysts aren’t aware of how the intangible property exploited in the licensing transactions can be vastly different from the SIC used by the filings company creating documentation for the SEC. Typically the filing company will use the primary SIC industry classification for the company, regardless of which division, subsidiary or product is represented in the agreement.

3)  Searching by SIC Code could be the method that one’s company has always used and still teaches to its employees, and deviating from that practice is never considered.

Tune in next week when we explain what to do when you find an exhibit where the percent of royalty was redacted.  Have questions of your own? Share them below or tweet @ktMINEglobal!

Want better transparency into licensing transactions? Check out our ktMINE Royalty Rate Resource Guide for the most comprehensive license of intangible property by industry.

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Have questions of your own? Share them below or tweet @ktMINEglobal!