Licensing of intangible property to foreign subsidiary | KPMG | BE

US: Licensing of intangible property to foreign subsidiary

Licensing of intangible property

The IRS released two new “practice units”—a series of training aids intended to describe for IRS agents leading practices for specific international and transfer pricing issues and transactions. One of the new practice units addresses the licensing of intangible property from U.S. parent to a foreign subsidiary and transfer pricing implications.


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The practice unit [PDF 267 KB] explains that many U.S. businesses have developed valuable intangible property (IP) that is essential to their business operations and may be the main source of enterprise value. As these U.S. businesses expand globally to become multinational enterprises (MNEs), they often transfer their IP to related foreign entities. These IP transfers can take several forms (e.g., sale, license, contribution to equity or in conjunction with a cost sharing agreement (CSA)). 

This IRS practice unit focuses only on transfers of IP by license. Specifically, it looks at the use by a controlled foreign corporation (CFC) of a licensed intangible property owned by a U.S. parent corporation and considers whether the CFC paid an arm’s length amount for use of the intangible property. 

The practice unit provides a summary of potential issues and sets forth a “roadmap” for the IRS examiner to follow in developing the facts in the case.

Royalty income

A second practice unit [PDF 320 KB] concerns the treatment of deemed annual royalty income under section 367(d).

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