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.
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.
A second practice unit [PDF 320 KB] concerns the treatment of deemed annual royalty income under section 367(d).
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.