Watermark
| ATO targets multinationals over transfers of IP rights |
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25 January, 2008 The Australian Taxation Office (ATO) is considering new rules for brand names, trademarks, copyright and licences to deter multinational companies from transferring billions of dollars in intellectual property (IP) rights overseas. The ATO has prepared a confidential discussion paper that outlines an option to tighten laws relating to transfer pricing. The Tax Office has identified intellectual property rights as a hot spot, seeing that royalties as far as international related-party dealings are increasing quite sharply. The ATO is reviewing the royalties paid and received by top listed companies as well as examining external databases that registered the transfer of intellectual property rights offshore. Analysis by The Australian Financial Review has shown that major companies including Cadbury Schweppes, Foster’s Group and Shell Australia recently transferred hundreds of millions of dollars in IP rights overseas. Experts said top-listed companies were taking advantage of countries with more favourable jurisdictions for IP rights, such as Ireland, Singapore, Hong Kong and Switzerland. When ownership rights are transferred overseas, royalties are paid to the overseas parent company, lowering the Australian companies' annual tax bills. The content of the confidential paper is expected to be finalised early next year. Tax experts consulting on the paper have said the proposed new guidelines meant multinational companies would need to prove that a transfer of IP rights was a bona fide commercial transaction to the satisfaction of the ATO. According to the ATO, the purpose of transfer pricing rules “is to counter the underpayment of Australian tax by requiring businesses to price related-party international dealings according to what truly independent parties acting independently would reasonably be expected to have done in the same situation”. “Pricing that is not in accordance with Australia’s transfer pricing rules is often referred to as international profit shifting.” The ATO has adopted the so-called “arm’s-length principles”. On the topic of transfer pricing and marketing intangibles, the ATO considers a range of factors, including the level of investment in developing the brand or trademark in Australia and the duration of the agreement between the trade name owner and local marketer (or corporate subsidiary). The government's response will also be shaped by the release of a draft Organisation for Economic Co-operation and Development Paper examining the issue later this year. As any changes to tax rules relating to transfer of IP rights will have repercussions to companies large and small in their Intellectual Asset Management, Watermark will be following the situation with interest. Roger Green
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