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March 11, 2019

Value of customer relations gaining traction in transfer pricing?

The OECD BEPS task force has recently published a discussion document addressing the cross-border tax challenges of the digitalization of the economy. This Discussion Draft proposes fundamental changes to basic principles of international taxation.

One of the proposed digital tax models is called the “Marketing Intangibles” proposal. This proposal advocates a separate regime for taxing all forms of marketing intangibles, including the identification and pricing of a new form of marketing intangible (that is not owned by the legal entity that develops, funds and manages the intangible), ascribed to the jurisdiction where the digital user intangible is exploited, regardless of physical presence. The proposal envisions the application of a residual profit split method to identify income associated with marketing intangibles; this residual income would be allocated among jurisdictions by certain metrics of value (for example, revenue), without regard to the DEMPE functions performed to create the intangible. This proposal also sees a role for formulary apportionment to simplify the calculations and administration.

Marketing Intangibles are defined as intangible assets that relate to “marketing activities, aid in the commercial exploitation of a product or service and/or have an important promotional value for the product concerned. Depending on the context, marketing intangibles may include, for example, trademarks, trade names, customer lists, customer relationships, and proprietary market and customer data that is used or aids in marketing and selling goods or services to customers.”

MARKABLES is the only data vendor worldwide who provides comprehensive data for the valuation and taxation of all marketing intangibles, including trademarks/brands and customer relations. Better still, this data is not separate (from different sources) but integrative at firm level, i.e. as a total of both elements (trademark plus customer relations) per comparable enterprise. MARKABLES will support OECD /BEPS project in their efforts to study the feasibility applicability of the marketing intangibles approach.

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