Study On Multinational Transfer Pricing Tax System Of Intangible Assets

Transfer pricing is the primary means of international tax avoidance for multinational corporations, and also a major international tax issues that national tax authorities have to face. With the development of economic globalization and knowledge economy, many companies are realizing that its corporate value growth rate depends on the intangible assets rather than tangible assets. One of the main advantages of multinational corporations is that they possess a high level of knowledge assets.With intangible assets transactions between multinational companies becoming more frequent, the things are becoming increasingly common that many multinational companies use the tax system differences between countries, the loopholes of national foreign-related tax legislation and international tax agreement to evade tax by transfer pricing of intangible assets. They charge more or less royalties, or unreasonably absorption the costs or share the benefits between the associated enterprises for the intangible assets of joint development, so that the parent company can influence the costs and profits of the subsidiary in order to reduce tax negative and achieve the goal of maximizing their global profits.Intangible assets possess the properties of exclusive, proprietary and so on, which leads that it is difficult for the tax authorities to find comparable uncontrolled transaction and to determine the normal trade price during the transfer pricing adjustment, and it is a more subtle form of pro fit-shifting. So using intangible assets transfer pricing to evade tax is increasingly becoming a favored form of transfer pricing tax avoidance. Meanwhile, for the high-cost and high-risk characteristics of the development of intangible assets, multinational associated enterprises usually develop and use an intangible assets jointly, which resulted that it is difficult to determine the ownership of intangible assets for tax authorities. At this time, the transfer pricing of intangible assets is against the interests of the host country, and it also results in serious problems of tax control for tax authorities.As China's socialist market economic system gradually improved and the rapid development of knowledge-based economy, intangible assets transactions will be more active. On the one hand, the new "Enterprise Income Tax Law" issued a series of tax incentives to encourage the development and transfer of intangible assets, which will promote the development and transactions of intangible assets. On the other hand, after the "two tax merger", the foreign-invested enterprises in China and foreign enterprises are facing increased cost of revenue, which leads that these enterprises will have strong motivation to evade tax by using transfer pricing of intangible assets. Meanwhile, with the enhancing capabilities of independent research and development and the increasing foreign investment, domestic enterprises will also transfer intangible assets at low-price to foreign affiliates to evade tax,Therefore, China tax department should pay more attention to the issue of intangible assets transfer pricing adjustment within the group of multinational corporations.Countries around the world attach great importance to the legislation of intangible assets transfer pricing within the group of multinational associated enterprises, the U.S. and OECD's legislative provisions on transfer pricing of intangible assets are more mature, and they all make a special consideration and more detailed explanation of the method of transfer pricing adjustments of intangible assets and have rich experiences in the theory and practice. However,our country's tax system on transfer pricing is package of transfer pricing regulations which contains tangible assets, intangible assets and provision of services and financing, and transfer pricing of intangible assets did not be given special consideration.In order to maintain our legitimate tax benefits in international economic exchanges and encourage fair competition, China should also refer to the advanced theories of international transfer pricing adjustments on intangible assets and the relatively sound legislative experience of U.S. and OECD to improve our tax system of transfer pricing of intangible assets.In this paper, the writer have analysed two aspects:the characteristics of intangible assets and the tax system of transfer pricing of intangible assets. Starting with analyzing the definition, characteristics, and value formation processes of intangible assets, then learning from the legislative experience of the United States and OECD, and systematically exploring the various components of intangible assets transfer pricing:the basic principles that transfer pricing adjustments should follow, applicability of the method of adjustment, advance pricing arrangement, cost contribution arrangement and the subsequent return to pre-check system and so on. Finally, according to our current tax legislations and provisions of transfer pricing of intangible assets, analyzing the problems of our country's intangible assets transfer pricing system and putting forward a sound proposal. The main innovations are:the paper is not a general introduction on just how to apply the traditional transfer pricing adjustment method, but systematically introduced the transfer pricing taxation of intangible assets; the paper introducted a definition of new intangible assets, as the basis of applying the profit splitting method, and introduced the matching principle of functions, risks and benefits as a complementary principle of intangible of transfer pricing adjustments, which based on the clear division of contribution to the value of intangible assets; light of the new provisions of transfer pricing of intangible assets in China's new "Enterprise Income Tax Law" and "special tax adjustment (Trial) ", giving some suggestions for the development and improvement of China's transfer pricing taxation of intangible assets.