Study On International Tax System And Practices In Relation To Transfer Pricing Of Intangible Property

With the coming of the information age,intangible property becomes dominate in the operation of enterprises and has been working as a vital lever for profit in their business strategy.The multinational groups adopt the license agreement or cost-sharing agreement to assign or transfer intangibles so as to shift substantial profit to the low-tax jurisdiction in a manner deviating from the arm's length principle,which finally erodes the tax base of relevant nations.By virtue of the uniqueness of the intangibles,the comparable analysis under the traditional transactions approaches prove to be ineffective.Recently,the international organizations like OECD have initiated action plans by which the ex post adjustment mechanism and detailed direction to the Profit Split Method have been introduced to the intangibles transfer pricing rules,aiming to solve the mismatch of the economic activities and the economic value and bring sound taxation and investment environment.This paper studies the features of the existing rules and the latest tax planning cases,analyses the existing system 's limitations on deterring the aggressive tax planning,refers to the recent effort made to make up the defect and seeks to explore the feasible proposals to improve the existing transfer pricing legal systems for intangibles.This paper has four parts.The first part discusses the definition and features of the intangibles in the context of transfer pricing and compares it to those under the OECD Model Tax Convention on Income-and on Capital and the international financial accounting.Also,this part would probe the reasons and main methods of using the intangibles in the transfer pricing and present the problems faced in valuation and administration of transfer price.The second part introduces the connotation and denotation of arm's length principle and analyses the possibility of introducing the formulary apportionment approach as a supplement to the former.Also,the legal rules and main characters of intangibles of transfer pricing in OECD,US and China are to discussed,in which the research achievement of Base Erosion and Profit Shifting would be given to show the recent development.The third part presents the most classic and frequently used structure for tax planning together with the case study of Uber and Apple to show how the multinational enterprises take advantage of the discrepancy of different nations to shift the substantial profit to the low-tax jurisdictions by license agreement and cost-sharing agreement,and demonstrates the deviation of practical operation from the arm's length standard and the damage especially to the interests of developing countries.The forth part concludes the flaws of arm's length principle in solving the tax avoidance by intangible transfer pricing and propose the feasible solution from both the valuation method as well as the collection and administration aspects.From the valuation perspective,it recommends to bring the unitary tax base and formulary apportionment factors in the Profit Split Method as a new pricing model,under which factors including the fixed assets,salary payments and sales income would be used to make the profit apportioned to each member is commensurate with the actual economic activities.In addition,it is supposed to lift the sequence restriction on the application of transfer pricing when the Comparable Uncontrolled Price Method and the Profit Split Method are equally reliable,adjust the steps of comparable analysis involving location specific advantage of market premium,etc.,and absorb the market premium into the contribution valuation system when using the Profit Split Method or profit apportionment method.Form the administration perspective,the taxation authority may make use of the global information exchange system to acquire the necessary information for the transfer pricing analysis and investigation.