[...]... counterparts, and less favorably than others Inequity is inherently problematic, and uncertainty is costly, both for tax authorities and individual corporations and from an economy-wide perspective Explicit costs, from tax authorities’ perspectives, include costs incurred in conducting audits and analyzing transfer pricing issues, and in resolving conflicts over income allocations with their opposite numbers in. .. outlays and the realization of benefits (improved 24 See Organization for Cooperation and Development, para 3.21, Chapter III Transfer Pricing Guidelines for Multinational Corporations and Tax Administrations, July 1995 30 3 Overview and Critique of Existing Transfer Pricing Methods process technologies and/ or product features and functionality) from the resulting intellectual property; and (c) estimating... and intangible assets, respectively Rather, the relative values of all assets combined, both tangible and intangible, can be used to allocate free cash flows Relatedly, as noted, U.S transfer pricing practitioners frequently value intangible assets by capitalizing and amortizing certain marketing, advertising and R&D expenditures, a methodology that the transfer pricing regulations endorse.25 This valuation. .. is quantified by reducing adjusted operating profits by each entity’s returns to routine functions, as determined in Step 1 Adjusted operating profits, in turn, are computed by eliminating deductions for investments in intangible assets from combined reported operating profits, and imputing deductions for the amortization of such assets (thereby conforming the accounting treatment of intangible assets to... double taxation or simply to inconsistent allocations of income across jurisdictions (that are subsequently adjusted without penalties), may distort investment decisions Chapter 3 Overview and Critique of Existing Transfer Pricing Methods In this Chapter, we provide an overview of the current transfer pricing regulations pertaining to intra-group transfers of tangible and intangible property, the performance... Accounting Rates and Concepts Should Not be Conflated Chapter 2 Economic vs Accounting Profit Rates This chapter contains a brief overview of the key differences between economic and accounting measures of profit rates, and the “big picture” practical implications of substituting accounting measures for economic measures in the transfer pricing regulations The transfer pricing methodologies written into... provisions Cost-sharing regulations govern circumstances in which related companies jointly contribute to research and development activities, and are assigned specific, non-overlapping ownership rights in the research results The term “global dealing operation” refers to multinational financial intermediaries that buy and sell financial products, manage E King, Transfer Pricing and Corporate Taxation,... analysis under certain transfer pricing methods It is generally the entity that owns little or no intangible assets and performs comparatively simple functions A “profit level indicator” refers to one of several financial ratios that constitute accounting measures of operating results The “arm’s length standard” is the guiding principle underlying all transfer pricing methods It requires individual members... experimentation; Engineering or scientific; Financial transactions, including guarantees; and Insurance or reinsurance Although a standalone services provider would generally establish its fees with a view to recovering its costs and earning an element of profit, the OECD Guidelines also contemplate circumstances in which a profit should not be included in charges to affiliated services recipients For example, if intra-group... investments (rather than smoothing out periodic capital expenditures via depreciation) and incorporates all costs, including the cost of E King, Transfer Pricing and Corporate Taxation, DOI 10.1007/978-0-387-78183-9 2, C Springer Science+Business Media, LLC 2009 7 8 2 Economic vs Accounting Profit Rates equity capital (and, potentially, other opportunity costs) The economic profit rate is defined as that . alt="" Transfer Pricing and Corporate Taxation Elizabeth King Transfer Pricing and Corporate Taxation Problems, Practical Implications and Proposed Solutions 123 Elizabeth King Beecher Consulting,. via depreciation) and incorporates all costs, including the cost of E. King, Transfer Pricing and Corporate Taxation, DOI 10.1007/978-0-387-78183-9 2, C  Springer Science+Business Media, LLC. distort investment decisions. Chapter 3 Overview and Critique of Existing Transfer Pricing Methods In this Chapter, we provide an overview of the current transfer pricing regulations pertaining to intra-group