In an attempt to achieve greater consistency, the OECD has recently issued revised transfer pricing guidelines that include specific comment on how to determine an arm's length price for intellectual property rights. Clearly this is welcome, though many of the problems of practical application are likely to remain. Transfer pricing rules apply, not only to sales of products but also to royalty charges for the use of intellectual property rights and charges for head office services. In principle, the same considerations should apply whether a group chooses to sell its product to an overseas group company at a price inclusive of the rights and services that are used to make the product or, instead, makes separate royalty or service charges for these items. In practice, however, separate charges have proved more visible and prone to attack.
Transfer pricing is a real issue for any business which exploits rights on an international basis.
Increasing complexity with electronic commerce and the Internet seems likely to increase uncertainty and raise the stakes. In the UK, the Spend To Save campaign recently introduced by the UK Revenue also includes transfer pricing actions. With Revenue authorities increasingly active in challenging transfer prices, it is now more important than ever that businesses focus on the use and value of their rights and how, with other relevant factors, it is incorporated into their transfer pricing strategy. Making decisions on managing rights As we move towards the new millennium, we need to look into the future to make decisions on managing rights. Businesses need to have an idea of how valuable particular rights might be before deciding to expend effort on putting in sophisticated structures and management systems to control them and collect the revenues.