Taxing the Transfer of Intellectual Property: Reporting, Auditing, and Revaluation

32 Pages Posted: 8 Dec 2020 Last revised: 8 Feb 2022

See all articles by Richard C. Sansing

Richard C. Sansing

Tuck School of Business at Dartmouth

Date Written: February 9, 2022

Abstract

This study creates and analyzes a model in which the income from intellectual property (IP) owned by a domestic parent and foreign subsidiary must be shared between the domestic and foreign countries for tax purposes. The model focuses on the effects of the commensurate with income standard, under which the future realized values of the IP are used to evaluate the sharing arrangement, even though these values were unknown to the taxpayer when the sharing arrangement was established. Greater weight on the realized value induces more aggressive auditing by the tax authority but could induce the taxpayer to be either more or less aggressive. Putting all the weight on the realized values generates higher domestic tax revenue compared to a hypothetical full-information benchmark case when audit costs are low, but lower domestic tax revenue relative to that benchmark when audit costs are high.

Keywords: transfer pricing, intangible assets, multinational taxation

JEL Classification: H25, H3, M41, M48

Suggested Citation

Sansing, Richard C., Taxing the Transfer of Intellectual Property: Reporting, Auditing, and Revaluation (February 9, 2022). Tuck School of Business Working Paper No. 3711726, Available at SSRN: https://ssrn.com/abstract=3711726 or http://dx.doi.org/10.2139/ssrn.3711726

Richard C. Sansing (Contact Author)

Tuck School of Business at Dartmouth ( email )

100 Tuck Hall
Hanover, NH 03755
United States
603-646-0392 (Phone)
603-646-1308 (Fax)

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