Pricing the Transfer of Intellectual Property as a Problem of Second-Best Tax Policy

24 Pages Posted: 19 May 2015

See all articles by Wolfram F. Richter

Wolfram F. Richter

TU Dortmund University; CESifo (Center for Economic Studies and Ifo Institute); Institute for the Study of Labor (IZA)

Markus Breuer

SRH Hochschule Heidelberg - Department of Business Administration and Economics

Date Written: May 19, 2015

Abstract

The adequate pricing of intellectual property ("IP") for tax reporting is a largely unsettled issue. Transactional profit-based methods are on the rise although only rated as "methods of last resort" by the OECD. This paper focuses on regulated profit splitting and compares this transfer pricing rule with one allowing multinationals to price IP freely subject to the constraint that the price used for tax reporting is also used internally. The standard of comparison is global efficiency in R&D. The model is one of second best. It allows for internationally differentiated tax rates and non-deductible effort costs in the production of know-how.

Keywords: transfer pricing rule, intellectual property, profit split method, allocational efficiency, second-best policy

JEL Classification: H250, O340, M480, F230

Suggested Citation

Richter, Wolfram F. and Breuer, Markus, Pricing the Transfer of Intellectual Property as a Problem of Second-Best Tax Policy (May 19, 2015). CESifo Working Paper Series No. 5340, Available at SSRN: https://ssrn.com/abstract=2607929 or http://dx.doi.org/10.2139/ssrn.2607929

Wolfram F. Richter (Contact Author)

TU Dortmund University ( email )

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D-44221 Dortmund
Germany
+49-231-755-3146 (Phone)
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CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

Markus Breuer

SRH Hochschule Heidelberg - Department of Business Administration and Economics ( email )

Ludwig-Guttmann-Str. 6
Heidelberg, 69123
Germany

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