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

Author

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  • Wolfram F. Richter
  • Markus Breuer

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.

Suggested Citation

  • Wolfram F. Richter & Markus Breuer, 2015. "Pricing the Transfer of Intellectual Property as a Problem of Second-Best Tax Policy," CESifo Working Paper Series 5340, CESifo.
    • Handle: RePEc:ces:ceswps:_5340
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    References listed on IDEAS

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    More about this item

    Keywords

    transfer pricing rule; intellectual property; profit split method; allocational efficiency; second-best policy;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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