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1 - Introduction

from Part I - The context of transfer pricing disputes

Published online by Cambridge University Press:  05 November 2014

By
Ian Roxan
Edited by
Eduardo Baistrocchi  and
Ian Roxan
Eduardo Baistrocchi
Affiliation:
London School of Economics and Political Science
Ian Roxan
Affiliation:
London School of Economics and Political Science
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Summary

A transfer pricing dispute

Pharmaceutical companies need to have a continuing supply of good research developments to maintain their future profits. Their ability to profit from this research depends on exploiting patents based on the results of the research, but patents expire after a number of years, allowing other companies to compete with the developer, and some drugs are simply superseded by later developments.

In the 1960s, one major US pharmaceutical company had developed a number of valuable patents. The company naturally wanted to limit the amount of tax it would have to pay to exploit these patents. So in 1965 it established a subsidiary in Puerto Rico (a United States' dependency). At the time, US tax law permitted the transfer of patents to a Puerto Rican subsidiary tax free, and Puerto Rico offered tax haven treatment on the returns from exploiting the patents. The US parent therefore transferred the patents to the subsidiary without receiving any payment or royalties in return. The subsidiary relied on the patents in manufacturing the drugs they covered, and sold the products to the US parent.

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Chapter
Information
Resolving Transfer Pricing Disputes
A Global Analysis
 , pp. 3 - 9
Publisher: Cambridge University Press
Print publication year: 2012

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References

OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (Paris: OECD Publishing, 2010)
Baistrocchi, E., ‘The Use and Interpretation of Tax Treaties in the Emerging World: Theory and Implications’ (2008) British Tax Review 352Google Scholar
Vann, R., ‘Reflections on Business Profits and the Arm's Length Principle’ in Arnold, B. J., Sasseville, J. and Zolt, E. M. (eds.), The Taxation of Business Profits Under Tax Treaties (Toronto: Canadian Tax Foundation, 2004), pp. 133–68Google Scholar
Gamble, Tax Policy and Controversy Briefing, A Quarterly Review of Global Tax Policy and Controversy Development, Issue 3 (February 2010) 2–6
Avi-Yonah, R. S., The Rise and Fall of Arm's Length: A Study in the Evolution of U.S. International Taxation, University of Michigan Law and Economics Olin Working Paper no. 07–017 (27 September 2007); University of Michigan Public Law Working Paper no. 92Google Scholar
Avi-Yonah, R. S., ‘International Tax as International Law’ (2004) 57 Tax Law Review483Google Scholar
Gilson, R. and Mnookin, R. H., ‘Disputing Through Agents: Cooperation and Conflicts Between Lawyers in Litigation’ (1994) 94 Colum. Law Rev. 509CrossRefGoogle Scholar
Avi-Yonah, R. S. and Clausing, K. A., A Proposal to Adopt Formulary Apportionment for Corporate Income Taxation: The Hamilton Project, University of Michigan Law and Economics Olin Working Paper no. 07–009 (April 2007); University of Michigan Public Law Working Paper no. 85, available at ssrn.com/abstract=995202Google Scholar

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  • Introduction
  • Edited by Eduardo Baistrocchi, London School of Economics and Political Science, Ian Roxan, London School of Economics and Political Science
  • Book: Resolving Transfer Pricing Disputes
  • Online publication: 05 November 2014
  • Chapter DOI: https://doi.org/10.1017/CBO9781139208123.002
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  • Introduction
  • Edited by Eduardo Baistrocchi, London School of Economics and Political Science, Ian Roxan, London School of Economics and Political Science
  • Book: Resolving Transfer Pricing Disputes
  • Online publication: 05 November 2014
  • Chapter DOI: https://doi.org/10.1017/CBO9781139208123.002
Available formats
×

Save book to Google Drive

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Google Drive.

  • Introduction
  • Edited by Eduardo Baistrocchi, London School of Economics and Political Science, Ian Roxan, London School of Economics and Political Science
  • Book: Resolving Transfer Pricing Disputes
  • Online publication: 05 November 2014
  • Chapter DOI: https://doi.org/10.1017/CBO9781139208123.002
Available formats
×