Licensees bear significant commercial risk when they use valuable intangible assets owned by another entity. As such, any method that affords them with an expected return to its tangible assets that is only as high as the overall enterprise’s cost of capital is inconsistent with sound economics.

Topics: US Transfer Pricing Royalty Rates Intangibles Medtronic Section 482 TNMM/CPM Tax Controversy

This discussion presents a simplified illustration of the issues with respect to the unspecified method applied in Medtronic III in contrast to the IRS' extreme CPM approach and a traditional RPSM approach based on sound financial economics.

Topics: US Transfer Pricing Residual Profit Split Method Unspecified Method US Internal Revenue Service Intangibles Tax Policy Medtronic Section 482 TNMM/CPM Tax Controversy