A Research On Trausfer Pricing Of Intangible Assets And Optimization Of Tax System

As the globalization and new economy develop rapidly, intangible assets gradually become the main driver of the world economy, and provide most added values for product and service of multinational entrepreneurs (MNEs). R&D works as the basis for forming intangible assets of MNEs, which earn a lot of money from intangible assets by licensing and after-sale service, etc. Besides the normal earnings getting from the operation of intangible assets, MNEs also use transfer pricing combined with the management of intangible assets to maximize their benefits. This has done great harm to the public finance of many countries, especially that of those developing countries.For a huge amount of money involved in transfer pricing of intangible assets, it has become a multi-party game in which many stakeholders including governments of many countries and MNEs attend. One of the core aims of the game is to enlarge their own share in the international finance resource pie. Besides that, the game also involves long-term basis for the stable growth of a nation’s economy, so the domestic tax system also involved.. Besides MNEs, governments around the world especially those of developed countries become increasingly aware of the importance of intangible assets, and thus take a series of tax policies on the development, utilization and accumulation of intangible assets. They even launch a new round of race of providing preferential tax policies for domestic firms to attracting and accumulating intangible assets. The aim of these actions is to make the policies of those governments adaptable to the challenge of new economy and global competition. This results in that developed countries accumulate a great number of intangible assets and the experiences of dealing with them, which break the weak balance in terms of transfer pricing of intangible assets between developed and developing countries. The position of developing counties like China in the game becomes worse than before.Furthermore, in order to maximize their benefits developed countries and MNEs begin to formulize a transnational alliance of intangible assets. With intention through the monopoly of making and interpreting the rules of transfer pricing of intangible assets and their own long-term accumulation of intangible assets, western countries are gradually forming a mechanism of profit-making financial hegemony in the global transfer pricing of intangible assets. This attempt poses a great threat to many developing countries as well as China.After the economy crisis in2008, the budget deficit floods over the world, which has further exacerbated the battle for transfer pricing of intangible assets. Especially the deficit crisis in many developed countries such as United States, Japan and nations of EU directly forces those governments introducing a lot of new legislations and initiatives to strengthen the supervision of the transfer pricing of intangible assets. The aim absolutely is to obtain a bigger share in the international financial resources. China is the target country of Japanese transfer pricing, the clash between the two countries in transfer pricing of intangible assets has also become increasingly fierce. The earthquake and nuclear leakage in March11,2011gave a double blow to Japanese economy which has a severe pressure of budget balance. Power shortages and the deterioration of the manufacturing environment after3.11make a large number of Japanese manufacturing industries have to move overseas. At the same time, the Japanese MNEs should carry out tax plan of intangible assets on a larger scale. Forced by the pressure of the huge budget deficit and the reconstruction, Japanese government will be more active in the supervision of transfer pricing of intangible assets, which will increasingly exacerbate the contradiction between China and Japan.Tax havens play as the transit harbor for MNEs to carry out the tax plan. Focusing on intangible assets, intangible assets holding company in tax havens get a great number of income from many host countries where subsidiaries of MNEs located, and avoid the high tax of those host countries on intangible assets through cross-board tax planning. In solving this problem, the developed and developing countries have common interests. Until now the main tools of those government is the rule of controlled foreign corporation, the substantive operation requirements of the host country for intangible assets, risk test and key personnel function analysis. Some countries have also started the project of voluntary compliance strategy, which aims to jam the loophole of the transfer pricing of intangible assets caused due to tax havens.In the trend of globalization, China has been fully integrated into the world economy, and has become a key stakeholder of the transfer pricing of intangible assets. The rapid promotion of R&D capabilities in China increases the interest of China in respect of transfer pricing of intangible assets. As well as most developing countries, China now has a very weak position in the game of transfer pricing of intangible assets. To change this bad situation, China needs to optimize its tax policy and tax structure both in domestic and international fields, and one of the key aims is to establish a good cost-sharing mechanism to open the door of Chinese companies to participate in global R&D coordination. At the same time, China also need to develop the theories of cost savings, market premium, environment protection compensation and other aspects to impair discourse hegemony of the west on the rules of transfer pricing of intangible assets, gradually upgrading and strengthening voice of China and regulatory capacity on transfer pricing of intangible assets. Similar to the situation of many developing countries such as India and Brazil, China should be more active to share the experiences with those countries, which could help Chinese tax administration more adaptable to new economy and global competition. At the same time, China needs to upgrade its domestic tax system, which should be able to accelerate Chinese progress of accumulating and exploiting intangible assets.The full paper is divided into eight parts. Introduction part describes the topic and the innovations of the paper. Chapter1is the theoretical basis. Chapter2describes the rise of intangible assets in the world economy and the influence of intangible assets to MNEs’profits. The third chapter is devoted to the global budget deficit crisis, highlighting the importance and urgency of transfer pricing of intangible assets. Chapter4describes the rise of collaborative R&D in the world and the building of cost-sharing mechanism, which needs a more carefully exploring. Chapter5analyzes the relationship between tax havens and transfer pricing of intangible assets. Chapter6discusses China’s weak position in the global transfer pricing of intangible assets game and the relevant ideas to the Chinese government. The conclusion summarizes the whole topics and gives some recommendations for issues that need further discussion.