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Keywords

Intangible Asset Corporate Taxation Transfer Price Tangible Asset Related Party 
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References

  1. 4.
    The econometric analyses, based on productivity growth models, included: Griliches, Zvi, “Returns to Research and Development Expenditures in the Private Sector,” in Kendrick, John W. and Beatrice N. Vaccara, New Developments in Productivity Measurement and Analysis, Chicago and London: The University of Chicago Press, 1980; Pakes, Ariel and Mark Schankerman, “The Rate of Obsolenscence of Patents, Research Gestation Lags, and the Private Rate of Return to Research Resources,” in Griliches, Zvi, ed., R&D, Patents and Productivity, Chicago and London: University of Chicago Press, 1984; Link, Albert N. and Laura Bauer, Cooperative Research in U.S. Manufacturing: Assessing Policy Initiatives and Corporate Strategies, Massachusetts and Toronto: Lexington Books, 1989. The case studies of innovation included Link and Bauer, Ibid. (which contains empirical segments); Mansfield, Edwin, John Rapoport, Anthony Romeo, Samual Wagner and George Beardsley, “Social and Private Rates of Return from Industrial Innovations,” Quarterly Journal of Economics, 91 (May 1977); and, Hippel, Eric, “Increasing Innovators’ Returns from Innovation,” in Rosenbloom, Richard C., Research on Technological Innovation, Management and Policy, Vol. I, Greenwich, Connecticut: JAI Press, Inc., 1983.Google Scholar
  2. 5.
    See Link and Bauer, Op. Cit.Google Scholar
  3. 7.
    Peck, M.J., “Microelectronics and Computer Technology Corporation,” Research Policy 15 (1986), 219–231. Also see Dimanescu, Dan and James Botkin, The New Alliance, Cambridge, MA: Ballinger Publishing Company, 1986, and Needham, James M. and Yair H. Har el, “What You Need to Know About Joint Ventures,” in McAllister, Margaret, ed., The 1986 Yearbook on Corporate Mergers, Joint Ventures and Corporate Policy, Boston: Cambridge Press, 1987. The latter authors indicate that ownership allocations are determined not solely by financial contributions in arm’s length research joint ventures, but by valuing each partner’s total contribution, including technology and know-how, plant, property and equipment, capital, management skills, etc., as one would expect.CrossRefGoogle Scholar
  4. 9.
    Briefing Report to the Chairman, Subcommittee on Defense, Committee on Appropriations, U.S. Senate, Sematech’s Technological Progress and Proposed Research Program, United States General Accounting Office, July 1992.Google Scholar
  5. 11.
    H.R. Conf. Rep. No. 841, 99th Cong., 2nd Sess. II-6638(1986).Google Scholar
  6. 12.
    The White Paper, Op. Cit.Google Scholar
  7. 15.
    Peck, M.J., Op. Cit.CrossRefGoogle Scholar
  8. 18.
    Cited in the White Paper, p. 125.Google Scholar
  9. 22.
    See Smith, Gordon V. and Russell L. Parr, The Valuation of Intellectual Property and Intangible Assets, New York: John Wiley & Sons, 1989.Google Scholar
  10. 23.
    See Bain, J. S., Barriers to New Competition, Cambridge: Harvard University Press, 1962.Google Scholar
  11. 31.
    See Chamberlain, Edward Hastings, The Theory of Monopolistic Competition, Cambridge: Harvard University Press, 1946.Google Scholar
  12. 32.
    Tirole, Jean, The Theory of Industrial Organization, Cambridge, Mass.: The MIT Press, 1989, p. 290.Google Scholar
  13. 34.
    See the White Paper, Op. Cit., p. 118–19.Google Scholar
  14. 36.
    Complications arise when the firms being compared operate in different geographic markets, in that world capital markets are not fully integrated, and the risk-adjusted (real) cost of capital therefore not necessarily uniform across countries (an obviously important consideration in a transfer pricing context). Stated differently, two firms operating in different geographic markets would not necessarily earn the same (economic) rate of return, even assuming that they incurred identical risks and both markets were competitive, because their cost of capital would not necessarily be the same. However, individual members of a controlled group do not face separate, market-specific costs of capital in a meaningful sense, inasmuch as “the very feature that distinguishes the multinational firm is that it is integrated worldwide... [and] can obtain funds in one country and employ them profitably elsewhere.” See Giddy, Ian H., “The Cost of Capital in the International Firm,” Managerial and Decision Economics, Vol. 2, No. 4, 1981. Here again, though, the arm’s length standard is somewhat ambiguous: for purposes of applying a rate of return analysis for tax purposes, should one work with the market-specific costs of capital that individual group members would pay on a stand-alone basis, or with the uniform cost of capital that guides decision making within a controlled group? There is also a very pragmatic adding-up consideration: at the end of the day, consolidated profits have to be the same before and after the proposed adjustments to individual members’ profits. If one works with hypothetical arm’s length costs of capital, this adding-up requirement will not be satisfied (for reasons that will become clear in the course of the composite case discussed above). For purposes of our analysis in this case, we incorporate the fact that S effectively incurred the same cost of capital as P.Google Scholar
  15. 39.
    See Clarkson, Kenneth W., Intangible Capital and Rates of Return, Washington, D.C.: The American Enterprise Institute, 1977.Google Scholar
  16. 42.
    See Grabowski, Henry G. and Dennis C. Mueller, “Industrial Research and Development, Intangible Capital Stocks, and Firm Profit Rates,” Bell Journal of Economics, Vol. 9,No. 2, Autumn 1978.Google Scholar
  17. 43.
    Equivalently, the value of total intangible assets is given by the discounted present value of the income stream that the firm as a whole is expected to geneiate, less that portion attributable to tangible and current assets. One might also determine the value of intangible assets by directly projecting the income stream attributable thereto, and discounting it at an appropriate cost of capital. The three valuation case studies discussed in Chapter 7 herein address several of these issues in detail. See also Smith and Parr (1989), Russell L. Parr, The Valuation of Intellectual Property and Intangible Assets, New York: John Wiley & Sons, Op. Cit., for a discussion of general valuation principles as they apply to intangible assets; Pakes, Ariel, “On Patents, R&D and the Stock Market Rate of Return,” Journal of Political Economy, Vol. 93, No. 2, 1985, for a discussion of variations in stock market value as a measure of inventive output; and Hirschey, Mark and Jerry J. Weygandt, “Amortization Policy for Advertising and Research and Development Expenditures,” Journal of Accounting Research, Vol. 23, No. 1, Spring 1985, for an empirical analysis of the factors that determine the ratio of firm market value to replacement cost of tangible assets.Google Scholar
  18. 44.
    Russell L. Parr, The Valuation of Intellectual Property and Intangible Assets, New York: John Wiley & Sons, Op. Cit., for a discussion of general valuation principles as they apply to intangible assets; Pakes, Ariel, “On Patents, R&D and the Stock Market Rate of Return,” Journal of Political Economy, Vol. 93, No. 2, 1985, for a discussion of variations in stock market value as a measure of inventive output; and Hirschey, Mark and Jerry J. Weygandt, “Amortization Policy for Advertising and Research and Development Expenditures,” Journal of Accounting Research, Vol. 23, No. 1, Spring 1985, for an empirical analysis of the factors that determine the ratio of firm market value to replacement cost of tangible assets Op. Cit.Google Scholar
  19. 45.
    See Wagner, L.U., “Problems in Estimating Research and Development Investment and Stock,” in American Statistical Association, 1968, Proceedings of the Business and Economics Statistical Section, Washington.Google Scholar
  20. 46.
    See Hirschey, Mark and Jerry J. Weygandt, Op. Cit.; Lambin, J.J., Advertising, Competition and Market Conduct in Oligopoly over Time, Amsterdam: North Holland, 1976; and, Peles, Y., “Rates of Amortization of Advertising Expenses,” Journal of Political Economy, Vol. 79, Sept./Oct. 1971.Google Scholar

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