May 2011

We take pleasure in acknowledging our deep gratitude to everyone who helped us in making the global IP convention 2011 historic. Organizing IPR conference and workshops is one of the prime objectives of our company to create a platform of sharing knowledge, networking, building association amongst IP service vendors and consumers from all parts of the globe. We are specifically thankful to Mr. Robert Stoll, the Commissioner of Patents of USA and Mr. P H Kurian, the Controller General of Patent of Indian patent office who were the special attraction to the conference. Inspired by the overwhelming response in the conference at Bangalore, We are planning to organize our next IPR conference in January 2012 in Gurgoan (Haryana), India.

The issues on IP taxation are becoming very complex and important especially on transfer pricing. Commercial transactions for tangible or intangible assets involve different kinds of direct and indirect taxation in the form of VAT, Service Tax, Excise Duty, Customs Duty, Stamp Duty and so on. Intangible assets are transferable by way of license, assignment, and direct sale which are subject to various kinds of such taxes.

In today's global economic environment, where international trade of goods and services are expanding across the world, foreign direct investment is also flowing at bilateral and multilateral level under WTO legal framework which inter alia also involves transfer of technology. The commercial transactions can take place between two independent business entities and or between two closely related parties. Whenever the business transaction take place between two associated entities that are either related as holding and subsidiary companies or in any other manner, the transactions are looked at minutely by various taxation authorities with microscopic eyes to find out if there is any evasion of tax. Technically such transactions between related and associated parties are known as Arm's length transactions and if the transacted price is lower than the estimated market price the provisions of transfer pricing are applied by the taxation authorities.

Transfer of technology involving cross-border transactions also involves application of transfer pricing regulations under the taxation laws of various countries. Indian Income Tax Act 1961 has embodied Special Provisions relating to avoidance of tax with relation to international transactions having regard to the arm's length price. The term "arm's length price" and the term "international transaction" has a separate meaning under chapter X of the Indian Income Tax Act 1961. An arm's length price means a price which is applied or proposed to be applied in a transaction between persons other than associated enterprises, in uncontrolled conditions.

An international transaction means and includes a transaction between two or more associated enterprises, either or both of whom are non-resident, in the nature of purchase, sale or lease of tangible or intangible properties. An intangible property means any kind of intellectual property including patents, copyrights, designs, trademark etc.

The Act also defines the meaning of an associated enterprise and it inter alia includes the two enterprise as associated enterprises, if, at any time during the previous year, the manufacture or processing of goods or articles or business carried out by one enterprise is wholly dependent on the use of knowhow, patents, copyrights, trade-marks, licenses, franchises or any other business or commercial rights of similar nature, or any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process, of which the other enterprise is the owner or in respect of which the other enterprise has exclusive rights.

Thus the issues pertaining IP has two important implications, one in the price component of the technology and the other in determining the meaning of the two enterprises as associate enterprises. The price component is relevant either for the lump sum value of sale consideration of the technology or for the license fees and the technical fees as consideration for the transfer of technology. The relationship component is relevant to decide the nature of association of the two or more enterprises. It is therefore important to take into consideration the impact of transfer price regulations whenever there is any involvement of transfer of technology in the international transactions.

- Dr. D. R. Agarwal