IP Transfer and Pricing Considerations for Financial Service Firms

Financial service companies make their money primarily through two core intellectual assets. The first is their expert knowledge of ways to create, expose, tranche and protect asset value. The second is their ability to project their expertise as embodied in their brand. Aside from the specialized intellectual asset merchant banks, financial service companies do not know how to value their knowledge nor their brand. Furthermore, historically they have not paid much attention to which of their global affiliates created the intellectual asset nor which of their affiliates deployed the asset — an activity that creates the accounting and financing phenomenon of "transfer pricing." The importance, more specifically the urgency, in rectifying this informational vacuum arises from recent changes in international tax law pertaining to the pricing of intangible assets that are transferred among Multinational Entity ("MNE") affiliates. This article, targeting the financial service industry, briefly summarizes the fears of the industry concerning transfer pricing and intellectual property ("IP"); cites an example of a recent innovation that has led to a revolution in the way bonds are priced identifying possible IP transfer pricing red flags; and concludes with suggestions for process improvements.