Should you transfer IP from one corpus to another? It depends. The transfer likely creates a taxable event. The transaction price set by the unrelated sending and receiving parties is the basis for the tax computation. For related corporations (parent-subsidiary or brother-sister entities), the transaction price must be market reality. Bottom line, the safest course of action is to hire a market valuation by an independent party.
The taxable gain is computed as the difference between the valuation or sale price and the adjusted tax basis of the IP. If the IP was developed in-house and R&D costs were expensed, the basis may be zero.
Transfer Price
The valuation should include one or more of the three following methods:
- CUT – Comparable Uncontrolled Transaction which considers licensing fees on sale prices of similar IP. This method is critical in cross-border transactions
- Income/Profit Split - Computes the present value of the future cash flows or residual profits that the IP is projected to generate for the receiving corporation
- Cost-Based - Evaluates the historic research and development (R&D) costs required to recreate the IP