The tangibility of intangibles is decreasing. Looking at the league tables of the world’s most valuable brands, it is relatively straightforward to appreciate that value is more and more attributable to data, information and knowledge. For many, the value of traditional intellectual property is, if not decreasing, at least being diluted by the other closely related intangible assets.
“Why gather data and expose a company to severe sanctions e.g. under the GDPR if the data cannot be effectively utilized?”
For companies creating their own data assets for the purposes of commercialization, the ability to dispose and make use of their data is fundamental. Typically that can to a great extend be achieved through a fairly straightforward clause included in the user agreements. However, more of often than not it is established that such a simple element has been overlooked. Why gather data and expose a company to severe sanctions e.g. under the GDPR if the data cannot be effectively utilized?
This is a prime example of the necessity of a well-rounded advice. Although overdoing planning may in some instances be detrimental to a business, acknowledging one’s key assets and ascertaining the effective utilization of the related opportunities is so crucial that it certainly deserves special attention.
Companies relying on data obtained from third parties, on the other hand, are offered various new tools. Not that long ago, customer lists often contained only the most essential pieces of information for contacting a customer like phone number and address. Surely that had certain value. But it is a drastically new game when customers can actually be contacted e.g. at the time of day when their stress levels are known to be at their lowest, relying on information from a third party obtained through wearable sensors monitoring the heart rate variability, or the like, of the representative group.
“Basic things are often lost in translation when dealing with new business drivers”
There is no shortage of guidance regarding how to build a successful data driven business. But it seems that basic things are often lost in translation when dealing with new business drivers. From experience, the simplicity of operating model or the intra-group pricing of soft intangibles often do not receive sufficient attention, which easily results in suboptimal use of the group’s intangible assets or time consuming tax litigations and other administrative processes drawing the attention of the managers away from developing their business.
“If it once was a “strongly recommended” to centralize a group’s intellectual property assets, at the time of modern data assets there should be no doubt”
The components of a streamlined group structure remain largely the same as they were a couple of decades ago when value was perceived to be attributable around traditional intangibles. There are new ingredients though. Much more than what is the case with traditional intellectual property, data is genuinely portable. This represents an opportunity for restructurings and divestments, but at the same time, the fact that it is typically not and cannot be protected through registrations or similar, may also represent a threat. An asset that is not registered in the name of any particular company can easily become decentralized between group companies over time. Is there a better cause for severe transfer pricing dispute? Unless special attention and care is paid to the allocation of intangible assets, overlapping interests will inevitably occur. This is why it is so important to have a clear focus in all matters relating to intangibles. If it once was a “strongly recommended” to centralize a group’s intellectual property assets, at the time of modern data assets there should be no doubt.
“It does not seem reasonable to try to ring-fence the digital economy from the rest of the economy”
The current digital business models link data, algorithms, intellectual property, software and know-how in a seamless and effective way. It is clear that our international tax system was not designed for such purpose, and this has resulted in an unprecedented turmoil regarding tax policy. The EU Commission’s recent communication ”Fair Taxation of the Digital Economy” (September 2017) is a prime example. The OECD does not rest still either. The public comments regarding the Tax Challenges of Digitalization report were published on 25 October 2017. The widely accepted goal of ensuring fair and effective taxation seems indisputable as the digital transformation of the economy accelerates. Also, levying taxes where the profits are generated sounds good.
As all businesses operate in a fundamentally different manner today than at the time the international tax rules were designed, it does not seem reasonable to try to ring-fence the digital economy from the rest of the economy. Further, from a tax practitioner’s standpoint, while the entire international tax system is largely based upon adhering to the arm’s length principle, how could the digital business be taxed differently?
At minimum, it is paramount that any changes introduced to the international tax rules are based on a concerted action at global level and aim at long-term solutions. What comes to digital revolution, we are only at the very beginning and really haven’t seen nothing yet. Regardless of the political momentum, quick fixes for new international tax rules seem therefore likely to create more chaos and confusion than providing building blocks for successful businesses. Once we have an understanding of where the world is going to, the rules need to be revised. But for a while, I would rather sit back and enjoy the show.