How to find and use technology licensing fees for your transfer pricing analysis
Article – May 2019 | RoyaltyRange
If you are looking for third-party technology licensing fees/royalty rates to help with your transfer pricing analysis, you have come to the right place. This page covers:
- Why you need technology license fees for your transfer pricing analysis
- Typical technology licensing fees
- Valuing your intellectual property
- Conducting a comparable uncontrolled price (CUP) analysis for transfer pricing
- How to find real technology licensing fees using the RoyaltyRange database
Why you need technology licensing fees for your transfer pricing analysis
Within a multinational enterprise (MNE), you may wish to transfer or license technology, IP rights, patents or know-how to a related company entity so that they can also use it to generate profits. For example, you may license the technology so that they can use it to manufacture products – perhaps because the entity that owns the IP rights does not have manufacturing capabilities.
When carrying out an intercompany transaction like this, you must make sure you set an arm’s length transfer price. This means that the technology licensing fee should be the same as it would have been had the technology been licensed to an unrelated/independent party.
The Organisation for Economic Co-operation and Development (OECD) suggests that one of the most reliable ways to set arm’s length transfer pricing is to use comparables data. This means analyzing real market technology licensing fees and using them to guide your own.
Typical technology licensing fees
There are no typical technology licensing fees or patent licensing fees. Technology licensing agreements are complex and, as such, technology and patent licensing fees differ greatly.
For this reason, you need to make sure that any technology licensing agreements you refer to in your analysis are comparable to your transaction.
By using a reputable royalty rates database like RoyaltyRange, you can make sure the data you find is relevant and reliable. We manually analyze each agreement for comparability.
Valuing your intellectual property
In order to set fair transfer pricing for your technology licensing fees, you need to understand the value generated by each technology asset you’re licensing. Keep in mind that the value of your IP is affected by factors such as its phase of development and the market you’re licensing into.
The three most common approaches to valuing intellectual property are:
- The cost approach: This method works by calculating the cost of developing an equal or similar IP asset.
- The income approach: This method works by estimating the amount of income that the IP asset is expected to generate from sales.
- The market approach: This method compares the cost of the asset with the cost of a similar IP asset under comparable conditions.
Whichever approach you choose, it is important to check your valuation against comparable license agreements. Remember, you can find such data on the RoyaltyRange database.
Conducting a comparable uncontrolled price (CUP) analysis for transfer pricing
By using the comparable license agreements data, you can carry out an effective transfer pricing analysis.
The comparable uncontrolled price (CUP or CUT) method is generally considered the most direct and reliable transfer pricing method. It involves looking at comparable technology license agreements to help you achieve an arm’s length transfer price for your licensed technology.
You need to compare the price you are charging for technology in the controlled transaction to the technology licensing fee that was charged in a comparable uncontrolled transaction.
For more information on this, read our article on the CUP method for transfer pricing.
The CUP method is only reliable if you have access to reliable comparables data. You can use the RoyaltyRange database to find real technology licensing fees and patent licensing fees.
How to find real technology licensing fees using the RoyaltyRange database
If you need to find technology licensing fees for your transfer pricing analysis, search the RoyaltyRange database today. You can use our royalty rates database on a one-off basis with our One Search option, which you’ll find below. Simply enter your keywords into the search bar below to get started – for example, ‘technology licensing fees, automotive’.
To find out more about One Search, scroll to the bottom of this page.
What is One Search?
Our One Search service lets you search the RoyaltyRange database on a one-off basis, without having to purchase a subscription.
It enables you to find and download real, unredacted license agreements from recent third-party transactions that match your search criteria. We structure the search results into an easy-to-read royalty rates report, with the original license agreements attached in PDF.
Simply enter your search criteria and our experts will conduct a thorough search of the database on your behalf – selecting license agreements for comparability and relevancy.
The search takes us a few hours to complete.
You can preview the search results before buying the full royalty rates report.
Each royalty rates report costs €500.