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Transfer Pricing is the set of rules and methodologies applied to transactions between related entities within multinational enterprises (MNEs) ensuring that these intra-group transactions follow the arm’s length principle. In practice, one of the most challenging aspects of Transfer Pricing is the comparability of license agreements, which often involve intangible assets and can be highly complex.

In today’s fast-paced business environment, Intellectual Property (IP) is an important element of innovation, uniqueness, and competitive edge. Assets such as patents, trademarks, copyrights, and trade secrets are vital in driving the success and expansion of companies across various sectors. However, grasping the real worth of Intellectual Property goes beyond just recognizing creativity or innovation.

Distribution plays a crucial role in commerce, however, beyond the basic function of moving goods, distributors operate in diverse and distinct ways shaped by the specific products, markets, storage needs, security concerns, logistical challenges, and legal obligations involved in the transactions.

Global inflation adds complexity into Transfer Pricing by affecting cost structures, profit margins, comparability, and regulatory examination.

Recently the Organisation for Economic Co-operation and Development (OECD) has introduced a new approach to support the profits earned by distributors within the multinational enterprises.

An accurate Transfer Pricing benchmarking analysis is essential for ensuring that intercompany transactions are conducted at arm’s length and in compliance with international tax regulations. Below we have gathered the key factors that contribute to the reliability of such analysis.

We are delighted to announce that RoyaltyRange is an associate partner of the upcoming TP Minds Asia event at Hotel Swissotel, The Stamford, Singapore on 2 – 3 October 2024.

Size is one of the critical factors in Transfer Pricing comparable company searches as it ensures the accuracy and reliability of the arm’s length principle, which is the cornerstone of Transfer Pricing regulations.

The DEMPE framework provides a structured approach to identifying which entities within an MNE group contribute significantly to the creation, enhancement, maintenance, protection, and exploitation of intangibles. By delineating these functions and attributing them to specific entities, DEMPE facilitates a more accurate allocation of profits in accordance with the economic substance of each entity’s contributions.

By comparing the net profit margin of a tested party to those of comparable independent companies, TNMM provides a solid framework for validating the pricing of intercompany transactions. Global listed companies, with their readily available and reliable financial data, serve as a valuable source for identifying comparables in TNMM benchmarking analysis.