The principles of these Guidelines related to the selection of the most appropriate transfer pricing method to the circumstances of the case are described in paragraphs 2.1 to 2.12. Those principles apply fully to cases involving the transfer of intangibles or rights in intangibles. In selecting the most appropriate transfer pricing method in a case involving a transfer of intangibles or rights in intangibles, attention should be given to (i) the nature of the relevant intangibles, (ii) the difficulty of identifying comparable uncontrolled transactions and intangibles in many, if not most, cases, and (iii) the difficulty of applying certain of the transfer pricing methods described in Chapter II in cases involving the transfer of intangibles. The issues discussed below are particularly important in the selection of transfer pricing methods under the Guidelines.
TPG2022 Chapter VI paragraph 6.131
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By OECD
Category: OECD Transfer Pricing Guidelines (2022), TPG2022 Chapter VI: Special Considerations for Intangibles | Tag: Intangibles, Most appropriate method (MAM), Transfer pricing methods, Transfer pricing methods for intangibles, Valuation
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- TPG2022 Chapter VI paragraph 6.145The transfer pricing methods most likely to prove useful in matters involving transfers of one or more intangibles are the CUP method and the transactional profit split method. Valuation techniques can be useful tools. Supplemental guidance on the transfer pricing methods most likely to be useful in connection with transfers...
- TPG2022 Chapter VI paragraph 6.141Care should be used, in applying certain of the OECD transfer pricing methods in a matter involving the transfer of intangibles or rights in intangibles. One sided methods, including the resale price method and the TNMM, are generally not reliable methods for directly valuing intangibles. In some circumstances such mechanisms...
- TPG2022 Chapter VI paragraph 6.139Where information regarding reliable comparable uncontrolled transactions cannot be identified, the arm’s length principle requires use of another method to determine the price that uncontrolled parties would have agreed under comparable circumstances. In making such determinations, it is important to consider: The functions, assets and risks of the respective parties...
- TPG2022 Chapter VI paragraph 6.138However, it will often be the case in matters involving transfers of intangibles or rights in intangibles that the comparability analysis (including the functional analysis) reveals that there are no reliable comparable uncontrolled transactions that can be used to determine the arm’s length price and other conditions. This can occur...
- TPG2022 Chapter VI paragraph 6.132In applying the principles of paragraphs 2.1 to 2.12 to matters involving the transfer of intangibles or rights in intangibles, it is important to recognise that transactions structured in different ways may have similar economic consequences. For example, the performance of a service using intangibles may have very similar economic...
- TPG2022 Chapter VI paragraph 6.144The provisions of paragraph 2.10 related to the use of rules of thumb apply to determinations of a correct transfer price in any controlled transaction, including cases involving the use or transfer of intangibles. Accordingly, a rule of thumb cannot be used to evidence that a price or apportionment of...
- TPG2022 Chapter VI paragraph 6.143However, in some limited circumstances, transfer pricing methods based on the estimated cost of reproducing or replacing the intangible may be utilised. Such approaches may sometimes have valid application with regard to the development of intangibles used for internal business operations (e.g. internal software systems), particularly where the intangibles in...
- TPG2022 Chapter VI paragraph 6.142The use of transfer pricing methods that seek to estimate the value of intangibles based on the cost of intangible development is generally discouraged. There rarely is any correlation between the cost of developing intangibles and their value or transfer price once developed. Hence, transfer pricing methods based on the...
- TPG2022 Chapter VI paragraph 6.140In identifying prices and other conditions that would have been agreed between independent enterprises under comparable circumstances, it is often essential to carefully identify idiosyncratic aspects of the controlled transaction that arise by virtue of the relationship between the parties. There is no requirement that associated enterprises structure their transactions...
- TPG2022 Chapter VI paragraph 6.137Where the comparability analysis identifies reliable information related to comparable uncontrolled transactions, the determination of arm’s length prices for a transfer of intangibles or rights in intangibles can be determined on the basis of such comparables after making any comparability adjustments that may be appropriate and reliable....
Supplemental Guidance
- EU Study on the Application of Economic Valuation Techniques (2016)Application of Economic Valuation Techniques for Determining Transfer Prices of Cross Border Transactions....
- EU – JTPF Report on the Application of Economic Valuation Techniques (2017)The Study on the Application of Economic Valuation Techniques for Determining Transfer Prices of Cross Border Transactions between Members of Multinational Enterprise Groups in the EU provides an overview on how valuation techniques can practically and most efficiently be used for transfer pricing purposes in the EU, particularly for transactions...