In most cases, intangible assets (IA) are unique, and the preparation of a reliable comparative analysis should be classified as highly uncertain (risky) events. The research will be credible when: it is compliant with national regulations and the OECD guide in transfer pricing and there is a high probability that the results of this analysis will be defended in court proceedings. Two issues should be considered:

  • is it possible to conduct reliable benchmarking (external)?
  • is the forecast of future income streams related to IA burdened with a significant level of risk?

Suppose the answer to the first question is negative and the second question is positive. In that case, the classification of IA to the category of difficult to value intangibles (HTVI - Hard to Value Intangibles) will be satisfied. There is then a risk that the tax authorities will adjust the terms of the transaction based on ex-post results, and the parties to the transaction should take appropriate steps to mitigate this risk.
Under the subject of this article, we identify the conditions that comparative analysis should meet to be considered credible.

Analysis preparation stage

  1. Identification of the subject of the transaction. For example, when we evaluate/set the royalty rate for a trademark, it is essential whether it protects the company or product brand, whether it is a celebrity's logo or a reputable brand. When we analyze technology transfer, we determine whether we are dealing only with know-how-how or technology protected by patent or patent applications. It needs to be determined whether the analyzed IA appears individually in the transaction or the portfolio together with another type of intellectual property, e.g. a patented technology identified by a trademark.
  2. Identification and categorization of the type and characteristics of the transaction. Typical contracts include license (right to use), transfer of ownership (sale of all rights), joint venture, franchise (IA + know-how business model). DEMPE analysis (analysis of functions, risks and assets in development, improvement, maintenance, protection and use of the IA) allows to detail the relations of the parties to the proposed transaction and to what extent it is a common situation.
  3. Selection of indicators for which the market value is sought. E.g.: royalty rate, benefit allocation ratio between licensor and licensee or JV partners, market multipliers.
  4. Selection of market data sources. Typically a transactional licensing database or a transactional merger and acquisition database. The database must provide information from reliable sources, e.g. reports of listed companies, including full texts of license agreements or settlement of M&A transactions. Reading the complete record of the transaction allows for a detailed assessment of the comparability criteria.
  5. Systematization of conclusions from macro-and micro-economic, strategic, financial and marketing analyzes to:
    a.    identification of the critical features of the fields of exploitation of the IA in financial terms,
    b.    identification of potential events and risk assessment,
    c.    identification of competitive, comparable IA,
    d.    identification of entities involved in the development/operation of comparable IA.
  6. Establishing the criteria for searching for transactions in databases. Typical criteria include the characteristics of the IA and the planned transaction (including the fields of IA exploitation related to the transaction), the type of IA, the type of transaction, the relationship of the parties to the transaction (not related), the most distant date of the transaction, the formula for calculating the license fee, the geographical territory of the fields of use, the scope of rights ( e.g. exclusivity), open keywords: entity names, technology names, comparable brands, the definition of the type of activity (production, distribution, services) or market niche (e.g. children's shoes), etc. Specify which criteria must be met (essential criteria) under pain of rejecting the acquired transaction and which criteria can be loosened in the generic search.

Stage data search

  1. Purchase access to databases and carrying out information search with documentation of this process. The search uses the criteria predefined in step 6. Documentation of search results usually takes the form of screenshots and files exported by the database. In some databases, it is impossible to conduct a search on its own and obtain a search result in response to the given standardized criteria, which does not guarantee the correct outcome or significantly increases costs.
  2. Analysis of the results of each search, justification of accepted and rejected transactions. Accepted transactions must meet predefined vital criteria. In the case of declined transactions, the reasons for the rejection should be indicated (failure to meet an important criterion, in the absence of a rational method of transaction terms adjustment).
  3. Optionally, performing a generic search. In the absence of positive results, some criteria are extended, e.g. in addition to exclusivity, multi-exclusivity is allowed, more distant transaction date and a broader territorial scope of exploitation fields are accepted, etc. This action should not lead to a glaring contradiction with the predefined criteria in the context of the DEMPE analysis results.

Verification stage and reasoning

  1. Summary of data from the search and determination of the need/possibility of correct adjustment of the indicator values.
  2. Determine the final score as points or intervals. It is enough to get one well-comparable deal. In many transactions, the numerical range of the result must be determined using statistical methods, establishing interquartile values and the median.
  3. Final critical analysis assuming rational operation of the parties to the transaction. For example the lowest value of the license fee rate was identified, amounting to 3% of net revenues, where the EBIT% in the future field of exploitation of IA with a high probability will not exceed 4% (the financial benchmark confirms this). Therefore, it is necessary to answer whether, under market conditions, a rational licensee will give the licensor, in the form of a license fee, 75% of the operating profit generated by it. If we do not have strong arguments for such a conclusion, we must reject the results of the comparative analysis.
  4. Decision to accept the result of the comparative analysis or to reject it with justification.

You have to bear in mind that apart from comparative analysis, there are other methods of determining the market indicators of interest. This is usually a better solution than accepting an easily refutable benchmarking. Many experts believe that in most cases, IA meets the criteria for qualifying the subject of the transaction to HTVI.


The OECD published in June a Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI) instrument to facilitate the implementation of the results of the Base Erosion and Profit Shifting project in different countries from many continents under the conditions of existing relatively different bilateral treaties.

The tax jurisdictions of 70 countries signed the document and many others expressed their intention to join the signatories. This action should help to make changes to reduce the phenomenon of double taxation.

The JTPF experts' forum has released the final version of the report on the application of the benchmarking approach for transfer pricing in the EU Member States "REPORT ON THE USE OF COMPARABLES IN THE EU."

The document focuses on the problem of finding comparative data. It contains 8 detailed recommendations, which include:

  • Process diagrams and documentation of the course of searching for comparison data (formulation of analysis assumptions, quantitative analysis, qualitative analysis);
  • Principles of treatment of comparative data acquired from internal and external transactions,
  • Information sources in EU,
  • Selection of comparative data by the analysis of the identified value range and multi-term data,
  • The problem of correcting comparative data including in the context of the geographical factor.

The document is essentially based on TPG records but allows for some areas to be refined. Much emphasis is placed on documenting the search for comparative data and justification for all necessary steps in the process, and thus on transparency from evidential needs as well as on the consistency of the procedure used and the maximization of the objective approach.


In our opinion, there is no general strengths and weaknesses of specific valuation methods. Everything depends on the particular case and circumstances.

It should be taken into account the object and purpose of valuation, type, and characteristics of the transactions, the exploitation fields of intangible assets, the role of intangible assets in the process of generating added value, a portfolio of other physical and non-physical assets, business strategies, etc.

The OECD has received and published an invitation to a discussion on the application of the method Profit Split in the context of the global value chain (the document is more than 500 pages). As a co-author of the opinion submitted within the framework of our Association Center for Transfer Pricing. I believe that the views provided by some of the experts are as impressive as divergent on many crucial issues. This document demonstrates the scale of the problem to be solved according to plan in the fourth quarter of B. R. in the form of the final document. On March 19-20, will be held in the conference center of the OECD in Paris meeting to another exchange of views and help the OECD in the elaboration of positions acceptable to the tax authorities of each country.