In the first of a series of articles in International Tax Review on intangibles, NERA Principal Philip de Homont and Affiliated Consultant Dr. Alexander Voegele discussed challenges involved in calculating license fees for intangibles, which are increasingly being scrutinized by tax authorities worldwide.

The Organisation for Economic Co-Operation and Development (OECD) has stipulated that a broad range of intangibles, such as informal know-how and best practices, exists in almost any type of economic activity. From a transfer pricing point of view, this has created difficulties in remunerating intangibles using arm’s length considerations—especially in cases where numerous companies are involved, some of which might have previously been classified as “routine.”

In the article, “Licence Fees to Multiple Owners: Residual Profit Splits,” which appeared in the September 2015 issue of the tax journal, Mr. de Homont and Dr. Voegele explained ways that the residual profit split method can be used to calculate the income of a specific identified intangible. According to the authors, it is possible in almost all cases to prove that valuable contributions came from various group affiliates, leading ultimately to attractive and competitive overall effective group tax rates.