Transfer Pricing and Intangibles

S. 134In this case study, we provide an illustration of a situation whereby a willing seller and a willing acquirer are considering entering into a transaction that involves the transfer of hard-to-value intangibles. We also describe how various valuation models may be applied in this context and discuss the limits of the approach.

Section 1. provides a summary of the facts. Section 2. discusses the selection of the method. Section 3. presents the financials and the application of the methods.

1. Summary of the facts

Companies A and B are part of a multinational enterprise (MNE) and are located in two different countries. Company A hosts the management of the group and some IT teams. It has made investments in relation to an IT solution called Solution X which is a software that is specifically dedicated to the operations of the group and cannot be used nor sold directly to the market. It has practically no value outside the scope of the MNE. Solution X will be rolled out within the group, and some affiliates of the MNE that will use it will be paying a licensing fee for their rights to do so.

As part of a strategic decision, group-wide IT developments are to be centralized in an “IT hub” hosted b...