In the second part of the series on transfer pricing, the question of choosing an appropriate transfer pricing method for contract research is discussed. Contract research arrangements have long been in place and were explicitly recognized for the first time in the 1968 OECD regulations. Such contracts have often caused controversy, as contract research allows a group to determine the jurisdiction in which the intangible will be taxed. While transfer pricing is relatively straightforward in the case of manufacturing and distribution activities, inter-company transactions concerning intellectual property create serious difficulties of definition and plenty of scope for disagreement between taxpayers and tax administrations all over the world. Using a case study, Sandra Staudacher and Gerhard Steiner provide ideas of the factors and considerations that could play a part in determining and defending the contract research arrangement. In doing so, the views of both tax consultants and tax auditors are presented.