Within a group of companies, it often happens that valuable and unique intangible assets are generated in one of the member companies, while other member companies make use of those intangible assets. For example, a parent company may have spent decades building a brand, then established subsidiaries in other countries, with those subsidiaries benefiting from that brand.

This raises the question: should a royalty fee be charged to the subsidiary for the use of the intangible asset, i.e., the brand, and at what price?

The basis for generating profit within every group lies in intangible assets, such as brand, license, franchise, know-how, patent, software, etc. In this context, when applying the arm’s length principle, profit allocation among members within the group is carried out based on each member’s contribution to the creation of the intangible asset. Transactions involving the use and transfer of intangible assets often occur between related parties, but are rarely properly documented and valued in line with the arm’s length principle, which exposes taxpayers to transfer pricing risks.

Such transactions are analyzed in terms of identifying specific types of intangible assets, the costs and activities incurred in creating the asset (contribution analysis in creating the intangible asset), its impact on financial performance, and, in that regard, the benefits that the intangible asset will bring to the owner in the future (valuation of the intangible asset).