So, intra-group transactions involving goods, services, and loans are easily identifiable.  We can see what is happening where, who owns what and who is providing a service to whom, and therefore we can figure out how they should be priced.  But what about intra-group intangible transactions which, as the name suggests, are harder to put your finger on?  Today we look into what we mean by intangibles, how we price them and why we care.

Clearly, identifying what constitutes an intangible asset and then figuring out the relevant remuneration that should arise from the ownership and/or use of such intangible is hazy.  So our old friend, the OECD, has issued guidelines which together with BEPS Action Plan 10, tries to help clarify matters.  One key note is that each intangible must be treated on its own merits, by establishing legal and contractual relationships and the economic substance surrounding the ownership and use of the intangibles.

Look at the writing on the wall

Where should we start to find the intangibles?  Well, financial statements generally disclose intangible assets as a line item in the Statement of Financial Position so this is a good starting point.  These would often include patents, know-how and trade secrets, trademarks, trade-names and brands, rights under contracts and licences.

Now, look through the wall

However, all intangibles are not created equal, and sometimes they are not disclosed in the financial statements. This could be intangibles intrinsically linked to business operations, for example operational know-how and processes, manufacturing know-how and marketing intangibles.

From a transfer pricing perspective, we are interested in valuable and unique intangibles (i.e intangible assets whose creation and use enhance the commercial position of an MNE). Whilst the identification and clear delineation of an intangible is necessary, identifying the parties involved in the creation and use of intangibles is also key. Thus, an evaluation of the functions, assets used, and risks assumed by each party in the development, enhancement, maintenance, protection, exploitation (DEMPE) of intangibles is key in determining who gets what.

Determining the economic owner or owners of the intangible, is necessary to determining which entity has the right to earn potential remuneration therefrom. Typically remuneration derived from the use of intangibles is high value which means high risk in terms of transfer pricing.

Who cares?

IP and intangibles are fast becoming one of the most contentious areas of TP for tax authorities globally. This is because they are complex and misunderstood, typically high-value and historically IP hubs with insufficient substance have been utilised as a means of shifting profit to lower tax or preferred tax jurisdictions.


Identifying if any valuable intangible assets exist in your business is a key first step. Thereafter, we need to determine both legal and economic ownership of the intangible, and then of course determine if an arm’s length remuneration is due for the right to use the intangible. Transfer pricing policies on intangibles should be based on a critical analysis of the functions performed, assets used and the risks assumed by members of an MNE group in relation to the DEMPE of the intangible. If intangibles are giving you a headache, please contact our team of specialists for further guidance.

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How can we help?

How you structure your business is a critical question as you expand globally.  The right structure will protect your assets, improve your currency position, support your business operations, facilitate future business expansion and changes, and optimise your overall tax rate. Trying to unscramble a sub-optimal structure entered into in haste or without full consideration of relevant facts is complex and expensive, so it’s important to plan upfront.

Structuring an international business is both a science and an art – this is our specialist area of expertise. Regan van Rooy is an international tax and structuring advisory firm focussing on Africa. We have offices in South Africa, Mauritius and Ireland and we can help you with any international tax or structuring query.