An arm’s-length approach to trademark royalty rates

By John C Ramirez and Casey D Karlsen

The transfer of intangible property may have a material effect on domestic taxes. While estimating trademark royalty rates for intercompany transfer pricing is fraught with difficulty, it can be helpful to adopt a systematic approach

Valuation analysts are often called on to estimate arm’s-length trademark royalty rates as part of tax-related intercompany transfer price analyses. This article summarises the regulations for transfer pricing for federal income tax purposes and describes the intangible property intercompany transfer price methods which can be used to evaluate whether transactions between members of controlled groups satisfy the arm’s-length standard. It then offers insight into factors to consider when estimating trademark royalty rates for intercompany transfer price analyses, with a particular focus on comparability factors for selecting market-based transactional data.

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