|ECONOMIC CONSULTING SERVICES, LLC
Economic Consulting Services, LLC
ECS' Transfer Pricing Network:
Valuation of Intangibles
The valuation of intangibles is important in a wide variety of tax matters. For transfer pricing purposes, intangible valuations are the basis for determining either ongoing royalty payments or buy-in payments for cost-sharing arrangements. In corporate acquisitions, intangible valuations have important implications for purchase price allocations.
Analysis of Third Party Licensing Arrangements
License agreements among unrelated third parties are generally viewed as the best measure of the prices that should be charged in related party licensing transactions. Over the past decade, ECS has carried out numerous studies that have located, examined and used such third party agreements as the basis for setting intercompany prices.
ECS’ proprietary database currently includes in excess of 1,000 trademark and technology license agreements that are in the public domain and that have been identified during past analyses focused on determining intercompany royalty rates. This database expands every year as new projects are carried out.
U.S. transfer pricing regulations require that participants in cost sharing arrangements receive arm’s length compensation for any existing intangibles contributed to the cost-sharing agreement. ECS has developed a set of proprietary tools to determine arm’s length payments for intangible property. These tools allow for the development of customized approaches, depending upon the nature of the intangible, the attributes of the economic and business environment, and the nature of available data.
Purchase Price Allocations
Companies are generally required to allocate the purchase price of acquired corporations among tangible and intangible assets. Typically, this allocation is derived from fair market value estimates for the identifiable tangible and intangible assets held by the acquired firm. ECS brings a strong economic focus to purchase price allocation and valuation issues. This is particularly important when the intangibles of the acquired company are subsequently used by non-U.S. participants in a cost sharing agreement, or licensed to an affiliate.
State Tax Analyses
State tax liability is also often affected by the transfer prices charged among operations located in different states. All the tools discussed above can be used in state tax analyses as well.
All intangibles are unique, and some transactions involving intangibles are also unique. With its economic approach to the valuation of intangibles, ECS has successfully handled a wide variety of unique situations for which "cookbook" approaches would not have produced appropriate valuations.
Relevant ECS Professionals: