Special Case: Charging Royalties to Newly Acquired Businesses

Mon Feb 09 15:24:38 EST 2009
By Dr. Harlow Higinbotham and Dr. Stuart Harshbarger et al.

Calculating arm's length charges for intangible assets after a major acquisition presents unique challenges for transfer pricing practitioners. Following an acquisition, if the acquired business unit (BU) is provided with access to know-how intellectual property (IP) from the acquiring company that supports the post-merger integration process and enhances efficiency and profitability, then payment of fees for the use of these intangible assets may be warranted. In this paper, members of NERA's Global Transfer Pricing Practice discuss valuation techniques that can be used to establish arm's length fees for post-acquisition know-how IP. The authors illustrate the common challenges faced by taxpayers when establishing post-acquisition royalty rate regimes.