Transfer Pricing

Valuation Studies

Valuation Studies

NERA assists clients in establishing fair and accurate valuations of businesses and/or intellectual property associated with business reorganizations, tax planning, or mergers and acquisitions.

Business Valuation

Appropriate valuation analyses that are consistent with the arm’s length principle require rigorous and defensible application of entity-level or asset-level valuation techniques that recognize underlying economic and market conditions. To make sound forecasts, it is important to understand the dynamics of the marketplace. This is the hallmark of NERA’s approach—one that has been successfully employed for clients seeking an accurate measure of business or intellectual property value.

Intangibles Valuation

NERA assists MNCs in this area of compliance and tax planning by performing robust and defensible royalty rate evaluations that make appropriate use of both benchmarking and income-based valuation methods for establishing intercompany royalty rates.

i. Comparable Transactions
The comparable transactions method is a widely used approach that produces reliable results if certain comparability criteria are met. Among those criteria are comparability with respect to the intangible property transacted and the profit potentials of the licensor and licensee.

To achieve reliability when using this method, a sufficiently high level of comparability between the unrelated and related party transactions must be obtained. Information on unrelated party transactions comes from two broad types of comparable analyses:

  • Licensing agreements between a related tested party and unrelated parties. Information on these agreements is typically provided by the client.
  • Licensing agreements among entities unrelated to the tested party. These agreements are typically obtained from databases maintained by third-party providers.

NERA economists have access to an extensive array of licensing databases whose scope goes beyond the data compiled from filings with the US Securities and Exchange Commission, including franchising associations and national and regional intellectual property offices outside the US. We often supplement this data with financial information from the licensees and licensors to further support the comparability of the unrelated party transactions.

ii. Profit Split Methods
NERA economists have assisted clients by using a variety of profit split methods including:

  • Comparable Profit Split Method. This method relies on the application of the profit split results observed in transactions among unrelated parties to the related party transactions.
  • Residual Profit Split Method. This method relies on categorizing functions, risks, and assets between "routine" i.e., those whose returns are determined by economic benchmarking, and “non-routine” or “entrepreneurial,” i.e., those whose remuneration is computed as a residual profit. The residual profits are split between the parties based on an appropriate allocation principle.

iii. Other methods
Additional methods that can be used to determine arm’s length royalty rates include a cost approach that relates the value of intangible to the economic cost of its development, and utilizing the values of comparable intangible assets produced for accounting purposes or obtained from specialized studies. Trademarks are an example of intangible assets where such method can be applied. Once a range of asset or equity multiples related to trademark valuations is determined, it can be applied to the asset or equity value of the tested party to determine the range of the values of the trademark in question.

The alternative valuation methods can be used as supporting analyses and in situations that call for reconciling the market valuation of intangible assets with their internal valuation.

Name Title Location Phone Email
Dr. Yves Hervé Senior Managing Director Frankfurt +49 69 710 447 508 yves.herve@nera.com
Dr. Harlow Higinbotham Senior Managing Director Chicago +1 312 573 2803 harlow.higinbotham@nera.com
Dr. Emmanuel Llinares Senior Managing Director
Head of Global Transfer Pricing
Paris
Geneva
London
+33 1 70 75 01 93
+41 22 819 94 94
+44 20 7659 8650
emmanuel.llinares@nera.com
Philip de Homont Managing Director Frankfurt +49 69 710 447 502 philip.de.homont@nera.com
Dr. Niraja Srinivasan Managing Director Washington, DC +1 202 466 9290 niraja.srinivasan@nera.com
Dr. Vladimir Starkov Managing Director Chicago +1 312 573 2806 vladimir.starkov@nera.com
Tom Braukmann Director Frankfurt +49 69 710 447 511 tom.braukmann@nera.com
Amanda Pletz Director London
Paris
Geneva
+44 20 7659 8528
+33 1 70 75 01 85
+41 22 819 94 94
amanda.pletz@nera.com
Alexis Jin Consultant Chicago +1 312 573 4804 alexis.jin@nera.com
Mark L. Berenblut Affiliated Consultant Toronto
New York City
London
+1 416 868 7311
+1 917 475 0020
+44 20 3769 1096
mark.berenblut.affiliate@nera.com
Dr. Alexander Voegele Affiliated Consultant Frankfurt +49 69 710 447 501 alexander.voegele.affiliate@nera.com
Title Type Author
Referentenentwurf zur Funktionsverlagerungsverordnung: Erhöhtes Risiko von Streitverf... Published Article Dr. Jens Rubart and Ronald Bernstein
Transfer Pricing Solutions for Intragroup Shared Services White Paper Dr. Niraja Srinivasan, et al.
‘Coca-Cola’ vs. Section 482: Is It Time to Refresh the Regulatory Guidance? Published Article Dr. Harlow Higinbotham and Dr. Niraja Srinivasan
The Future of Transfer Pricing Published Article Dr. Niraja Srinivasan, et al.
Going digital multinationals: Navigating economic and social imperatives in a post-pa... Published Article Dr. Niraja Srinivasan, et al.
NERA Experts Contribute Chapter to "The Future of the Profit Split Method" Book Dr. Harlow Higginbotham and Dr. Vladimir Starkov
Transfer Pricing Roundtable in Financier Worldwide. Expert QA Dr. Vladimir Starkov and Philip de Homont
Amount B: Facts and Circumstances Matter—Even for Routine Distributors Published Article Dr. Harlow Higinbotham, Dr. Niraja Srinivasan, and Dr. Vladimir Starkov
Dr. Yves Hervé’s Interview in Financier Worldwide Report Dr. Yves Hervé
Taxation of the Digital Economy: Analysing User Base Value Published Article Dr. Yves Hervé and Philip de Homont