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 Managing Director Frankfurt +49 69 710 447 508
Dr. Harlow Higinbotham Managing Director Chicago +1 312 573 2803
+86 21 6103 5544
+86 10 6533 4395
Dr. Emmanuel Llinares Managing Director
Head of Global Transfer Pricing
+33 1 70 75 01 93
+41 22 819 94 94
+44 20 7659 8650
Philip de Homont Director Frankfurt +49 69 710 447 502
Dr. Niraja Srinivasan Director Washington, DC +1 202 466 3510
Dr. Vladimir Starkov Director Chicago +1 312 573 2806
Nihan Mert-Beydilli Associate Director Los Angeles +1 213 346 3035
Amanda Pletz Associate Director London
+44 20 7659 8528
+33 1 70 75 01 85
+41 22 819 94 94
Tom Braukmann Principal Frankfurt +49 69 710 447 511
Mark L. Berenblut Affiliated Consultant Toronto
New York City
+1 416 868 7311
+1 917 475 0020
+44 20 7659 8644
Dr. Alexander Voegele Affiliated Consultant Frankfurt +49 69 710 447 501
Title Type Author
Managing Transfer Pricing in the COVID-Related Economic Downturn Published Article Dr. Harlow Higinbotham, Dr. Vladimir Starkov, Nihan Mert-Beydilli
Germany: The Changing Model of Group Financing Centres Published Article Yves Hervé, Philip de Homont and Georg Dettmann
NERA Experts Offer Insight into OECD Guidance on Financial Transactions White Paper Amanda Pletz, Ralph Meghames and Dr. Georg Dettmann
NERA Contributes to Bloomberg Tax Winter 2019 Transfer Pricing Forum Published Article Dr. Alexander Voegele and Philip de Homont
What Is the Value of Users, Anyway? How to Value the User Contribution to Digital Ent... Published Article Vladimir Starkov and Oceana Wang
Sustaining Contract R&D Service Solutions in a Post-BEPS DEMPE Context Published Article Dr. Yves Hervé, Philip de Homont
Implicit Support and Its Implications on Guarantee Fee Pricing: Fact or Fiction Published Article Amanda Pletz, Gary Lambert, Dr. Georg Dettmann, and Diana Kabir
NERA Experts Comment on the OECD Proposal for a “Unified Approach” under Pillar One Regulatory Filing Dr. Vladimir Starkov, Dr. Yves Hervé, Amanda Pletz, Dr. Emmanuel Llinares, Dr. Harlow Higinbotham, Pim Fris and Dr. Jacques Potin
How to Adapt to the DEMPE Concept When Using Third-Party Licensing Agreements for Tra... Published Article Dr. Yves Hervé, Philip de Homont
Transfer Pricing Challenges in the Digital Economy: A Case Study of the Internet of T... Published Article Dr. Niraja Srinivasan