Determining the arm’s-length price when transferring trade name and trademark intangibles can be a challenging task, note NERA Director Dr. Emmanuel Llinares and former Vice President Nihan Mert-Beydilli in this article from International Tax Review's Intellectual Property Supplement. To address this challenge, Dr. Llinares and Ms. Mert-Beydilli review the various methods recommended by the OECD for determining the arm’s-length price for the transfer of intangible property. The authors argue that, while practitioners often use the residual profit split method to determine arm’s-length royalty rates for trademarks, the comparable profit split method—where the total operating profits of the related parties in the tested transaction are divided in the same proportion as the operating profits of comparable transactions or companies—could be a more useful approach.

This article first appeard in the fifth edition of International Tax Review’s Intellectual Property supplement, December 2006. For more information, please visit www.internationaltaxreview.com.