How to Determine Trade Marks Royalties

Sun Dec 31 20:24:38 UTC 2006
By Dr. Emmanuel Llinares and Nihan Mert-Beydilli

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 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