Blog

The EdgarStat Blog explores issues in transfer pricing and application of the transactional net margin method (TNMM or CPM in the US) and other enterprise profit-based methods. Blog writings reflect the position of the authors and are not the opinion of EdgarStat.

Nestle Portugal: Issues with Comparables' Royalty Bases
May 15, 2023 by Harold McClure

This litigation raised an oft-seen issue as to the correct definition of “sales” for transfer pricing approaches that rely on the Comparable Uncontrolled Transaction (Price) method.

Topics: Intangibles Comparable Uncontrolled Transaction (Price) Method Portugal Royalty Base Royalty Rates

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McDonald's France Intercompany Royalty: CUT v. CPM on Steroids
March 22, 2023 by Harold McClure

A 2008 restructuring transferred the European rights to the McDonald’s intangibles to McD Europe Franchising Sàrl, a Luxembourg-resident subsidiary with branches in both Switzerland and the U.S. While this migration of intangible assets created substantial controversy in Europe, the real transfer pricing concern would be an IRS issue and not an issue for the French Tax Authority (FTA) if the royalty rate remained at 5%.

Topics: Intangibles Europe Best Method Royalty Rates Tax Controversy TNMM/CPM

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Valuation of Software: CA Software Israel Ltd
January 20, 2023 by Harold McClure

The Israel Tax Authority prevailed in Israel vs CA Software Israel Ltd (October 2022, Tel Aviv District Court, Case No 61226-06-17), which involved the valuation of transferred software. While the taxpayer’s experts tried to justify the lower valuation arguing that the economic useful life of the transferred intangibles was very short.

Topics: Discounted Cash Flow Intangibles Valuation of Intangibles Tax Controversy

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Valuing Brands Using a Discounted Cash Flow Approach
November 30, 2022 by Harold McClure

There are several approaches to accounting for ongoing marketing expenses necessary to maintain a brand in a discounted cash flow valuation.

Topics: Intangibles France Valuation of Intangibles

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Intercompany Royalties: Does the Realistic Alternatives Principle Endorse CPM?
September 27, 2022 by Harold McClure

Licensees bear significant commercial risk when they use valuable intangible assets owned by another entity. As such, any method that affords them with an expected return to its tangible assets that is only as high as the overall enterprise’s cost of capital is inconsistent with sound economics.

Topics: Intangibles Medtronic Royalty Rates Tax Controversy Section 482 US Transfer Pricing TNMM/CPM

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Medtronic Litigation: Unspecified Methods vs. Traditional Methods
September 02, 2022 by Harold McClure

This discussion presents a simplified illustration of the issues with respect to the unspecified method applied in Medtronic III in contrast to the IRS' extreme CPM approach and a traditional RPSM approach based on sound financial economics.

Topics: Residual Profit Split Method Unspecified Method US Internal Revenue Service Intangibles Tax Policy Medtronic Tax Controversy Section 482 US Transfer Pricing TNMM/CPM

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Speculation as to the Transfer Pricing Battle Between Western Digital and the IRS
July 11, 2022 by Harold McClure

A discussion of the possible issues in the recently settled transfer pricing dispute between Western Digital Corp. and the United States IRS.

Topics: Intangibles United States Asia-Pacific Transfer Pricing

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Super Royalties in Transfer Pricing: Going Beyond "Economics 101"
May 24, 2022 by Harold McClure

Use of the CPM/TNMM to determine royalty rates for valuable intangibles in transfer pricing is incompatible with basic financial economics.

Topics: DEMPE OECD Guidelines US Internal Revenue Service Intangibles Tax Policy Royalty Rates TNMM/CPM

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Transfer Pricing Issues for Israeli R&D Centers
March 24, 2021 by Harold McClure

The Israel Tax Authority is questioning whether costs plus markup models Israeli R&D affiliates are at arm's length. This could present issues for multinationals that have not been giving proper consideration to cost base, asset intensity and ownership of valuable intangibles in their benchmarking.

Topics: DEMPE Base Erosion and Profit Shifting (BEPS) Benchmarking Intangibles Tax Policy

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