When is a group company obliged to pay for the use of intangibles controlled by another group company?

When considering transfer pricing, it is important to recognize whether the intangibles generate any such business benefits for which an independent enterprise would be willing to pay.

In general, the owner of the intangibles is typically entitled to the income generated by intangibles. However, along with the legal owner of the intangibles, also other group companies may have been involved in the development, enhancement, maintenance, protection and exploitation ("DEMPE-functions") of the intangibles. It is important to identify all group companies involved in the DEMPE-functions of the intangibles.

Two common examples of intra-group transactions involving intangibles are licensing and sale. A company may grant another company a right to utilize its intangibles (a license). The licensee typically pays the licensor compensation for the license as running royalty. In the sale of intangibles, the seller transfers its rights in the intangibles and all the profits they will generate in the future. In both examples, it is important to consider whether independent parties would agree on similar pricing, terms and other conditions in similar circumstances.

You can read more about the transfer pricing of intangibles from here.