Intellectual Property Transfer Pricing
Transfer pricing refers to the pricing of intercompany transactions. Intercompany transactions typically involve goods or services, but also often involve intellectual property. Such transactions are regulated by the IRS to prevent corporations from avoiding taxes by engaging in self-dealing across entities.
Corporations often shift intellectual property between related parties or entities for a variety of reasons, such as supply chain optimization, research and development and sharing of technology. According to IRS rules, the transfer pricing of intellectual property (and of goods or services) must reflect the pricing that would be paid in an arm’s length transaction between unrelated parties. Companies are also required to maintain up-to-date documentation showing analysis and support for the transfer prices. To help prevent misstatements and ensure compliance, companies can engage a third-party appraiser to perform a valuation of their intellectual property for transfer pricing purposes.
When conducting a valuation of intellectual property, it is important to have knowledge of numerous valuation methodologies and understand when it’s appropriate to apply certain methodologies based on the purpose of the valuation. Mariner Capital Advisors draws from a variety of valuation methodologies and analytical approaches, such as relief from royalty, excess earnings, discounted cash flow, Monte Carlo simulations and option pricing.