TP Documentation for Intangibles [2026]: DEMPE Analysis and Beyond

Strong intangibles documentation, consistent with OECD Chapter VI (intangibles) and Chapter V (documentation), requires identifying all relevant IP, distinguishing legal ownership from entitlement to returns using the DEMPE framework, and ensuring arm's length compensation for each contributor. This guide covers DEMPE analysis, valuation approaches, hard-to-value intangibles, CCAs, and common documentation gaps.

Borys UlanenkoCEO of ArmsLength AI

Quick Answer: What Makes Strong Intangibles Documentation?

Strong intangibles documentation, consistent with OECD Chapter VI (intangibles) and Chapter V (documentation), typically includes: (1) all relevant intangibles—patents, trademarks, know-how, customer lists, and other IP, (2) the legal owner and DEMPE function performers, (3) arm's length compensation for each contributor based on functions, assets, and risks, and (4) valuation support at key transaction points. The DEMPE framework (Development, Enhancement, Maintenance, Protection, Exploitation) is central: it determines who is entitled to returns from intangibles based on substance, not just legal title.

Legal ownership is the starting point, not the conclusion. A parent company holding a patent registration but neither controlling nor performing DEMPE functions cannot claim all residual returns—the entities actually developing and exploiting the IP must receive arm's length compensation. Outsourcing DEMPE activities doesn't automatically strip returns from the legal owner, but entitlement depends on what it actually controls, performs, and assumes. Document the functional reality, not just the contractual form.

What Are Intangibles for Transfer Pricing Purposes?

OECD Definition

The OECD defines an intangible broadly as anything that is:

Not a physical asset (not property, plant, or equipment)
Not a financial asset (not cash, receivables, or investments)
Capable of being owned or controlled for use in commercial activities
Compensable between independent parties if transferred or used

This definition focuses on economic value, not accounting labels. Many intangibles that create real value—self-developed technology, internal know-how, established customer relationships—never appear on a balance sheet but are crucial for transfer pricing purposes.

Note

Key Distinction: An intangible may exist for transfer pricing even if it's not capitalized as an asset under accounting standards. The OECD cautions that TP intangibles analysis should not depend on accounting treatment or legal registration status.

Categories of Intangibles

Category	Examples	TP Relevance
Trade Intangibles	Patents, trade secrets, know-how, proprietary processes	Core to manufacturing and technology licensing
Marketing Intangibles	Trademarks, brand names, logos, trade names	Central to distribution and licensing arrangements
Customer Intangibles	Customer lists, relationships, proprietary data	Often overlooked but valuable in acquisitions
Contract Rights	Exclusive supplier agreements, government licenses, franchise rights	Value derived from contractual exclusivity
Software	Internally developed applications, algorithms	Can constitute an intangible (copyright/know-how) depending on rights and use
Goodwill	Residual business value above identifiable assets	May need to be compensated when transferring businesses, depending on accurate delineation

Synergies and Combined Value

Intangibles rarely operate in isolation. A pharmaceutical company's value comes from the combination of patented compounds, regulatory approvals, manufacturing know-how, established distribution networks, and brand reputation. When valuing intangibles for transfer pricing, consider:

Bundle value: The collective worth of related intangibles used together
Assembled workforce: Trained employees whose knowledge amplifies IP value
Network effects: Customer relationships that reinforce brand value

Independent parties pay for expected value, so documentation should acknowledge these combined effects—especially in business restructurings where the whole may exceed the sum of parts.

Note

Important Distinction: The OECD treats group synergies and assembled workforce primarily as comparability factors affecting value, rather than "intangibles" in themselves (since they're not owned/controlled in the same way). However, they affect the pricing of transferred intangibles and should be addressed in valuation documentation.

Legal Ownership vs. Entitlement to Returns

The Core Principle

Legal title to an intangible is not determinative of profit entitlement. Under OECD Chapter VI, entitlement to returns depends on the functions performed, assets used, and risks assumed (including control of those risks)—not just the name on the patent certificate.

The Guidelines explicitly state that identifying legal owners of intangibles "is only the first step" in determining which group member should receive returns. Even if one entity legally owns IP, other members may have performed the work that created its value.

When Legal Ownership and Return Entitlement Diverge

Scenario	Legal Owner	DEMPE Contributor	Result
Parent registers patent but subsidiary funds and directs R&D	Parent	Subsidiary	Subsidiary should receive returns commensurate with its contribution
Subsidiary develops brand locally but HQ holds trademark	HQ	Subsidiary	Subsidiary's marketing investment must be recognized
Holding company licenses IP but neither controls nor performs DEMPE	Holding company	Operating companies	Holding company not entitled to residual returns—limited to compensation for any functions actually performed

Funding vs. Functions

A common structure involves one entity funding IP development while another performs the work. The OECD addresses this directly:

The funder is entitled to a risk-adjusted return on capital—but only if it assumes and controls the development risk
If the funder lacks capability or control over the risk, it is entitled only to a risk-free return (similar to a lender)
The performer earns compensation for the functions executed—typically at arm's length for the services rendered
Neither party automatically receives all residual profits

Warning

Documentation Risk: Assuming the legal owner captures all income without analyzing who actually performed and controlled DEMPE functions is one of the most common—and dangerous—documentation gaps.