Royalty rate study — where does doing it myself start to cost money?
Some of it, yes — and we will say so on the call if that is the honest answer. The parts that are worth paying for are the ones where a missed election, a missed deadline or an unverified threshold costs more than the fee: comparable licence agreements are screened for the right rights, territory, exclusivity and term, and the analysis is cross-checked against the profit the licensee can sustain.
What if I have already filed and got it wrong?
That is a common starting point. We re-derive the position, identify whether an amendment or a disclosure route is the right vehicle, and tell you which one preserves the relief that is still available. The order matters more than the speed.
How long will it take?
It depends on the documents rather than on us. Once the pack is complete most filings turn around inside a fortnight; anything that needs a certificate from a tax authority runs on that authority's timetable, which we tell you at the start rather than at the end.
What is a royalty rate study and when do I need one?
It is the evidence supporting the price one group company charges another for the use of an intangible — a brand, a patent, software, a process. Because the intangible is unique by definition, there is no matching product to price it against, so the study works from the terms of the licence instead: which rights are granted, over what territory, for how long, and whether the grant is exclusive. You need one whenever a related party pays or receives a royalty and the amount has never been supported in writing, and again whenever the licence terms change.
How do I set a royalty rate between my company and its parent?
Start with the licence rather than with a percentage. Write down what is actually being granted, where it may be used, whether anyone else may use it, how long the grant runs and who bears the cost of protecting and maintaining the intangible. Those terms are what you screen comparable agreements against. Then cross-check the answer from the other side: work out what profit the licensee can sustain once the royalty is paid, because a rate that leaves the licensee unable to earn a return on its own functions will not hold up. The rate is the output of those two tests, not an input chosen first.
Can I use the royalty rate our competitor charges its distributors?
Only if the agreement behind that rate matches yours on the points that move the price. A rate quoted in a press release or an industry article carries none of the terms: you cannot see whether the grant was exclusive, which territories it covered, how long it ran, whether the licensee also received support and know-how, or whether the licensor kept the right to sell direct. Screening is the work. An agreement granting narrower rights over a smaller territory is not a comparable simply because it sits in the same sector, and using it without adjustment invites the question you were trying to answer.
Our licensee loses money after paying the royalty — is that a problem?
It is the first thing a reviewer looks at. The royalty is cross-checked against the profit the licensee can sustain, so a licensee running at a loss once the charge is booked raises the obvious question of whether an independent party would have agreed that rate, or renegotiated it. Losses are not automatically fatal — a start-up phase, a market entry, or costs the licensee bears for reasons of its own can explain them — but the explanation has to sit in the documentation rather than be produced later. If it cannot be explained, the rate itself is what needs revisiting.
Does it matter who developed the software we pay royalties for?
Yes, and it often decides the ceiling. Who developed the intangible, who funds its continued development and who controls the decisions about it constrain where the royalty can go. If the entity receiving the royalty holds legal title but the development and the ongoing maintenance sit elsewhere in the group, a rate built only on comparable agreements will look detached from the facts. The functional analysis comes before the benchmarking for that reason. Where development is genuinely shared, the study has to say so and explain how the reward has been split, rather than assume title settles it.
How often should a royalty benchmarking study be refreshed?
Refresh it when the licence changes, and review it as the agreements behind it age. A study is a search of comparable agreements as at a point in time; as that set ages, the terms in it drift further from the commercial conditions your licence now operates under. The practical triggers are a new or amended agreement, a change in territory or exclusivity, a shift in who develops or maintains the intangible, and a change in the licensee's profitability that the existing analysis does not explain. A study that describes a licence you no longer have supports nothing.
What is OECD Pillar One?
The part of the international agreement that reallocates a share of taxing rights over the very largest and most profitable groups to the jurisdictions where their customers and users are, regardless of physical presence — plus a simplified approach to routine marketing and distribution returns. It is aimed at the digitalised economy problem that physical-presence rules could not reach, and its implementation is still moving, which is why we read the current instrument rather than the original blueprint. See BEPS and Pillar Two.
What does a transfer pricing benchmarking study do?
It evidences that your related-party pricing sits within the range independent parties achieve. The work is comparison: identify companies or transactions genuinely similar in function, risk and assets, compute their margins, and show where your result falls against that range. Done before the filing deadline it supports the position; produced afterwards under audit it carries far less weight. See benchmarking study.
