Royalties in International Tax Law

Asia Khan & Sofie Dalgas-Madsen

Student thesis: Master thesis


This thesis seeks to analyse how the 3 main problems caused by intellectual property and royalties in international tax law are being sought controlled in the light of OECD’s BEPS (Base Erosion and Profit Shifting) initiative. The problems are connected to identification, mobility and valuation, respectively. We find in our analysis, that the identification problem became less of a problem in Danish tax law, when a royalty definition was added to SEL § 32 (CFC). The problem of miscategorising as a result of integrated products and services still remain. We also find in our analysis that the mobility problem is still relevant, because of the opportunities for companies to enter and exit CCAs and thereby gain compensation, which is difficult to value. This is the case in spite of the new control requirement added in the BEPS Action 8-10 report, which provides that profit may only be allocated to a party, who have carried the costs and the related risks and controlled these risks. With respect to the valuation problem, the BEPS initiative puts focus on the Profit Split method as transfer pricing method when valuing transactions involving integrated activities and intellectual property. We find in our analysis, that the solution to the asymmetric Nash bargaining model is a profit share proportional to the respective investment shares of the parties, which is in accordance with the Profit Split method. We also find that this result is in accordance with aligning profit allocation with value creation.

EducationsMSc in Commercial Law, (Graduate Programme) Final Thesis
Publication date2017
Number of pages104