Using real options to transfer price research-based intangibles

As financial techniques evolve to price certain activities and transactions in the business world among unrelated parties, so too may these techniques be used in certain situations to price the intercompany activities of a multinational enterprise (MNE) under the arm's length standard adopted by nearly all tax administrations throughout the world. This article discusses certain situations involving research-based intangibles when a real-options pricing analysis might be used for transfer pricing purposes to avoid retroactive challenges of the pricing of the intangible, to eliminate the administrative burdens of cost contribution agreements, and to add cash flow and tax planning flexibility.