In transfer pricing, an intangible is a non-physical, non-financial asset — a patent, trademark, brand or software — that can be owned or controlled and whose use between independent parties would be paid for. Because such assets are hard to define, value and locate, they are a central focus of the UAE Federal Tax Authority (FTA), and the DEMPE framework decides which group entity earns the return.
Key takeaways
- The OECD defines an intangible as a non-physical, non-financial asset that can be owned or controlled and whose use or transfer would be compensated between independent parties.
- Under DEMPE (OECD paragraphs 6.32 and 6.48), the return follows the entities that develop, enhance, maintain, protect and exploit the intangible and control the related risks — not the legal owner.
- Legal ownership is only the starting point; economic ownership, based on functions, risks and assets, determines who is rewarded.
- The analysis runs through a six-step framework, from identifying the intangible to determining the arm's length price with a suitable valuation or transfer pricing method.
- The FTA emphasises conduct over contract, funding capacity, hard-to-value intangibles (HTVIs), and the split between routine and non-routine returns.
- Intangibles are priced using methods such as CUP, profit split or discounted cash flow (DCF).
What makes intangibles so difficult in transfer pricing
What makes intangibles difficult is that their value can travel on a contract rather than a shipment, so profit can shift across jurisdictions with no physical trade — which is exactly why tax authorities scrutinise them. They also resist measurement: an intangible has no fixed location and often no comparable market price, unlike plant, machinery or shares. Common categories include marketing intangibles, technology intangibles, data and algorithms, and contractual or legal intangibles.
Every intangibles analysis comes back to three questions: who owns the intangible, who controls, performs and enhances it, and who assumes the risk and should therefore be rewarded.
Legal ownership versus economic ownership
Transfer pricing recognises two kinds of ownership, and they do not always sit in the same entity. Legal ownership is established through registration or contractual agreement, and where no contract identifies an owner, the entity that controls the intangible and makes the key decisions is treated as the legal owner. It remains only the starting point. Economic ownership, by contrast, sits with the entity that creates real value: the one that performs the key DEMPE functions, invests the resources and bears the related risks.
Legal title is where the analysis starts, not where it ends. Under DEMPE, the entity that performs the functions, funds the work and controls the risks is the economic owner — and that is who the return should follow.
Inside the DEMPE functions
DEMPE breaks the life of an intangible into five activities. Development is the design and management of research programmes that drive and prioritise the creation of new intangibles. Enhancement covers the marketing and value initiatives that boost an existing intangible's value and reach. Maintenance is the ongoing quality control that keeps it functional and relevant. Protection is the legal and strategic action — patents, registrations — that guards against infringement. Exploitation is the commercial use that generates income, through licensing, franchising or internal deployment.
Risk is the thread that ties reward to substance. Control of risk equals entitlement to reward: an entity that only funds a project or holds an asset, without controlling the risk, earns a routine return, while the residual profit flows to the entities that make and monitor the key decisions. Substance prevails over contracts.
The six-step framework the FTA follows
A disciplined analysis follows a set sequence, and the FTA expects to see it worked through:
- Identify the intangible used or transferred.
- Review the contractual agreements and establish legal ownership.
- Perform a DEMPE functional analysis to identify the economic owners.
- Verify conduct against contract and the financial capacity of the risk-bearers.
- Characterise the actual controlled transactions.
- Determine the arm's length price using a suitable valuation or transfer pricing method, such as CUP, profit split or discounted cash flow.
Alongside the mechanics, the FTA stresses a handful of emphasis areas that decide close cases.
| FTA emphasis | What it means |
|---|---|
| Conduct over contract | Substance and control determine entitlement to returns, not the paperwork |
| Funding and capacity | A funding entity must prove real financial capacity and genuine risk assumption |
| Hard-to-value intangibles | HTVIs need reliable valuations supported by sensitivity testing |
| Routine versus non-routine | Funders earn routine returns; DEMPE performers receive the residual |
| Options realistically available | Each party's feasible alternatives should be documented and tested |
Documenting intangibles and the risks of getting it wrong
The evidence base is what turns a defensible position into a defended one. In practice, the gap SBC advisers see most often is a group whose contracts assign the intangible to one entity while the DEMPE decisions are plainly made in another, which is precisely where the FTA reallocates the return. The core records are the legal rights and registrations (patents, trademarks, licences), the Master File and Local File where thresholds are met, intercompany agreements that accurately reflect functions, control and DEMPE role mapping, valuation and comparability studies, and funding agreements with proof of financial capacity. Get this wrong and the consequences are concrete: tax adjustments or penalties for non-arm's length arrangements, double taxation where profit allocation is mismatched, and heightened FTA audit focus on intangible-heavy structures.
Frequently asked questions
What is DEMPE in transfer pricing?
DEMPE stands for the development, enhancement, maintenance, protection and exploitation of an intangible. Under OECD guidance (paragraphs 6.32 and 6.48), the group entities that perform and control these functions, and bear the associated risks, are entitled to the return the intangible generates — regardless of which entity holds legal title to the asset.
Does legal ownership determine who earns intangible profits?
No. Legal ownership, established through registration or contract, is only the starting point. Economic ownership — based on which entity performs the DEMPE functions, invests the resources and bears the risks — determines who is rewarded. Where conduct differs from the written contract, substance and actual control prevail over the paperwork.
How are intangibles valued for transfer pricing?
Intangibles are priced using the method best suited to the facts, commonly the CUP method, the profit split method, or a discounted cash flow (DCF) valuation. Hard-to-value intangibles need reliable valuations supported by sensitivity testing. The chosen method must reflect the functions, assets and risks of each party and align legal ownership with economic substance.
Why do intangibles attract so much FTA attention?
Because their value is mobile and hard to measure, intangibles are a common route for shifting profit between jurisdictions. The FTA therefore scrutinises intangible-heavy structures closely, emphasising conduct over contract, the funding party's real capacity to bear risk, and hard-to-value intangibles. Getting the analysis wrong risks tax adjustments, penalties and double taxation.
How SBC Tax Consulting can help
SBC's transfer pricing team runs the full DEMPE analysis for your intangibles — mapping functions, control and risk, aligning legal ownership with economic substance, and valuing intellectual property with the right method. We prepare the Master File, Local File and intercompany agreements that evidence your position, and defend intangible-heavy structures under FTA audit with an eye on the international tax angle. To review your intangibles, contact SBC.
This publication is for general information only and does not constitute professional advice. Please consult your SBC advisor before acting on any matter covered here.