The taxation policies of Multinational Companies (MNCs) have become an attractive matter for governments, NGOs, and media in recent years. The tendency of MNCs to use low tax jurisdiction in order to reduce their payable taxes has forced the international regulatory bodies to take preventive measures. The complex organizational structure of the MNCs enables them to evade taxes by relying on complex and artificial methods. In this way, parent companies may increase their profits by using their subsidiaries for taxation deferral tactics. The base Erosion and Profit Shifting (BEPS) Action Plan of OECD is a strong indicator that lawmakers in the different countries are getting more conscious about the detrimental impacts of legal, but unfair tax avoidance activities of the MNCs on the world economy (OECD, 2021b). The competition over getting a greater slice from the global tax pie encourages some countries, which are known as tax heavens, to reduce the tax obligations of companies. This is another factor that whets the MNCs' appetite to use tax avoidance tactics (Theresia and Septriadi, 2018).

Concrete examples will facilitate understanding tax avoidance in the context of intangible rights. Starbucks was alleged to use its affiliates in both Netherland and the UK to shift its income in the form of royalty payments. There were also similar allegations about Amazon regarding the transfer of the IP rights to its affiliate in Luxembourg in order to reduce the payable taxes. The European Court of Justice rejected the allegation of the European Commission. The European Court of Justice stated that “none of the findings set out by the Commission in the contested decision are sufficient to demonstrate the existence of an advantage for the purposes of Article 107(1) TFEU, with the result that the contested decision must be annulled in its entirety” (Goebel and Beeton, 2021).

Action 8-10 of BEPS deals with transfer pricing in order to give a clear guidance about pricing activities of MNCs and their affiliates in the context of transactions among them. Due to the difficulty in determining their true values, transfers of the intangible assets create vulnerability in preventing base erosion and profit shifting. Therefore, it is essential to accurately analyze whether there is any exploitation between the MNCs and their entities. In this regard, DEMPE (development, enhancement, maintenance, protection, and exploitation ) analysis offers a comprehensive framework to identify the contributions of the entities to the value of the intangibles.

OECD presents a six-step analysis framework to investigate the transactions of the intangibles. First, intangible transferred and risks related to it are identified. Second, the contractual arrangements about the transaction should be analyzed to determine the legal owners. Third, the contributions of the parties to the value of intangibles should be examined under the functions of DEMPE. Fourth, the conduct of the parties and the terms of the contractual arrangements should be compared to identify any inconsistency. Fifth, the actual controlled transactions in the context of DEMPE functions should be delineated. Sixth, arm's length prices for the related transaction should be determined.  According to arm's length principle, “transactions should be valued as if they had been carried out between unrelated parties, each acting in his own best interest.” (OECD, 2021a).    

DEMPE approach is useful in concentrating on the economic realities of the business transactions instead of conducting an analysis based on only a legal perspective. In this way, the legal owner of intangible assets, who does not have sufficient control over the functions of DEMPE, would be excluded from exploiting the returns of those intangibles. Nevertheless, there is no universal definition of DEMPE functions. It means that the different interpretations of the tax administrations regarding these functions can create some confusion and conflicts. Both the international case law and decisions of the international regulatory bodies have not been adequate to clarify the application of DEMPE functions in determining the appropriate transfer pricing by relying on arm's length principle (Ahonen and Molina, 2020).

Application of DEMPE analysis to the different levels of an MNC is a challenging task due to the complexity of the decision-making processes among its entities. Spreading the DEMPE analysis to the lowest level of an organization can increase the risk of claiming excessive returns which are generated by intangibles (Paumier, 2020). Most of the MNCs have adopted a matrix-type organizational structure to increase their productivity. Hence, the decision-making processes of those companies have become more complicated. Moreover, the popularity of agility in organizations has increased significantly in order to use resources more effectively. Digital technologies have also promoted the cross-functional working style among different entities of an MNC. In such organizations, the application of DEMPE analysis cannot be taken for granted.

Besides the wording of the contract, the conduct of the parties and substance of the economic transactions should be also considering in the application of DEMPE analysis. Although the contractual arrangements reflect the intention of the parties, they can be insufficient to allocate the revenues from intangible assets among the entities of an MNC. The unique, valuable, and complex nature of intangibles complicate the comparison of their transactions with other external assets (Rao et al., 2021). For this reason, documents related to the decision-making processes such as cost-benefit analysis and board papers are critical in the application of DEMPE analysis accurately.


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GOEBEL, A. & BEETON, D. 2021. European Union: EU General Court Issues Its Decision On The Amazon And Engie State Aid Appeals [Online]. Mondaq. Available: [Accessed 1.09.2021 2021].

OECD. 2021a. Arm's Length Principle [Online]. Available: [Accessed 31.08.2021 2021].

OECD. 2021b. What is BEPS [Online]. Available: [Accessed 31.08.2021 2021].

PAUMIER, P. 2020. TP aspects of intangibles: How deep should DEMPE be? [Online]. ITR. Available: [Accessed 31.08.2021 2021].

RAO, A., SCHMIDTKE, R. & AUSTIN, S. 2021. TP controversy: The dynamic landscape of intangibles arrangements [Online]. ITR. Available: [Accessed 1.09.2021 2021].

THERESIA, Y. & SEPTRIADI, D. 2018. Tax Analysis and Profit Shifting Starbucks Corporation. Proceedings of the Journal of Contemporary Accounting and Economics Symposium 2018 on Special Session for Indonesian Study (JCAE 2018) -.

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