Transfer Pricing Tool
for Technology

Transfer Pricing for Technology: OECD Methodology

Transfer pricing for technology companies centres on two fundamental challenges: how to price intercompany IT services and how to allocate returns from technology IP. The technology sector's reliance on intangible assets — software, algorithms, platforms, data, and brand — makes it one of the most scrutinised industries for transfer pricing compliance. The OECD's BEPS Actions 8-10 and the DEMPE framework were specifically designed to address aggressive IP migration structures commonly used by technology multinationals.

For routine IT services — infrastructure management, help desk support, application maintenance, testing, and software development performed to specifications — the TNMM with operating margin is the standard benchmarking method. Operating margins for IT service providers in Europe typically range from 8% to 15%, depending on the specialisation, skill level of the workforce, and whether the service provider contributes any proprietary methodology or tools. Indian IT service companies are frequently used as comparables due to the volume of publicly available financial data, but comparability adjustments for geographic market, labour cost differentials, and business model differences are essential. The Berry Ratio (gross profit / operating expenses) is an alternative PLI used when the service provider's costs are predominantly personnel costs and revenue does not meaningfully reflect the value of the service.

For software IP licensing, the CUP method applies where comparable license agreements exist. Technology royalty rates vary enormously by software type, market, and exclusivity — from 5–15% of revenue for standard enterprise software to 25–40% for proprietary platform technology. The digital economy presents additional challenges: data as an intangible, user participation in value creation, and the geographic allocation of profits from digital services. OECD Pillar One (Amount A) aims to reallocate taxing rights to market jurisdictions for large MNEs, while Pillar Two (GloBE) imposes a 15% minimum effective tax rate — both significantly affect technology transfer pricing structures.

Recommended Method: TNMM (Transactional Net Margin Method)

For technology entities, the tnmm (transactional net margin method) is typically the most appropriate transfer pricing method. This tool pre-selects this method based on industry best practice and OECD guidance. Typical arm's length ranges for technology are 1.1–1.3×.

Typical Technology Intercompany Transactions

IT services and support — Shared service centre provides IT infrastructure, application support, development, and testing services to group entities. TNMM with operating margin is standard for routine IT service providers. Preferred method: TNMM (Transactional Net Margin Method).

Software licensing royalties — IP-owning entity licenses proprietary software to related-party distributors or users. CUP applies where comparable software license agreements exist in the market. Preferred method: CUP (Comparable Uncontrolled Price).

Platform contribution / cost sharing — Multiple group entities contribute to development of a shared platform or technology. Cost sharing arrangements under OECD Chapter VIII require arm's length buy-in payments and ongoing contributions proportional to expected benefits. Preferred method: TNMM (Transactional Net Margin Method).

Regulatory Context

Technology TP is the highest-scrutiny sector globally. EU State Aid investigations have targeted tech IP structures (Apple, Amazon). The US Section 482 and cost sharing regulations are particularly relevant. Pillar One/Two implementation is changing the landscape fundamentally.

Limitation: This tool supports TNMM for IT services and CUP for royalties. Cost sharing arrangements (OECD Chapter VIII) and profit split for joint IP development are not implemented — consult a specialist.