In a recent webinar, LCN hosted Donal O’Connell, former Director of IP at Nokia and a highly experienced practitioner in global IP management, for a deep dive into one of the most persistent blind spots in transfer pricing: how to identify intangibles in the first place.
Transfer pricing professionals are well-versed in DEMPE analysis. The OECD Transfer Pricing Guidelines tell us to identify each controlled transaction, identify each category of intangibles associated with that transaction, and identify the legal rights attached to each category of intangibles. But they do not tell us how to uncover those intangibles, especially in organisations where IP is diffuse, undocumented, or poorly understood.
This is where Donal’s experience is invaluable. Unlike many IP specialists who approach the topic from a purely legal or academic angle, Donal has spent decades at the coalface of innovation, managing thousands of inventive ideas, running Nokia’s “patent factory”, and advising companies across industries on how to get control of their intangible assets.
This blog summarises the key insights from our conversation.
Intangibles Are Not One Thing. They Are an Ecosystem
One of Donal’s central messages is that “IP” is not a single asset class. It is an umbrella term covering multiple forms of intangible assets, each with its own characteristics, legal treatment, and operational footprint.
Different forms of IP behave differently:
- Patents protect technical inventions and are typically rooted in R&D
- Trademarks sit closer to marketing and brand
- Trade secrets and know-how permeate the organisation and are rarely documented
- Domain names, social media handles, and digital assets increasingly carry economic significance
- Process IP, a company’s unique way of doing things, is becoming more and more central to modern business models, and therefore to TP analysis
For transfer pricing purposes, this matters because DEMPE analysis depends on understanding what the intangible is before you can meaningfully apply an analysis of functions performed, assets contributed or used, and risks controlled and assumed.
Registered IP: Easier to Find, Harder to Interpret
Registered IP such as patents, trademarks, and designs provides a starting point. Government offices keep records. Search tools exist. Law firms maintain files. In theory, you can build a list.
But Donal emphasised several complications:
- Registration does not equal validity. A patent may have lapsed because renewal fees were not paid. It may have been transferred in a divestment. It may also be vulnerable to invalidation due to undiscovered prior art.
- Registration does not equal economic significance. Some patents are strategic, others defensive, and some are simply unused.
- Registration does not equal ownership clarity. Inventorship disputes, mis-filings, and administrative errors are common.
- Registration does not equal global coverage. A company may hold patents in the US, China, and Japan but not in jurisdictions where its TP arrangements allocate value.
Even with registered IP, TP teams cannot rely on lists alone. They must understand how the business uses the IP, why it was filed, and what role it plays in the group’s value creation.
Unregistered IP: The Hardest Part of DEMPE
The real challenge, and the area where most TP analyses fall short, is unregistered IP.
This includes trade secrets, know-how, confidential information, proprietary processes, and organisational methods.
These assets:
- are not recorded in any government register
- are often undocumented
- sit across multiple functions
- evolve continuously
- are rarely understood by tax teams
- are increasingly valuable
Donal highlighted that trade secrets have undergone a legal transformation. Since 2016, major jurisdictions including the US, EU, China, and Japan have strengthened trade secret laws, increased penalties, and clarified definitions.
Trade secrets are now explicitly recognised in BEPS Action 8 as a form of intangible asset.
Yet most companies cannot list their trade secrets, let alone explain how they are protected, who controls them, or how they contribute to value creation.
For transfer pricing, this is a serious problem. If a group cannot articulate its trade secrets, it cannot credibly allocate returns to them.
Why “We Have No Intangibles” Is Never True
During the webinar, we discussed a common refrain from tax directors:
“We don’t have any intangibles.”
Logic suggests otherwise. If the enterprise value of a group exceeds the sum of its tangible and financial assets, the difference must be attributable to intangible assets.
The real question is not whether they exist. It is whether the organisation (and the tax function) has correctly identified them, such that commercially rational transactions involving them can be designed, priced and implemented.
This is where traditional TP functional interviews often fall short. They are designed to map functions, assets, and risks, but not to uncover the nuanced, operationally embedded intangible assets that drive competitive advantage.
Donal’s approach involves deeper questioning:
- What information gives you an edge?
- What processes are unique to your organisation?
- What knowledge would damage the business if leaked?
- What do new employees need to learn before they can operate effectively?
- What do competitors try to copy?
These questions reveal intangible assets that rarely appear in TP documentation but are central to DEMPE analysis.
Trade Secrets and Know-How: The Hidden Engine of Value
Trade secrets are now one of the most important, and least understood, forms of IP.
To qualify as a trade secret, information must be:
- Secret – not publicly known or easily discoverable
- Economically valuable – conferring a competitive advantage
- Protected – subject to reasonable steps to maintain secrecy
The third requirement is critical. If a company cannot demonstrate that it actively protects the information, it is not legally a trade secret.
For transfer pricing, this raises important questions:
- Who controls access to the information?
- Who maintains the protection measures?
- Who develops and updates the know-how?
- Who bears the risk of misappropriation?
These are DEMPE questions. But they cannot be answered without first identifying the underlying intangible asset.
Why Identifying Intangibles Requires Talking to People
One of Donal’s most practical insights is that identifying intangibles cannot be done from behind a desk.
Even the best systems, registers, and databases will miss the most valuable assets.
You must talk to people.
Engineers, product managers, marketers, operations teams, and senior leadership all hold pieces of the puzzle. Interviews must be structured, targeted, and informed by an understanding of how different forms of IP behave.
This is where transfer pricing and IP disciplines intersect. TP teams know how to run functional interviews. IP teams know how to identify intangible assets.
Combining these approaches is the only way to produce a credible DEMPE analysis.
Why This Matters for Transfer Pricing
The OECD Transfer Pricing Guidelines require taxpayers to:
- identify controlled transactions which involve intangibles, including the contractual terms of those transactions
- identify the categories of intangibles concerned
- identify the legal rights attached to each category of intangibles
- identify who makes DEMPE contributions
- identify who controls and assumes the associated risks
- price the relevant controlled transactions, such that each party receives an arm’s length return for its contribution
None of this is possible without first identifying the intangible assets themselves.
As Donal put it:
“You cannot protect what you cannot identify.”
The same is true for transfer pricing. You cannot price what you cannot identify.
For groups with complex operating models, shared service hubs, or decentralised innovation, this is now a material compliance risk.
A Final Thought
The most sophisticated transfer pricing models can fail not because benchmarking is wrong, but because the underlying intangible assets were never properly identified.
As trade secrets grow in legal and economic significance, and as tax authorities become more sophisticated in auditing intangibles, the ability to map, classify, and evidence intangible assets is becoming a core competency for in-house tax and legal teams.
This however, is just the starting point. Armed with this information, corporates must:
- design legal structures and intercompany transactions which protect the relevant IP and meet the needs of wider stakeholders (including regulatory compliance, TP, WHT, sales taxes and currency controls)
- price those transactions to reflect the transfer pricing analysis
- implement the transactions contemporaneously (meaning, in advance) in legally binding and commercially rational intercompany agreements
- monitor the operation of those arrangements
- report on them accurately in corporation tax returns and transfer pricing documentation