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Relief from Royalty

In: Intangibles in the World of Transfer Pricing

Author

Listed:
  • Marc C. Hübscher

    (Deloitte GmbH)

  • Stella Ehrhart

Abstract

The relief-from-royalty approach is based on the idea that the fair value of an intangible asset equals the present value of the cost savings realized by the owner of the asset that result from not having to pay royalties for the use of the intangible asset to another party. In order to determine the cost savings, a hypothetical royalty rate has to be calculated for the subject asset, based on market comparable royalty rates. As it is less complex and highly transparent in terms of calculation and input parameters the relief-from-royalty approach is a valuation method that is commonly used in practice for the fair value assessment of brands and trademarks, patents, software, and databases. However, since it is largely dependent on market comparable royalty rates, it is essential to apply detailed plausibility and reconciliation considerations in order to derive reliable fair value results.

Suggested Citation

  • Marc C. Hübscher & Stella Ehrhart, 2021. "Relief from Royalty," Springer Books, in: Björn Heidecke & Marc C. Hübscher & Richard Schmidtke & Martin Schmitt (ed.), Intangibles in the World of Transfer Pricing, edition 1, pages 283-298, Springer.
    • Handle: RePEc:spr:sprchp:978-3-319-73332-6_16
    DOI: 10.1007/978-3-319-73332-6_16
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