Can hard-to-value intangibles actually be problematic?

We recently wrote on our blog about intangible assets and accounting for them. In this post, we would like to highlight another intangible asset issue, namely Hard-to-Value Intangibles (abbreviated HTVI).

The term itself and the word “hard” used in it signals to us the problems that can be encountered when making transactions involving intangible assets that meet the definition of HTVI. In particular, in this case, it is also necessary to define the terms of the transaction on terms that would be agreed upon between unrelated parties.

Due to difficulties and uncertainties in identifying and valuing HTVI, the Transfer Pricing Forum Recommendations (based on Polish regulations and OECD Guidelines) were issued this year.

Why is the valuation of hard-to-value intangibles problematic?

Despite the lack of a Polish definition of intangibles (it can be found in OECD studies), the Transfer Pricing Regulation includes a definition of intangibles that are hard to value. In order for intangible assets to be considered HTVI, they must meet two conditions together:

  • at the time of transfer of HTVI between related parties, there is no reliable comparative data, and
  • forecasts of future performance (cash flows, anticipated revenues) or assumptions made during the valuation are subject to a high level of uncertainty, and thus the economic result from the transfer of HTVI was difficult to determine at the time of their transfer.

In addition, when analyzing whether the indicated definition of HTVI is met, it should be remembered that not every intangible asset is a hard to value intangible asset. The matter is further complicated by the fact that intangible assets, as defined by transfer pricing, are not always considered intangible assets for accounting purposes.

Examples of features that may indicate that we are dealing with HTVI:

  • intangible assets that have not been fully developed (development process in progress) are transferred as part of the transaction,
  • intangible assets will not be used commercially until several years after the transaction,
  • intangible assets will be used in a novel (at the time of transfer) way,
  • intangibles by themselves do not meet the definition of HTVI, but are an integral part of the process of developing or enhancing the value of other HTVIs.

Why is it so important?

The transfer pricing regulation requires taxpayers to have detailed and reliable valuations/forecasts, which are used to determine the HTVI transfer price. The regulations also indicate that when verifying the marketability of a taxpayer’s income (loss), the authorities do not take into account circumstances that could not have been known to the parties to the transaction on the date of its conclusion, even if they could affect the determination of this transfer price.

However, there are exceptions to this advantageous rule for taxpayers. If the discrepancies between projected and actual data amount to at least 20% of the value of the transfer price determined by the projection, the tax authorities, in determining the amount of income (loss) of the taxpayer by way of estimation, may use ex post knowledge. In addition, they are not bound by the above restriction, which means that they can take into account relevant circumstances, even if they could not have been known to the taxpayer at the time of the valuation.

In practice, this means that if there are differences between ex-ante forecasts and ex-post valuations that are not due to unforeseeable events or circumstances (e.g., pandemic, war), there is a suspicion that the terms agreed upon at the time of the transaction between related parties may not have adequately taken into account material events or circumstances that may affect pricing arrangements.

How can you protect yourself?

A key element that can affect the reduction of the risk of negative consequences for related parties carrying out a transaction related to HTVI is the collection of information and documents that will confirm the reliability of the process carried out. The basic one is the aforementioned detailed valuation/forecast, on the basis of which the transfer price is determined. A recommended supplement to it is for the taxpayer to conduct a so-called DEMPE analysis, the purpose of which is to identify and verify the functions, assets and risks associated with the development, improvement, maintenance, protection and use of intangible assets.

In addition to the above, according to the Transfer Pricing Regulation, the most effective hedge against HTVI risks is to enter into an advance pricing arrangement (APA), investment agreement or tax agreement.


The subject of hard-to-value intangibles is certainly a complex issue that raises many questions. Therefore, it is very important to properly prepare and plan for this process, both from the business side and from the transfer pricing side. The issued Transfer Pricing Forum Recommendations or the OECD Guidelines may be helpful in this regard, nevertheless they only provide guidance on how to proceed in the case of a transaction involving HTVI. Thus, it may be necessary to seek the assistance of specialists, such as analysts, appraisers or tax advisors.

When planning or executing an HTVI transaction, it is also important to remember that at some point it will need to be reported to the tax authorities in the TPR form. Due to the nature of this type of transaction, this step can also prove to be quite a challenge.

Witold Tomczak

Witold Tomczak

Senior Consultant in the Transfer Pricing Team

+48 503 973 937