Today's digital economy is characterized by an unparalleled reliance on intangibles, the massive use of data (especially personal data), widespread adoption of multi-sided business models capturing value from externalities generated by free products, and the difficulty of determining the jurisdiction in which value creation occurs. Intangibles often create value to a firm indirectly through complex cause-effect relationships which usually involve two or three intermediate stages.
Intangibles are generally valued through a combination of valuation methods, depending on the characteristics of an individual asset or purpose of the valuation. In most cases, the income valuation method is considered to be the most realistic approach and produces the most informed results. The market and cost approaches may aid in supporting and qualifying the results.
Due to the complex nature of intangibles, the process of assigning value should be conducted on a case-by-case basis and requires an in-depth analysis of the parties involved, business reasons for the transaction and other important factors. Rather than looking at every intangible through the same lens, we evaluate each intangible as a unique asset and examine factors that differentiate the intangible and contribute to its value. As a reference point, TPA Global crafted a Communication Protocol with 10 valuation steps that provides guidelines for an in-depth professional valuation of intangibles with respect to transfer pricing (the 10 valuation steps can be found in the TPA Global's Commentary on Proposed Revisions of the Special Considerations for Intangibles in Chapter VI of the OECD Transfer Pricing Guidelines and Related Provisions).