Intangible Asset Valuation Mandate for a Transfer Pricing Reorganization in the Software Industry

One Click LCA: who is the client?

One Click LCA is a software company based in Helsinki, Finland, specializing in life cycle assessment (LCA) and carbon footprint calculation for the construction and manufacturing industries.

Hectelion was engaged by the group to conduct an intangible asset valuation for transfer pricing purposes, as part of an intragroup intellectual property reorganization.

One Click LCA: what does the platform do?

The One Click LCA platform helps construction and manufacturing players measure, manage and reduce the carbon footprint of their projects, from design to delivery.

It notably covers the production of Environmental Product Declarations (EPDs), building life cycle assessment, and compliance with the sector's decarbonization frameworks.

One Click LCA: international footprint

Deployed in more than 170 countries, the One Click LCA solution serves construction and manufacturing players worldwide.

This international footprint is central to the mandate: once a group performs its development and exploitation functions across several countries, which entity should own and be remunerated for the intellectual property becomes a transfer pricing question in its own right.

Mandate: description of the engagement

The engagement covered the valuation of a portfolio of intangible assets of differing natures, including software assets.

The objective was to document an arm's-length value for transfer pricing purposes, as part of an intragroup intellectual property reorganization.

Mandate: key challenges

• determine which group entity actually performs and controls the value-creating functions of each asset (DEMPE analysis);
• select, for each asset, the valuation method best suited to its nature rather than applying a single method to the whole portfolio;
• build cross-border consistency in the analysis, as each jurisdiction concerned applies its own transfer pricing requirements;
• document the robustness of conclusions through cross-corroboration tests.

Mandate: typical timeline

Typical duration: 8 to 10 weeks. The present engagement was conducted in 8 weeks.

Transaction: rationale and valuation basis

Aligning intellectual property ownership with the entity that actually performs the related functions is a matter of group governance. It is also what the transfer pricing analysis documents, since remuneration must follow the functions actually performed.

The valuation basis relies on the international standards IVS 210 (intangible assets) and IVS 103 (valuation approaches), as well as the OECD Transfer Pricing Guidelines (2022 edition, Chapter VI).

Method: selection principle by asset

The guiding principle is to match the method to the economic nature of each asset, rather than applying a single framework to a whole portfolio.

An asset generating an identifiable royalty stream calls for an income approach (relief-from-royalty), calibrated on a panel of arm's-length license transactions using the comparable uncontrolled price method. An asset generating a directly attributable cash flow calls for an income approach based on discounted cash flows (DCF). An asset generating no separately attributable cash flow and no observable comparable royalty falls under a cost approach, on a cost to recreate basis.

DEMPE: the functional analysis at the heart of transfer pricing

The DEMPE analysis (Development, Enhancement, Maintenance, Protection, Exploitation) identifies the five economic functions that create and sustain the value of an intangible asset.

Under the OECD Transfer Pricing Guidelines, remuneration for the asset should go to the entity that actually performs and controls these functions, not merely the one holding legal title. This functional analysis, conducted asset by asset, formed the foundation of the entire engagement.

Tests: consistency and sustainability (HTVI, ceiling, sustainability)

Hectelion subjects every value conclusion to a series of corroboration tests.

The ceiling test caps the asset's value at the discounted cash flow of the activity it supports, which it can never exceed, a principle close to the IAS 36 / Swiss GAAP FER 27 impairment test.

The sustainability test verifies that an independent licensee would retain a normal margin after paying the royalty applied.

The HTVI test (Hard-To-Value Intangibles, OECD Guidelines, Chapter VI, Section D.4) compares initial projections against actual outcomes observed since, as presumptive evidence of the relevance of the assumptions made at the transaction date.

WARA: why apply it and what it means

The WARA analysis (Weighted Average Return on Assets, IVS 210 para. 90.04(f)) checks the overall consistency of the returns assigned to each identified asset against the entity's weighted average cost of capital, with the residual reconciling in goodwill.

This cross-check strengthens the defensibility of the report by demonstrating that the sum of asset-level returns, weighted by value, remains consistent with the return required by the entity's capital providers as a whole.

FAQ: DEMPE, methods and transfer pricing

What is DEMPE analysis and why is it central to transfer pricing?

DEMPE identifies the five economic functions that create and sustain the value of an intangible asset. The OECD Transfer Pricing Guidelines require that remuneration for the asset go to the entity that actually performs and controls these functions, not merely the one holding legal title.

Which methods can be used to value software intangible assets?

The choice depends on the nature of the asset: an income approach (relief-from-royalty or direct DCF) suits assets generating an identifiable cash flow; a cost approach (cost to recreate) applies when no comparable royalty is observable.

What do the ceiling, sustainability, HTVI and WARA tests add?

These four tests corroborate the value conclusion from different angles: the ceiling caps it at the discounted cash flow of the carrying activity, sustainability checks the licensee's residual margin, HTVI compares projections against outcomes, and WARA checks the consistency of asset-level returns with the entity's cost of capital.

Why use a two-sided range rather than a single value?

The transferor and the transferee are each subject to their own tax regime and, on the transferee side, may benefit from a tax amortization benefit on the asset. The OECD Guidelines (paragraphs 6.111 to 6.113) provide that an arm's-length price takes account of the options realistically available to each of the two parties, which leads to building the bounds from each perspective before selecting a point within that range.

How long does an intangible asset valuation for transfer pricing purposes take?

For a portfolio of several heterogeneous assets requiring a full DEMPE analysis and cross-corroboration tests, the typical duration is 8 to 10 weeks. The present engagement was conducted in 8 weeks.

Hectelion: firm presentation

Hectelion is an independent business advisory firm with dual French-Swiss expertise, specializing notably in business valuation, financial due diligence, financial structuring, mergers & acquisitions, fund raising and intangible asset valuation.

Hectelion thanks One Click LCA for its trust in this engagement, and particularly appreciated the quality of the collaboration throughout the project.

Hectelion: by the numbers

• transactions ranging from CHF 2 to 500 million in size;
• multi-method methodology aligned with IVSC standards and AMF/SIX market practice;
• economic independence from traditional financial intermediaries;
• dual French-Swiss expertise, an independent business advisory firm outside traditional banking networks.

Twelve integrated areas of expertise

Summary: the mandate in brief

Valuation mandate for a portfolio of intangible assets for One Click LCA, a Finnish decarbonization software editor, as part of an intragroup intellectual property reorganization for transfer pricing purposes.

Asset-by-asset DEMPE functional analysis, method selection according to the nature of each asset, and cross-corroboration of the conclusions, in line with the OECD Transfer Pricing Guidelines and IVS standards.

Contact: let's discuss your project

Are you preparing an intragroup reorganization, a transfer pricing transaction, or a deal involving intangible assets? Hectelion supports French-Swiss and international groups in valuing their intangible assets, consistent with IVS standards and the OECD Transfer Pricing Guidelines.

Book a meeting with our team to discuss your project.

Similar mandates: intangible asset valuation

• Multi-brand valuation mandate for an intra-group transfer and transfer pricing (France)
• Patent valuation mandate as part of a fundraising round (France)
• Brand valuation mandate as part of a strategic fund raising (Switzerland)

Useful links

• Intangible asset valuation, the Hectelion service
• Business valuation, the Hectelion service
• Financial due diligence, the Hectelion service
• Financial structuring, the Hectelion service
• Transfer pricing, definition and the arm's length principle
• Impairment testing, IAS 36 and Swiss GAAP FER 27
• WACC, weighted average cost of capital
• One Click LCA, official website