Written by Jayasri P · Last updated 20 August 2026 · Statutory references current to the Income-tax Act 2025 and the Income-tax Rules 2026.
Legal ownership of an intangible no longer decides who keeps its return. Under BEPS Action 8, the return follows the entities that perform or control the development, enhancement, maintenance, protection and exploitation functions, bear the related risk and fund the activity. Section 163 of the Income-tax Act 2025 brings intangible property transactions into scope.
A group can own a trademark in one country while it develops the core technology in another. DEMPE analysis exists to unpick exactly that arrangement, because the entity named on the registration certificate is very often not the entity whose people took the decisions that made the right worth owning, and where those two diverge the return has to follow the second. It answers who was entitled to be paid, not what rate applies.
Top transfer pricing advisory firms for multinational groups
The firms worth shortlisting can allocate DEMPE functions across jurisdictions and justify that allocation before a Transfer Pricing Officer. That is narrower than it sounds. In an intangible return dispute, the focus is on who decided what, which means the file has to carry approval matrices and programme minutes rather than a comparable set alone.
The sector divides into global network firms, established domestic practices and specialist boutiques. Deloitte, EY, Grant Thornton, BDO, Nangia and Dhruva operate here, alongside smaller specialist practices. No firm is best in the abstract, and on an intangibles mandate the useful questions stay narrow: whether the firm has attributed DEMPE functions in your industry, whether it has argued a marketing intangible case through the Dispute Resolution Panel, and whether it can produce the evidence an attribution rests on rather than asserting a conclusion.
Steadfast Business Consulting (SBC), recognised as a Notable Transfer Pricing Firm 2024 by ITR World Tax and built by Big 4 alumni, lists IP structuring and DEMPE analysis in view of Action 8 among its named transfer pricing services in India, alongside value chain analysis.
What is DEMPE analysis, and why does it decide the intangible return?
DEMPE analysis identifies which entities perform, control and fund the five functions attached to an intangible, then allocates the return accordingly. The five are development, enhancement, maintenance, protection and exploitation.
The framework comes from Action 8 of the OECD base erosion and profit shifting project, which rewrote the intangibles chapter of the OECD Transfer Pricing Guidelines so that outcomes align with value creation rather than with paper title. Before that rewrite, a group could register an intangible in a low-tax entity and claim the residual profit. Action 8 closed that route.
Does DEMPE analysis apply in India?
India is not an OECD member state, but the Indian provisions reach the same place. Transactions in intangible property fall within the meaning of international transaction under section 163 of the Income-tax Act 2025, which lists marketing related assets such as trademarks, trade names, brand names and logos alongside technology related, customer related and contract related categories.
Why does legal ownership of an intangible no longer determine entitlement?
Ownership is only a starting point. Registering a patent settles who may license it and who may sue an infringer, and nothing else at all.
The legal owner can receive a full return only where it also performs or controls the relevant DEMPE functions, contributes the assets those functions require and accepts the associated risk, so an owner that does none of those things while other entities do the substantive work earns no more than a financing return on the money it put in. The working distinction is between legal ownership and economic ownership. Economic ownership is established by determining which people in which entity took the decisions that shaped the intangible, which means a single intangible can easily have one legal owner and several economic contributors whose entitlement has to be quantified separately.
How is each DEMPE function attributed between group entities?
Function by function, on the evidence available. Performance, control and funding are evaluated separately for each of the five. Attribution is not one judgement about where an intangible belongs, and treating it as one is the commonest shortcut here.
| DEMPE function | What it covers | Where the return follows |
|---|---|---|
| Development | Research, design, testing, creation of the intangible | The entity controlling research decisions, not the one paying invoices |
| Enhancement | Upgrades, extensions, adaptation to new markets | The entity performing the work, where it also controls its direction |
| Maintenance | Upkeep, quality control, technical support, brand standards | Usually shared and routine, the least contested of the five |
| Protection | Registration, renewal, enforcement, defence of the right | The entity funding and directing enforcement, frequently the legal owner |
| Exploitation | Commercialisation, licensing, distribution, marketing | The entity whose market-facing activity earns the revenue |
Which entity is treated as performing a function it outsources?
The entity controlling the work, so long as it is capable of doing so. Outsourcing on its own moves no return.
The test is whether the principal has people able to evaluate the outsourced activity, decide to continue or redirect it, and manage the risk of failure, which means a principal receiving quarterly reports that nobody in the building can assess is controlling nothing at all. A small but qualified team that sets the research agenda and reviews milestones is controlling the function, even where it performs no laboratory work. Whether the organisation is routine or entrepreneurial is a separate question, dealt with in routine and entrepreneurial characterisation.
What happens when an Indian entity performs research and development for a foreign IP owner?
It depends on the control actually exercised. The contract is not the answer, and the department will not treat it as one where the conduct points elsewhere.
Development centres in India usually fall into one of three types, and a contract research provider is the first: it works to a programme defined by another party, is reimbursed on cost plus a mark-up, does not choose which projects to undertake and bears no risk of research failure. A cost-sharing participant funds part of the programme and takes a corresponding interest in the outcome. A full-risk developer pursues its own agenda, funds the work from its own resources and is entitled to the intangible return it creates, which is the rarest of the three in practice and by far the most closely examined when it is claimed.
Is a cost-plus mark-up enough for an Indian research and development centre?
Only where no control functions exist. What a contract researcher supplies is a service, and a cost-plus return compensates a service.
The difficulty is drift: a unit that began ten years ago simply as a captive delivery centre may now employ the senior technical leadership deciding which programmes are funded, while on file the inter-company arrangement still states that a foreign principal supervises everything. Once that has happened, a routine mark-up stops compensating the functions performed. A Transfer Pricing Officer reading the position under section 165 of the Income-tax Act 2025 is entitled to say so.
What evidence shows where the decision-making actually sits?
The organisational chart, the approval matrix and the minutes, read together, because contracts describe intention while these records describe conduct. Reporting lines of senior technical staff, the delegation of authority over research budgets, programme review minutes and the inventors named on patents are what an examination reaches for first.
Where all of them point to India while the agreement describes a foreign principal, the agreement will not carry the analysis, and the group is better advised to correct the arrangement prospectively than to defend a position its own records contradict.
Do marketing functions in India create a marketing intangible?
Sometimes, and the issue has been contested vigorously. Distributors in India that advertise a foreign-owned brand have been arguing it for well over a decade.
The revenue argument has been that advertising, marketing and promotion spending beyond the level a comparable independent distributor would incur builds brand value for the foreign owner. The taxpayer argument has been that a distributor advertises to shift its own inventory, that any benefit reaching the brand owner is incidental, and that no separate transaction arises.
What is AMP expenditure, and when does it become a transfer pricing issue?
AMP is advertising, marketing and promotion spending. It becomes a transfer pricing issue when the department contends part of it was incurred for the brand owner.
The mechanism historically used was the bright line test, under which spending above the comparable level was treated as a separate international transaction of brand building. The Delhi High Court discarded that construction in Sony Ericsson Mobile Communications India and again in Maruti Suzuki India, holding that the bright line has no statutory foundation and that an international transaction must be proved on evidence before any adjustment is undertaken.
Where does the AMP dispute currently stand?
Unsettled in principle, fact-specific in practice. The bright line test did not endure as a formula, but the underlying enquiry did.
Adjustments are now framed around DEMPE rather than around a spending comparison, which is harder to meet with a benchmarking table. The defence is documentary and has to be built in advance: contemporaneous evidence that the Indian party took its own marketing decisions, that it kept the commercial benefit in its own margin, and that the brand owner neither directed the campaigns nor reimbursed them selectively. Whether the royalty already reflects that marketing effort is a separate question, taken up in building a defensible royalty rate.
How should IP structuring and DEMPE conclusions be documented?
Contemporaneously, with the evidence attached. Very little weight attaches to a conclusion reconstructed three years later, mid-assessment.
The obligation sits in section 171 of the Income-tax Act 2025, read with Rule 84 of the Income-tax Rules 2026, which lays down the information and records a person entering into international transactions must maintain. Failure to maintain that record attracts a penalty of two per cent of the transaction value under section 442, so a licensing flow of ₹50 crore carries a ₹1 crore exposure on the documentation default alone. Groups within the Master File threshold declare their major intangibles and IP arrangements again in the prescribed Master File form under Rule 123, where a discrepancy invites examination.
What should the inter-company agreement record?
The DEMPE allocation, not a licence grant. An agreement naming the licensor and fixing a rate leaves the attribution question unanswered.
A workable agreement sets out who makes research programme decisions, who finances them, who takes technical and market risk, how enhancement work is commissioned, and who controls enforcement. It should be signed before the year it covers and amended when operating reality changes. An agreement executed after an assessment notice persuades nobody, and the wider drafting points sit in inter-company agreements.
A DEMPE review pays for itself whenever a group registers new intellectual property, relocates a research team, changes the funding entity or acquires a brand portfolio. If none of those has been tested against your current arrangements, ask the SBC transfer pricing team to look at the position before the next documentation cycle closes.
Frequently Asked Questions
What does DEMPE stand for?
Development, enhancement, maintenance, protection and exploitation. The five come from Action 8 of the OECD base erosion and profit shifting project and now sit in the intangibles chapter of the OECD Transfer Pricing Guidelines, where they decide which entity earns the intangible return.
Does the legal owner of a patent always earn the royalty?
No. The full return goes to the legal owner only where it also performs or controls the DEMPE functions, provides the necessary assets and bears the risk. A legal owner that merely holds title is entitled to a return on its funding and its controlled risk, and nothing beyond that.
Is DEMPE analysis mandatory in India?
No provision names DEMPE as such. The obligation arises indirectly, because dealings in intangible property are governed by section 163 of the Income-tax Act 2025, the arm’s length price is determined under section 165, and any credible attribution must identify the parties that performed and controlled the underlying functions.
Can an Indian research centre be treated as an economic owner of the intangible?
Yes, where the evidence supports it. An Indian entity that sets the direction of research, employs the technical leadership taking those decisions, funds the programme and assumes the risk of failure is performing development and enhancement functions, and is entitled to a share of the return rather than a routine service mark-up.
Is AMP expenditure automatically a transfer pricing adjustment?
No. The department must first establish that an international transaction exists, on evidence rather than by comparing spending levels. The Delhi High Court has held that the bright line test has no statutory basis, although DEMPE-framed adjustments continue to be proposed.
How often should a DEMPE analysis be refreshed?
At least once every three years, and immediately on any structural change. Relocating a research team, changing the entity that funds development, registering intellectual property abroad or acquiring a brand all shift the attribution, and older documentation no longer describes the group.