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What is the DEMPE Framework?

The DEMPE acronym provides a structured way to analyse how value is created, enhanced, and protected within a multinational group’s intangible asset strategy. By breaking intellectual property activities into five categories – Development, Enhancement, Maintenance, Protection, and Exploitation – the framework helps tax and finance teams identify which entities perform critical functions, control key risks, and drive economic outcomes. Understanding DEMPE is essential for aligning profit allocation with substance, meeting OECD expectations, and defending intangible-related transfer pricing positions across jurisdictions.

Development

Activities involved in creating, designing, coding, researching, or engineering a new intangible. Development covers the core innovation work that drives the initial value of IP and requires control over funding, risks, and strategic decisions.

Enhancement

Improving, upgrading, refining, or expanding an existing intangible. Enhancement includes feature upgrades, version releases, performance improvements, and product optimization efforts that increase the intangible’s commercial value.

Activities required to keep the intangible functional, relevant, and market-ready. Maintenance includes bug fixing, routine updates, documentation, compliance upkeep, system monitoring, and longevity-related support functions.

Maintenance

Protection

Safeguarding the intangible against misuse, infringement, or unauthorized access. Protection includes trademark registrations, patents, legal enforcement, cybersecurity measures, brand monitoring, and defending IP rights globally.

Exploitation

Commercializing the intangible to generate revenue. Exploitation includes licensing, sales, marketing, distribution, customer acquisition, and strategic deployment of the intangible in global markets.

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DEMPE OECD Guidelines Reference

The OECD Transfer Pricing Guidelines (2022) emphasize DEMPE as the foundation for pricing transactions involving intangibles. Chapter VI explains that legal ownership alone does not justify entitlement to returns. Instead, entities must perform, control, and finance DEMPE activities to earn IP-related income. The Guidelines require detailed analysis of functions, assets, risks, and decision-making authority, ensuring profit allocation reflects where value is actually created. DEMPE is central to both BEPS compliance and global audit expectations.

Key Benefits of DEMPE in Transfer Pricing

DEMPE provides multinational groups with a transparent, structured way to evaluate how intangibles create value. It strengthens compliance, improves governance, and ensures that profits align with real economic activity.

Aligns Profit With Substance

DEMPE ensures that income from intellectual property is allocated to the entities performing and controlling key value-driving functions. This alignment reinforces economic substance, reduces aggressive IP structuring, and mitigates the risk of tax adjustments across jurisdictions.

Strengthens Audit Defense

A complete DEMPE analysis provides tax authorities with clear evidence of functional contributions and risk ownership. It helps companies defend transfer pricing for royalties, licensing fees, development services, and cost-sharing arrangements, reducing audit exposure and dispute escalation.

DEMPE clarifies roles and responsibilities across business units, supporting stronger governance around IP development, enhancement, and protection. It ensures that decision-making authority and risk management are well documented and consistent with operational reality.

Improves IP Governance and Transparency

By identifying which entities contribute to value creation, DEMPE enables accurate pricing of intercompany royalties and licensing fees. It ensures that IP-rich entities receive returns that reflect true contributions, improving predictability and compliance with OECD standards.

Supports Accurate Royalty and Licensing Models

Enhances Global Tax Compliance

DEMPE embeds OECD-aligned logic into transfer pricing models for intangibles. It helps companies meet BEPS requirements, satisfy local intangible-focused rules, and maintain consistency across Master Files, Local Files, and Country-by-Country Reports.

DEMPE supports informed decisions on where to locate R&D, brand management, and exploitation activities. It helps leaders align tax structures with business strategy, ensuring that innovation hubs receive appropriate compensation and supporting sustainable global growth.

Facilitates Strategic IP Structuring

DEMPE FRAMEWORK in the Real World

A U.S. parent company owns the legal rights to a global software platform but outsources major development and feature enhancement to its India R&D subsidiary. The Irish affiliate manages global marketing and brand protection, while regional subsidiaries exploit the platform through sales and support functions.

During an audit, the tax authority challenges the high royalty paid to the U.S. parent. The DEMPE analysis shows that India performs the majority of development and enhancement functions and controls key R&D risks. As a result, the authority reallocates a portion of IP-related profits to India, reducing the parent’s royalty income and aligning global returns with actual economic contributions - demonstrating how DEMPE corrects mismatches between ownership and substance.

The DEMPE FRAMEWORK FAQ

What does DEMPE stand for in transfer pricing?

DEMPE stands for Development, Enhancement, Maintenance, Protection, and Exploitation of intangibles. The framework helps determine which entities in a multinational group create value and should earn returns from intellectual property. It ensures that profit allocation reflects substance, not just legal ownership, consistent with OECD guidelines.

Why is the DEMPE framework important for pricing intangibles?

DEMPE is important because it links intangible income to real economic activity. By identifying who performs and controls DEMPE functions, tax teams can determine arm’s length royalty rates, licensing fees, or profit splits. This prevents low-substance IP entities from earning returns that are not supported by actual contributions or risk management.

How does DEMPE affect global transfer pricing audits?

DEMPE plays a central role in audits by revealing whether entities receiving IP returns truly perform value-creating functions. If a legal owner lacks functional or risk control, tax authorities may reallocate profits to the contributing entities. Robust DEMPE documentation is essential for defending intangible-related transfer pricing positions.