A loss year does not automatically make the arm's-length royalty zero

The main issueLosses are a fact to analyse, not a pricing formula.

Explain the commercial reasons for the loss and whether they relate to the licensed IP.

Review whether independent licensees can pay royalties in loss-making periods.

Consider safeguards, tiering or variable structures where those are relevant to the facts.

Keep profitability evidence separate from unsupported hindsight.

TPRoyalty note

This is a concise research note, not a substitute for the facts and legal or transfer-pricing requirements of a particular case.

Issue themes also discussed in VSTN Consultancy's public note on transfer-pricing issues for royalty transactions. Open public reference ↗