Last week’s BVWire covered the 9th Circuit decision in the Amazon case that affirmed the U.S. Tax Court’s 2017 decision in favor of the company in a transfer pricing case. The IRS had challenged the valuation of certain profitable intangibles, including website-related technology, marketing intangibles, and customer lists and related information the company had transferred to its European subsidiary. Valuing the intangibles, experts for the company used the comparable uncontrolled transaction (CUT) method to whittle down market transactions into those that most closely compare to the subject.

Inside look: An article, “Three-Step Analysis to Manage the ‘Noise’ in IP Royalty Rate Data,” contains details of the CUT method used by Robert Reilly (Willamette Management Associates), an expert in the case for Amazon. He found over 7,700 agreements in his initial search of the ktMINE database and identified 865 to be in the “marketing intangible” category. Narrowing his search to the retail and internet industries yielded 167 agreements, all of which he reviewed to find CUTs. To do this, he used a three-step approach where you: (1) eliminate; (2) adjust; and (3) assess the data. In the end, he selected six comparables to determine a royalty rate.

The article, with a hypothetical example (using real-world data), is available as a complimentary download (click on the article title above—free registration required for new visitors). It originally appeared in Business Valuation Update, and BVU subscribers already have access to this article as part of a searchable archive of over 20 years of articles that represent the collective wisdom and practical advice from the top experts in the valuation profession.