DEMPE: Development, Enhancement, Maintenance, Protection, Exploitation
DEMPE defined: the five functions that determine who performs the work on intangibles — and therefore who is entitled to the residual profit they generate.
Definition
DEMPE is the OECD’s five-function framework for intangibles:
- Development — creating or designing the intangible
- Enhancement — improving it once created
- Maintenance — keeping it in its current state
- Protection — defending it (registration, enforcement)
- Exploitation — using it to generate the returns
The framework answers the question that drives intangibles transfer pricing: who performs the DEMPE functions — and, critically, who controls them (the decisions, the risk, the capital) — because the allocation of the residual profit follows the allocation of the DEMPE contribution. A party that performs D-E-M-P-E for the group’s core intangible is not a routine service provider, whatever its contract says.
Why it matters
Two consequences, both audit-critical:
- Tested party selection. A party performing or controlling DEMPE for a valuable intangible is generally not benchmarkable as routine — it is the residual party, and the method for the transaction may have to be a profit split rather than a one-sided test.
- Royalty and licensing positions. The royalty a licensor charges is only defensible against the DEMPE story: what the licensor actually developed, enhanced, protected and exploits, and what the licensee contributes. “The group IP is licensed at X%” without the DEMPE allocation is a number, not a position.
Example
A group’s software is developed by a contract R&D entity (the D, with engineering control) and licensed worldwide by a holding company (the E and P, with the rights and the enforcement). The DEMPE analysis — who decided, who funded, who bears the risk — determines how much of the software’s residual return sits with the developer and how much with the holder, and the royalty between them is set against that split.
See also
FAQ
Performing DEMPE vs controlling DEMPE — what is the difference? Performing is the work; controlling is the decision, the risk and the capital behind the work. The OECD’s allocation follows the contribution of each, with control of the entrepreneurial risk weighted heavily — a contract entity that performs D under another party’s direction and specification is a service provider, not a co-owner of the residual.
Is DEMPE only for intangibles? The framework is about intangibles specifically — it is the OECD’s answer to the question of where the value of an intangible’s returns should sit. Tangible-asset and routine-service transactions are allocated by the functional analysis without the DEMPE lens.
Run the screens as a study, not a spreadsheet
Quartyl applies the method, PLI and screening steps above as a pipeline — and keeps a documented reason for every exclusion.
Related docs
Profit Split Method: Definition, Variants and When It Applies
The profit split method defined: the two-sided approach that divides the combined profit between the parties according to their unique contributions — for when one-sided methods break down.
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The routine/entrepreneurial divide in transfer pricing — DEMPE functions, control of risk, intangible ownership, and how the divide decides method and profit pool.
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