What are royalty rates?

Royalty rates in a nutshell

A royalty rate is a payment made by one party, the licensee (the user of intangibles), to another party, the licensor (the owner of intangibles), for the use of intangibles owned by the licensor. Royalty rates are often expressed as a percentage of the revenues obtained using the owner’s property; however, they can also be expressed in other terms (including a fixed value), depending on the specific characteristics of the licence agreement.

What Are Royalty Rates – PDF [218kb]

OECD definition of royalty rates

Royalty rates refer to payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience.¹ ‘Copyright, trademark and patent holders may license others to use or produce the good, usually in return for a fixed payment and a royalty rate’.²

The definition of royalty rates applies to payments for the use of, or the entitlement to use, rights of the kind mentioned, whether or not they have been, or are required to be, registered in a public register. The term ‘royalty rate’ covers both payments made under a licence and compensation which a person would be obliged to pay for fraudulently copying or infringing the right’.³

There is an ongoing debate about whether the definition ‘royalty rates’ should be an open or a closed definition. The current approach used in the Model Tax Convention suggests that the closed definition is appropriate; however, some people argue that a new sentence should be included in the OECD definition that states that other types of rights or assets similar to those expressly mentioned may also bring about royalty payments.

Royalty rate data

RoyaltyRange royalty rate database provides reliable and detailed data on the comparable licence agreements involving intellectual property and royalty rates. Our proprietary royalty rate database contains manually gathered and analysed data on the most recent licensing transactions and royalty rates in various industrial sectors. Our data reports contain more than 50 standardised comparability factors on royalty rates and other terms of the licence and only unredacted agreements (i.e., licences where royalty rate is disclosed) containing royalty rates expressed in percentages are included in the database. For more details, please visit our RoyaltyRange database.

1 Article 12 of the OECD Model Convention with Respect to Taxes on Income and on Capital.

2 Glossary of Industrial Organisation Economics and Industrial Law (term 116), published by the OECD.

3 Commentaries on the Articles of the Model Tax Convention (Commentary on Article 12, Paragraph 2 (point 8)).