KPMG warns IP misalignment can trigger tax and deal risks

Why KPMG is sounding the alarm

KPMG is warning that intellectual property misalignment is not just a tax technicality. When legal ownership sits in one place but the real people, functions and decision-making that create value sit somewhere else, the problem can grow quietly for years before it shows up as an audit issue, a profit reallocation or a deal break.

The April 20, 2026 analysis by Jayme Reynolds, Thomas Bettge, Madeline Mitchell, Saurabh Dhanuka and Serene Tan frames the risk through a familiar growth pattern inside technology companies. A business may start in one country with IP legally owned there, then expand rapidly, move its C-suite, build out research and development elsewhere, and leave the legal structure lagging behind the commercial reality.

How the mismatch starts

That drift is easy to miss in a fast-scaling business. KPMG’s example is a technology company founded in Europe that later relocates its C-suite and expands its R&D footprint in the United States. The company may still show the same IP owner on paper, but the value creation has moved with the people who make product calls, control engineering work and shape strategy.

For KPMG tax, deal and advisory teams, that is the real issue. The question is not only where the IP is legally registered. It is where the people, functions, data and risk control actually sit, because that is what drives royalty flows, intercompany charges and the defensibility of how group profits are split.

Why transfer pricing and deal work now overlap

This is where a classic transfer pricing problem turns into a broader business problem. If the legal IP map no longer matches the commercial map, the group can face tax leakage, royalty disputes, and friction in M&A diligence or post-deal integration. That matters for clients that are scaling through software, platforms and other digital businesses, where growth often outruns the tax structure that was put in place at an earlier stage.

The practical exposure shows up in several places at once. A structure that looks tidy in legal documents can still be weak if the operating model has changed. A buyer may spot the gap during diligence, a tax authority may question it during audit, and a finance team may later discover that fixing it will require messy legal, operational and valuation work.

What the rules are really asking

The policy backdrop makes KPMG’s warning more than a one-off planning point. The OECD’s BEPS Actions 8-10 final report, published in 2015, was built around aligning transfer pricing outcomes with value creation, especially for intangibles. The OECD’s 2022 Transfer Pricing Guidelines continue that theme by saying governments need to make sure taxable profits are not artificially shifted out of their jurisdiction.

U.S. rules push in the same direction. IRS section 482 requires intercompany pricing for goods, services and intangibles to be consistent with what uncontrolled taxpayers would have realized under the same circumstances. That is why IP misalignment does not stay a bookkeeping issue for long. Once a tax authority sees profits sitting in one place while the real activity has moved elsewhere, the issue becomes a defensibility test.

Why DEMPE now sits at the center

The shift from legal ownership to economic substance is captured in DEMPE, the framework for Development, Enhancement, Maintenance, Protection and Exploitation. KPMG’s tax analysis ties that framework to BEPS Actions 8-10 and the related control-of-risk analysis, and that is the point that matters for practitioners: ownership alone is no longer the story.

For a transfer pricing team, DEMPE forces a harder question. Who is actually developing the IP? Who pays for the engineers? Who decides what gets protected, where the risk sits and how the asset is exploited? If those answers do not line up with the ownership structure, the tax position becomes vulnerable, even if the paperwork was correct when the company first formed.

What unresolved misalignment can cost

KPMG’s article is blunt about the downside: unresolved IP misalignment can later surface as much larger tax exposure during an audit. That is the preventable-risk story here. A structure that is tolerated in the early growth phase can become expensive when a regulator starts tracing who created the value and who was booked as the owner.

The cost is not only tax. Once an IP structure looks out of step with the business, the company may have to revisit royalty arrangements, intercompany agreements, valuation models and even where certain functions should sit. That kind of remediation can be disruptive, especially if the group is already dealing with a close timetable, a transaction, or a heavy quarter-end and year-end workload.

Why deal teams should care early

The deal angle is just as important. KPMG says IP misalignment can trigger deal risk, and that shows up when diligence uncovers that ownership no longer matches the place where value is being created. In practice, that can lead to purchase price adjustments, indemnities or a requirement to fix the structure after closing.

That is especially relevant for venture-backed companies, private equity groups, and corporate acquirers that move quickly on software and technology assets. If the IP profile is weak, the issue can bleed into board discussions, integration planning and seller negotiations. What looked like a tax footnote can become a live line item in the transaction model.

What KPMG professionals should look for

The easiest way to catch the problem early is to map the structure against actual operating reality:

• Has the C-suite moved without a fresh review of IP ownership?
• Has R&D shifted to a different country while the legal owner stayed put?
• Do royalty streams reflect where development and decision-making now happen?
• Do intercompany agreements still describe a business that no longer exists?
• Would a buyer or auditor reach the same conclusion as the legal chart?

These are the questions that matter for tax, but they also matter for advisory teams trying to support growth clients. The businesses most likely to outgrow their structure are often the ones moving fastest, which means the risk can build while leaders are focused on product launches, hiring, or expansion.

Why this matters inside KPMG

For consultants, auditors and tax professionals at KPMG, the value of this analysis is that it connects transfer pricing with the rest of the client agenda. It is not just about defending a memo. It is about helping management line up legal ownership, DEMPE functions and profit allocation before a regulator or counterparty forces the issue.

That is also why these cases can be career-defining on the path from manager to partner. The people who can explain a cross-border IP structure in business terms, work with legal and finance teams, and turn a technical mismatch into a remediation plan are the ones clients remember when the issue gets serious. In a market where digital growth keeps outrunning old structures, that skill set is becoming central to the job, not peripheral to it.

The broader lesson is simple: if the legal IP map and the economic reality diverge, the risk does not stay hidden. It waits for audit season, for a deal process, or for the moment a tax authority decides the profits belong somewhere else.