What is a royalty-deduction limitation (anti-BEPS rule), and what are its valuation implications?

A royalty-deduction limitation (in force since 2018): it restricts the tax deductibility of royalty payments to related parties when the recipient sits in a "harmful low-tax regime" (typically <25% effective tax) AND the royalty there benefits from an "IP box" (privileged taxation). Effect: a portion of the royalty payment becomes non-deductible → higher domestic corporate tax. Classic structures affected: IP holdings in low-tax jurisdictions with a 6.25%/12.5% patent-box rate. Valuation implications:

• For middle-market companies with IP-holding structures: a tax-model adjustment for the effect — it can raise the effective tax rate by 2–5%.
• M&A structuring disadvantage: an old (pre-2018) structure must be reviewed and possibly restructured.
• Audit risk: ongoing tax-authority review of whether the rule applies. Anti-BEPS context: this is a domestic implementation of the OECD BEPS action plan against aggressive tax planning (the US BEAT/GILTI rules are analogs).