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Category: Valuation – DCF and CUT/CUPs

In transfer pricing, valuation of (intangibles) assets are often based on a prior acquisitions of shares in the relevant business – CUT/CUPs.

In situations where reliable CUP for a transfer of assets cannot be identified, it may also be possible to use valuation techniques to estimate the arm’s length price for assets transferred between associated enterprises.

In particular, the application of income based valuation techniques, premised on the calculation of the discounted value of projected future income streams or cash flows derived from the exploitation of the intangible being valued, may be useful.

Depending on the facts and circumstances, valuation techniques may be used by taxpayers and tax administrations as a part of one of the five OECD transfer pricing methods described in Chapter II, or as a tool that can be usefully applied in identifying an arm’s length price.

Denmark vs Water Utility Companies, November 2018, Danish Supreme Court, Case no 27/2018 and 28/2018

These two triel cases concerned the calculation of the basis for tax depreciation (value of assets) in a number of Danish Water utility companies which had been established in the years 2006 – 2010 in connection with a public separation of water supply and wastewater utility activities. The valuation of the assets would form the basis for the water utility companies’ tax depreciation. The transfer was controlled and subject to Danish arm’s length provisions. The […]

Norway vs. A AS, October 2017, Tax Tribunal, NS 71/2017

A Norwegian company, A, first acquired shares in Company C from a unrelated party D for tNKR 625. Company A then transferred the acquired shares in C to a subsidiary E, a shell company established by C for the purpose of the transaction. Company A then sold the shares in subsidiary E to the unrelated party D, from which it had originally bought the shares in C, for tNKR 3830, a price almost six times […]

US vs. Amazon, March 2017, US Tax Court

In 2005 Amazon US entered into a cost sharing arrangement (CSA) with its Luxembourg subsidiary, Amazon Lux. Pursuant to entering the CSA, Amazon US granted Amazon Lux the right to use certain pre-existing intangible assets in Europe, including the intangibles required to operate Amazon’s European website business. This arrangement required Amazon Lux to make an upfront “buy-in payment” to compensate Amazon US for the value of the intangible assets that were to be transferred to Amazon Lux. As consideration for the transfer of pre-existing intangibles, Amazon Lux […]

US vs. Veritas Software Corporation, December 2009

The issue in the VERITAS case involved the calculation of the buy-in payment under VERITAS’ cost sharing arrangement with its Irish affiliate. VERITAS US assigned all of its existing European sales agreements to VERITAS Ireland. Similarly,VERITAS Ireland was given the rights to use the covered intangibles and to use VERITAS US’s trademarks, trade names and service marks in Europe, the Middle East and Africa, and in Asia-Pacific and Japan. In return, VERITAS Ireland agreed to pay royalties […]

US vs GlaxoSmithKline Holdings, September 2006, IR-2006-142

In September 2006 the Internal Revenue Service announced that it has successfully resolved a transfer pricing dispute with Glaxo SmithKline. Under the settlement agreement, GSK will pay the Internal Revenue Service approximately $3.4 billion, and will abandon its claim seeking a refund of $1.8 billion in overpaid income taxes, as part of an agreement to resolve the parties’ long-running  transfer pricing dispute for the tax years 1989 through 2005. See also the GlaxoSmithKlein decision from […]

US vs. DHL. April 2002, U.S. Court of Appeals

When DHL sold the “DHL” trademark to DHL International, the IRS disagreed with DHL’s evaluation of the arms-length price of the intellectual property and used its authority under Section 482 to reallocate income and impose penalties. DHL appealed the IRS ruling and the tax court upheld the IRS allocation to DHL. In this decision the U.S. Court of Appeals for the Ninth Circuit affirmed the tax court’s application of Section 482 to the sale of […]

Georgia Pacific Corp vs. United States Plywood Corp, May 1970,

This case is about valuation (not transfer pricing as such) and is commonly referred to in international valuation practice: In this decisions, the following 15 factors were relied upon to determine the type of monetary payments that would compensate for a patent infringement: 1. The royalties received by the licensor for licensing the intangible, proving or tending to prove an established royalty. 2. The rates paid by the licensee for the use of other similar […]