Category: Intangibles – Goodwill Know-how Patents

In transfer pricing the word “intangible” is intended to address something which is not a physical asset or financial asset, which is capable of being owned or controlled for use in commercial activities, and whose use or transfer would be compensated had it occurred in a transaction between independent parties in comparable circumstances.

In discussions of transfer pricing various categories of intangibles are described and labels applied. Distinctions are sometimes made between trade intangibles and marketing intangibles, between “soft” intangibles and “hard” intangibles, between routine and non-routine intangibles, and between other classes and categories of intangibles.

Examples of intangibles are: Patents, Know-how and trade secrets, trademarks, trade names and brands, rights under contracts and government licences, licences and similar limited rights in intangibles, goodwill and ongoing concern value.

Denmark vs Maersk Oil and Gas A/S (TotalEnergies EP Danmark A/S), September 2023, Supreme Court, Case No BS-15265/2022-HJR and BS-16812/2022-HJR

Denmark vs Maersk Oil and Gas A/S (TotalEnergies EP Danmark A/S), September 2023, Supreme Court, Case No BS-15265/2022-HJR and BS-16812/2022-HJR

Maersk Oil and Gas A/S (later TotalEnergies EP Danmark A/S) continued to make operating losses, although the group’s combined oil and gas operations were highly profitable. Following an audit of Maersk Oil, the tax authorities considered that three items did not comply with the arm’s length principle. Maersk Oil incurred all the expenses for preliminary studies of where oil and gas could be found, but the results of these investigations and discoveries were handed over to the newly established subsidiaries free of charge. Licence agreements were signed with Qatar and Algeria for oil extraction. These agreements were entered into with the subsidiaries as contracting parties, but it was Maersk Oil that guaranteed that the subsidiaries could fulfil their obligations and committed to make the required technology and know-how available. Expert assistance (time writing) was provided to the subsidiaries, but these services were remunerated at cost ... Continue to full case
Korea vs "Fuel Injection Corp", August 2023, District Court, Case No 2022구합50258

Korea vs “Fuel Injection Corp”, August 2023, District Court, Case No 2022구합50258

In this case, “Fuel Injection Corp” had acquired a patent from its shareholder. The patent related to the manufacture of fuel injectors for marine engines. The tax authorities considered that the value placed on the patent by the related parties was unsubstantiated. On this basis, a tax assessment was issued in which “Fuel Injection Corp”‘s depreciation and taxable profits were adjusted accordingly. Furthermore, the amount paid to the shareholder was considered to be a non deductible “bonus”/distribution of profit. Judgement of the Court The District Court upheld the assessment issued by the tax authorities. Excerpt in English “a) Article 26(2) of the former Corporate Income Tax Act and Article 43(1) of the former Enforcement Decree of the Corporate Income Tax Act stipulate that ‘bonuses paid by a corporation to its officers or employees by disposing of profits shall not be counted as losses.Article 88(1) of ... Continue to full case
Italy vs Otis Servizi s.r.l., August 2023, Supreme Court, Sez. 5 Num. 23587 Anno 2023

Italy vs Otis Servizi s.r.l., August 2023, Supreme Court, Sez. 5 Num. 23587 Anno 2023

Following an audit of Otis Servizi s.r.l. for FY 2007, 2008 and 2009 an assessment of additional taxable income was issued by the Italian tax authorities. The first part of the assessment related to interest received by OTIS in relation to the contract called “Cash management service for Group Treasury” (hereinafter “Cash Pooling Contract”) signed on 20 March 2001 between OTIS and the company United Technologies Intercompany Lending Ireland Limited (hereinafter “UTILI”) based in Ireland (hereinafter “Cash Pooling Relief”). In particular, the tax authorities reclassified the Cash Pooling Agreement as a financing contract and recalculated the rate of the interest income received by OTIS to be between 5.1 and 6.5 per cent (instead of the rate applied by the Company, which ranged between 3.5 and 4.8 per cent); The second part of the assessment related to of the royalty paid by OTIS to the American ... Continue to full case
France vs SA SACLA, July 2023, CAA of LYON, Case No. 22LY03210

France vs SA SACLA, July 2023, CAA of LYON, Case No. 22LY03210

SA SACLA, which trades in protective clothing, footwear and small equipment, was the subject of a tax audit covering the financial years 2007, 2008 and 2009. In 2008, Sacla had sold a portfolio of trademarks to a related party, Involvex SA, a company incorporated under Luxembourg law, for the sum of 90,000 euros. In a proposed assessment issued in 2011, the tax authorities increased Sacla’s taxable income on the basis of Article 57 of the General Tax Code, taking the view that Sacla had made an indirect transfer of profits in the form of a reduction in the selling price by selling a set of brands/trademarks held by it for EUR 90,000 to a Luxembourg company, Involvex, which benefited from a preferential tax regime. The tax authorities had estimated the value of the trademarks at €20,919,790, a value that was reduced to €11,288,000 following interdepartmental ... Continue to full case
Poland vs "E S.A.", June 2023, Provincial Administrative Court, Case No I SA/Po 53/23

Poland vs “E S.A.”, June 2023, Provincial Administrative Court, Case No I SA/Po 53/23

In 2010, E S.A. transferred the legal ownership of a trademark to subsidiary S and subsequently entered into an agreement with S for the “licensing of the use of the trademarks”. In 2013, the same trademark was transferred back to E. S.A. As a result of these transactions, E. S.A., between 2010 and 2013, recognised the licence fees paid to S as tax costs, and then, as a result of the re-purchase of those trademarks in 2013 – it again made depreciation write-offs on them, recognising them as tax costs. The tax authority found that E S.A. had reported income lower than what would have been reported had the relationships not existed. E S.A. had  overestimated the tax deductible costs by PLN […] for the depreciation of trademarks, which is a consequence of the overestimation for tax purposes of the initial value of the trademarks ... Continue to full case
Portugal vs R... Cash & C..., S.A., June 2023, Tribunal Central Administrativo Sul, Case 2579/16.6 BELRS

Portugal vs R… Cash & C…, S.A., June 2023, Tribunal Central Administrativo Sul, Case 2579/16.6 BELRS

The tax authorities had issued a notice of assessment which disallowed tax deductions for royalties paid by R…Cash & C…, S.A. to its Polish parent company, O…Mark Sp. Z.o.o. R… Cash & C…, S.A. appealed to the Administrative Court, which later annulled the assessment. The tax authorities then filed an appeal with the Administrative Court of Appeal. Judgement of the Court The Court of Appeal revoked the judgement issued by the administrative court and decided in favour of the tax authorities. Extracts “It is clear from the evidence in the case file that the applicant has succeeded in demonstrating that the agreement to transfer rights is not based on effective competition, in the context of identical operations carried out by independent entities. The studies presented by the challenger do not succeed in overturning this assertion, since, as is clear from the evidence (12), they relate ... Continue to full case
Israel vs Medtronic Ventor Technologies Ltd, June 2023, District Court, Case No 31671-09-18

Israel vs Medtronic Ventor Technologies Ltd, June 2023, District Court, Case No 31671-09-18

In 2008 and 2009 the Medtronic group acquired the entire share capital of the Israeli company, Ventor Technologies Ltd, for a sum of $325 million. Subsequent to the acquisition various inter-company agreements were entered into between Ventor Technologies Ltd and Medtronics, but no transfer of intangible assets was recognised by the Group for tax purposes. The tax authorities found that all the intangibles previously owned by Ventor had been transferred to Medtronic and issued an assessment of additional taxable profits. An appeal was filed by Medtronic Ventor Technologies Ltd. Judgement of the District Court The court dismissed the appeal and upheld the assessment issued by the tax authorities. Click here for English translation Israel vs medtronic-ventor ORG ... Continue to full case
Denmark vs "IP ApS", March 2023, Tax Tribunal, Case No. SKM2023.135.LSR

Denmark vs “IP ApS”, March 2023, Tax Tribunal, Case No. SKM2023.135.LSR

The case concerned the valuation of intangible assets transferred from a Danish company to an affiliated foreign company. The Tax Tribunal basically agreed with the valuation of the expert appraisers according to the DCF model, but corrected the assumptions with regard to revenue growth in the budget period and the value of the tax advantage. Finally, the Tax Tribunal found that the value of product Y should be included in the valuation, as all rights to product Y were covered by the intra-group transfer. Excerpts “It was the judges’ view that the turnover growth for the budget period should be set in accordance with Company H’s own budgets prepared prior to the transfer. This was in accordance with TPG 2017 paragraphs 6.163 and 6.164 and SKM2020.30.LSR.” “With reference to OECD TPG section 6.178 on adjustment for tax consequences for the buyer and seller and SKM2020.30.LSR, ... Continue to full case
Poland vs "Cosmetics sp. z o.o.", March 2023, Supreme Administrative Court, Case No II FSK 2034/20

Poland vs “Cosmetics sp. z o.o.”, March 2023, Supreme Administrative Court, Case No II FSK 2034/20

“Cosmetics sp. z o.o.” is a Polish distributor of cosmetics. It purchases the goods from a related foreign company. The contract concluded between “Cosmetics sp. z o.o.” and the foreign company contained a provision according to which 3% of the price of the goods purchased was to be paid (in the form of royalties) for the right to use the trademarks for the promotion, advertising and sale of the products. However, the invoices issued by the foreign company for the sale of the goods in question did not show the amount paid for the right to use the trademarks as a separate item. The invoices simply stated the price of the goods purchased. “Cosmetics sp. z o.o. requested an “individual interpretation” from the tax authorities as to whether the royalty payments included in the price of the goods were subject to withholding tax in Poland ... Continue to full case
Italy vs Dolce & Gabbana S.R.L., November 2022, Supreme Court, Case no 02599/2023

Italy vs Dolce & Gabbana S.R.L., November 2022, Supreme Court, Case no 02599/2023

Italien fashion group, Dolce & Gabbana s.r.l. (hereinafter DG s.r.l.), the licensee of the Dolce&Gabbana trademark, entered into a sub-licensing agreement with its subsidiary Dolce&Gabbana Industria (hereinafter DG Industria or Industria) whereby the former granted to the latter the right to produce, distribute and sell products bearing the well-known trademark throughout the world and undertook to carry out promotion and marketing activities in return for royalties. DG s.r.l., in order to carry out promotion and marketing activities in the U.S.A., made use of the company Dolce&Gabbana Usa Inc. (hereinafter DG Usa) with contracts in force since 2002; in particular, on March 16, 2005, it entered into a service agreement whereby DG Usa undertook to provide the aforesaid services in return for an annual fee payable by DG s.r.l.; this consideration is determined on the basis of the costs analytically attributable to the provision of the ... Continue to full case
Italy vs Arditi S.p.A., December 2022, Supreme Administrative Court, Case No 37437/2022

Italy vs Arditi S.p.A., December 2022, Supreme Administrative Court, Case No 37437/2022

Arditi S.p.A. is an Italian group in the lighting industry. It has a subsidiary in Hong Kong which in turn holds the shares in a Chinese subsidiary where products are manufactured. Following an audit the tax authorities held that the entities in Hong Kong and China had used the trademark owned by the Italian parent without paying royalties, and on the basis of the arm’s length principle a 5% royalty was added to the taxable income of Arditi S.p.A. Arditi appealed against this assessment alleging that it had never received any remuneration for the use of its trademark by the subsidiary, and in any case that the tax authorities had not determined the royalty in accordance with the arm’s length principle. The Court of first instance upheld the appeal of Arditi and set aside the assessment. An appeal was then filed by the tax authorities ... Continue to full case
France vs Bupa Insurance, December 2022, Conseil d'État, Case No 450796 (ECLI:FR:CECHR:2022:450796.20221221)

France vs Bupa Insurance, December 2022, Conseil d’État, Case No 450796 (ECLI:FR:CECHR:2022:450796.20221221)

In 2009 a British company – Bupa Insurance Limited – absorbed the Danish company International Health Insurance, whose shares it had acquired in 2005 and which had had a French branch since 1993. Following an audit for FY 2009 and 2010, the tax authorities considered that the French branch had passed on to Bupa Insurance Limited, free of charge, the customers associated with its insurance business in France, and considered this transaction to be an indirect transfer of profits within the meaning of Article 57 of the General Tax Code. The Administrative Court of Appeal set aside the assessment and an appeal was then filed with the Conseil d’État by the tax authorities. Judgement of the Supreme Administrative Court The Supreme Administrative Court upheld the decision from the CAA and dismissed the appeal of the tax authorities. Excerpts “3. It is clear from the statements ... Continue to full case
France vs SA SACLA, October 2022, Conseil d'État, Case No. 457695 (ECLI:FR:CECHS:2022:457695.20221027)

France vs SA SACLA, October 2022, Conseil d’État, Case No. 457695 (ECLI:FR:CECHS:2022:457695.20221027)

SA SACLA, which trades in protective clothing and footwear as well as small equipment, was subject of a tax audit covering the FY 2007, 2008 and 2009. In a proposed assessment issued in December 2011, the tax authorities increased its taxable income on the basis of Article 57 of the General Tax Code, by considering that SACLA, by selling, a set of brands/trademarks held by it for EUR 90,000 to a Luxembourg company, Involvex, which benefited from a preferential tax regime, had carried out an indirect transfer of profits in the form of a reduction in the selling price. In a ruling of February 2020, the Lyon Administrative Court of Appeal, after dismissing the plea of irregularity in the judgment, decided that an expert would carry out an valuation to determine whether the sale price of the trademarks corresponded to their value. The valuation should ... Continue to full case
Israel vs CA Software Israel Ltd, October 2022, Tel Aviv District Court, Case No 61226-06-17

Israel vs CA Software Israel Ltd, October 2022, Tel Aviv District Court, Case No 61226-06-17

The shares in Memco Software Ltd (now CA Software Israel Ltd) was acquired by CA Inc. in the late 90’s for 400 millions. Later in 2010 all the intangibles developed by the company (software and know-how etc.) was transferred to a CA group company at a price of 111 millions. Following an audit the tax authorities issued an assessment where the value of the intangibles was instead determined to be 667 million and the additional gain was added to the taxable income. Furthermore, since payment of the determined arm’s length value had not been received by CA Software Israel Ltd, interest of 2,2585% was calculated on the amount owed and added to the taxable income in the years following the transfer. An appeal was filed by CA Software Israel Ltd. Judgement of the Court The court upheld the tax assessment and the value determined by ... Continue to full case
Spain vs "XZ Insurance SA", October 2022, Tribunal Economic-Administrative Central (TEAC), Case No Rec. 00/03631/2020/00/00

Spain vs “XZ Insurance SA”, October 2022, Tribunal Economic-Administrative Central (TEAC), Case No Rec. 00/03631/2020/00/00

“XZ Insurance SA” is the parent company in a group engaged in insurance activities in its various branches, both life and non-life, finance, investment property and services. An audit was conducted for FY 2013-2016 and in 2020 an assessment was issued in relation to both controlled transactions and other transactions. Among outher issued the tax authorities determined that “XZ Insurance SA” did not receive any royalty income from the use of the XZ trademark by to other entities of the group, both domestic and foreign. In the assessment the tax authorities determined the arm’s length royalty percentage for use of the trademarks to be on average ~0,5%. “In order to estimate the market royalty, the first aspect to be studied is the existence of an internal comparable or comparable trademark assignment contracts. And we have already stated that the absence of valid internal and external comparables ... Continue to full case
Netherlands vs "Agri B.V.", September 2022, Court of Appeal, Case No AWB-16_5664 (ECLI:NL:RBNHO:2022:9062)

Netherlands vs “Agri B.V.”, September 2022, Court of Appeal, Case No AWB-16_5664 (ECLI:NL:RBNHO:2022:9062)

“Agri B.V.” is a Dutch subsidiary in an international group processing agricultural products. Following a restructuring in 2009 “Agri B.V.” had declared a profit of € 35 million, including € 2 million in exit profits. In an assessment issued by the tax authorities this amount had been adjusted to more than € 350 million. Judgement of the Court of Appeal The Court of appeal decided predominantly in favour of the tax authorities. An expert was appointed to determine the value of what had been transferred, and based on the valuation report produced by the expert the court set the taxable profit for 2009/2010 to €117 million. Excerpt “The Functional Analysis of [company 9] submitted, the Asset Sale and Purchase Agreements, the Manufacturing Services Agreements and the Consulting services and assistance in conducting business activities agreements show that there was a transfer of more than just ... Continue to full case
France vs Ferragamo France, June 2022, Administrative Court of Appeal (CAA), Case No 20PA03601

France vs Ferragamo France, June 2022, Administrative Court of Appeal (CAA), Case No 20PA03601

Ferragamo France, which was set up in 1992 and is wholly owned by the Dutch company Ferragamo International BV, which in turn is owned by the Italian company Salvatore Ferragamo Spa, carries on the business of retailing shoes, leather goods and luxury accessories and distributes, in shops in France, products under the ‘Salvatore Ferragamo’ brand, which is owned by the Italian parent company. An assessment had been issued to Ferragamo France in which the French tax authorities asserted that the French subsidiary had not been sufficiently remunerated for additional expenses and contributions to the value of the Ferragamo trademark. The French subsidiary had been remunerated on a gross margin basis, but had incurred losses in previous years and had indirect cost exceeding those of the selected comparable companies. In 2017 the Administrative Court decided in favour of Ferragamo and dismissed the assessment issued by the ... Continue to full case
Korea vs "IP developer", June 2022, Tax Court, Case No 2022-0014

Korea vs “IP developer”, June 2022, Tax Court, Case No 2022-0014

The issue was whether “technical fees” received after a purported “transfer of patent rights” instead constituted business income – royalties – earned from continuous and recurring activities for profit and therefore subject to a higher income tax and VAT. During an audit, the tax authority found that “IP developer” had entered into a “technology transfer agreement” with a related party to transfer patent rights on four occasions between 2008 and 2020. Upon entering into the agreement, “IP developer” was to receive a “technology fee” of 5% of the annual sales of the subject technology. “IP developer” had registered a total of 78 patents, 8 design rights and 15 trademark rights, and had also entered license agreements with third parties and received income from these agreements in the form of royalty. On that basis the tax authorities considered that “IP developer” was engaged in the continuous ... Continue to full case
Malaysia vs Keysight Technologies Malaysia, May 2022, High Court, Case No WA-144-03-2020

Malaysia vs Keysight Technologies Malaysia, May 2022, High Court, Case No WA-144-03-2020

Keysight Technologies Malaysia Sdn Bhd (KTM) was incorporated in 1998 and active as a full-fledged manufacturer of various microwave devices and test instruments in which capacity it had also developed valuable intangibles. In 2008, KTM was converted into a contract manufacturer under an agreement with Agilent Technologies International s.a.r.l. and at the same time KLM purportedly transferred its intangibles to Agilent Technologies. KTM received an amount of RM 821 million which it reported as non-taxable gains form sale of intangibles in its tax return. Following an audit the tax authorities issued a notice of assessment for FY 2008 where the sum of RM 821 million had been considered revenue in nature and thus taxable under Section 4(f) of the ITA. This resulted in a claim of RM 311 million together with a 45% penalty. According to the tax authorities the transfer of technical knowhow was ... Continue to full case
France vs SAS Oakley Holding, May 2022, CAA of Lyon, No 19LY03100

France vs SAS Oakley Holding, May 2022, CAA of Lyon, No 19LY03100

SNC Oakley Europe, a subsidiary of SAS Oakley Holding, which belonged to the American group Oakley Inc. until its takeover in 2007 by the Italian group Luxottica, carried on the business of distributing clothing, footwear, eyewear and accessories of the Oakley brand on European territory. Following the takeover SNC Oakley Europe in 2008 transferred its distribution activity on the French market to another French company, Luxottica France, and its distribution activity on the European market to companies incorporated in Ireland, Luxottica Trading and Finance and Oakley Icon, and deducted restructuring costs in an amount of EUR 15,544,267. The tax authorities qualified these costs as an advantage granted without consideration to its sister companies, constituting, on the one hand, an abnormal management act and, on the other hand, an indirect transfer of profits within the meaning of Article 57 of the General Tax Code on the ... Continue to full case