Category: Royalty and License Payments

Royalty is defined as payments for the use of or right to use intangible property.
Royalties or license fees are paid for use of patent, copyright, design or model, secret formula or process, trademark, trade name or for information concerning industrial, commercial or scientific experience (know-how) etc. Transfer pricing issues often relates to profit shifting, ownership and value of intangibles, and benefit tests.

Taiwan vs Jat Health Corporation , November 2018, Supreme Administrative Court, Case No 612 of 106

Taiwan vs Jat Health Corporation , November 2018, Supreme Administrative Court, Case No 612 of 106

A Taiwanese distributor in the Jat Health Corporation group had deducted amortizations and royalty payments related to distribution rights. These deductions had been partially denied by the Taiwanese tax administration. The case was brought to court. The Supreme Administrative court dismissed the appeal and upheld the assessment. “The Appellant’s business turnover has increased from $868,217 in FY07 to $1,002,570,293 in FY12, with such a high growth rate, and the Appellant has to bear the increase in business tax, which is not an objective comparative analysis and is not sufficient to conclude that the purchase of the disputed supply rights was necessary or reasonable for the operation of the business.” Click here for English Translation 最高行政法院106年判字第612號判決 ... Continue to full case
India vs Google, Oct. 2017, Income Tax Appellate Tribunal

India vs Google, Oct. 2017, Income Tax Appellate Tribunal

Google Ireland licenses Google AdWords technology to its subsidiary in India and several other countries across the world. The Tax Tribunal in India found that despite the duty of Google India to withhold tax at the time of payment to Google Ireland, no tax was withheld. This was considered tax evasion, and Google was ordered to pay USD 224 million. The case has now been appealed by Google to the Supreme Court of India. India-vs-Google-28-oct-2017-TAX-APPELLATE-TRIBUNAL ... Continue to full case
European Commission vs. Amazon and Luxembourg, October 2017, State Aid - Comissions decision, SA.38944 

European Commission vs. Amazon and Luxembourg, October 2017, State Aid – Comissions decision, SA.38944 

Luxembourg gave illegal tax benefits to Amazon worth around €250 million The European Commission has concluded that Luxembourg granted undue tax benefits to Amazon of around €250 million.  Following an in-depth investigation launched in October 2014, the Commission has concluded that a tax ruling issued by Luxembourg in 2003, and prolonged in 2011, lowered the tax paid by Amazon in Luxembourg without any valid justification. The tax ruling enabled Amazon to shift the vast majority of its profits from an Amazon group company that is subject to tax in Luxembourg (Amazon EU) to a company which is not subject to tax (Amazon Europe Holding Technologies). In particular, the tax ruling endorsed the payment of a royalty from Amazon EU to Amazon Europe Holding Technologies, which significantly reduced Amazon EU’s taxable profits. The Commission’s investigation showed that the level of the royalty payments, endorsed by the ... Continue to full case
Argentina vs. Nike, August 2017, Tribunal Fiscal de la Nación, Case No 24.495-I

Argentina vs. Nike, August 2017, Tribunal Fiscal de la Nación, Case No 24.495-I

The tax authorities had partly disallowed amounts deducted by Nike Argentina for three expenses; royalties for use of trademarks and technical assistance, promotional expenses for sponsorship of the Brazilian Football Confederation, and commissions of Nike Inc. for purchasing agents. Issue one and two was dropped during the process and the remaining issue before the tribunal was expenses related to commissions for purchases according to a contract signed between Nike Argentina and Nike Inc. The tax authorities (AFIP) had found that the 7% commission rate paid by Nike Argentina had not been determined in accordance with the arm’s length principle. The tax authorities stated that the purchase management services were provided by NIAC, and that Nike Inc.’s participation was merely an intermediary, and therefore it charged a much higher percentage than the one invoiced by the company performing the actual management. The Tribunal Fiscal ruled in ... Continue to full case
Bulgaria vs "B-Production", August 2017, Supreme Administrative Court, Case No 10185

Bulgaria vs “B-Production”, August 2017, Supreme Administrative Court, Case No 10185

“B-Production” is a subsidiary in a US multinational group and engaged in production and sales. “B-Production” pays services fees and royalties to its US parent. Following an audit, the tax authorities issued an assessment where deductions for these costs had been reduced which in turn resulted in additional taxabel income. An appeal was filed by “B-Production” with the Administrative court which in a judgement of June 2015 was rejected. An appeal was then filed by “B-Production” with the Supreme Administrative Court. In the appeal “B-Production” contested the findings of the Administrative Court that there was a hidden distribution of profits by means of the payment of management fees and duplication (overlapping) of the services at issue under the management contract and the other two agreements between the B-Production and the parent company. B-Production further argued that the evidence in the case refutes the conclusions in ... Continue to full case
Indonesia vs Cussons Indonesia, June 2017, Supreme Court, Nomor 907/B/PK/PJK/2017

Indonesia vs Cussons Indonesia, June 2017, Supreme Court, Nomor 907/B/PK/PJK/2017

The tax authorities had disallowed royalty payments of 3% of net sales from Cussons Indonesia to its parent company in the UK, PZ Cussons International Ltd. According to the tax authorities Cussons had been unable to prove that the transaction was at arm’s-length, as well as unable to provide transfer pricing documentation. Cussons claimed that the royalty payments was supported with documents such as royalty agreement, VAT payment, and withholding tax on royalty. Cussons further argued that sales in Indonesia were positively influenced by Cusson’s trademark. Following a tax court decision (Put.53966/2014) in favour of Cussons, the tax authorities brought an appeal to the Supreme Court. Judgement of the Supreme Court The Supreme Court dismissed the appeal of the tax authorities and upheld the decision in favour of Cussons. Click here for translation putusan_907_b_pk_pjk_2017_20210530 ... Continue to full case
France vs IKEA, May 2017, CAA of Versailles, No 15VE00571

France vs IKEA, May 2017, CAA of Versailles, No 15VE00571

The French tax authorities had issued an assessment for the fiscal years 2002, 2003 and 2004 related to royalty fees paid by IKEA France to foreign group companies. It was claimed that the royalty fees paid were exessive. The Court reject the position of the authorities. It had not been proven that the fees paid by IKEA France to foreign IKEA companies were excessive based on the arm’s length principle and on Article 57 of the CGI. The Court stresses the irrelevance of the comparables presented by the administration: “Considering that the nine trademarks used as comparables by the administration relate to the French market, the furniture sector and distribution methods similar to that of Ikea; that, however, as the company Ikea Holding France argues, the Minister does not give any precise indication on the content of the services rendered to the franchisees of these ... Continue to full case
India vs Herbalife International India , April 2017, Income Tax Appellate Tribunal - Bangalore, IT(TP)A No.924/Bang/2012

India vs Herbalife International India , April 2017, Income Tax Appellate Tribunal – Bangalore, IT(TP)A No.924/Bang/2012

Herbalife International India is a subsidiary of HLI Inc., USA. It is engaged in the business of dealing in weight management, food and dietary supplements and personal care products. The return of income for the assessment year 2006-07 was filed declaring Nil income. The Indian company had paid royalties and management fees to its US parent and sought to justify the consideration paid to be at arm’s length. In the transfer pricing documentation the Transactional Net Margin Method (TNMM) had been selected as the most appropriate method for the purpose of bench marking the transactions. The case was selected for scrutiny by the tax authorities and following an audit, deductions for administrative services were denied and royalty payments were reduced. Disagreeing with the assessment Herbalife filed an appeal. Decision of the Income Tax Appellate Tribunal The Tax Appellate Tribunal dismissed the appeal of Herbalife and ... Continue to full case

Luxembourg vs Lux SA, December 2016, Administrative Tribunal Case No 36954

By a trademark license agreement dated August 22, 2008, a group company in Luxembourg granted another group company a non-exclusive right to use and exploit the brands registered in the territory of the Grand Duchy of Luxembourg, Benelux and the European Community for an initial period of ten years, renewable tacitly each time for a period of one year and this against a license fee paid and calculated annually corresponding to 3% of this turnover. By letters of 30 January 2015, the Tax Office informed the company that they intended to refuse to deduct the royalties paid to the company for the years 2010, 2011 and 2010. Click here for translation Lux vs taxpayer 21 dec 2016 36954 ... Continue to full case
US vs. Medtronic Inc. June 2016, US Tax Court

US vs. Medtronic Inc. June 2016, US Tax Court

The IRS argued that Medtronic Inc failed to accurately account for the value of trade secrets and other intangibles owned by Medtronic Inc and used by Medtronic’s Puerto Rico manufacturing subsidiary in 2005 and 2006 when determening the royalty payments from the subsidiary. In 2016 the United States Tax Court found in favor of Medtronic, sustaining the use of the CUT method to analyze royalty payments. The Court also found that adjustments to the CUT were required. These included additional adjustments not initially applied by Medtronic Inc for know-how, profit potential and scope of product. The decision from the United States Tax Court has been appealed by the IRS in 2017. US-Memo-2016-112-Medtronic-v.-Commissioner ... Continue to full case
Indonesia vs "Indonesia Ltd", April 2016 Supreme Court, Case No. Put-70118/PP/M.IA/15/2016

Indonesia vs “Indonesia Ltd”, April 2016 Supreme Court, Case No. Put-70118/PP/M.IA/15/2016

In this case “Indonesia Ltd” paid royalties for use of IP owned by the Japanese parent. Following an audit, the tax authorities issued an assessment where the royalty payments were disallowed. Judgement of the Court The Court ruled in favour of the taxpayer. According to the court “Indonesia Ltd” had been able to prove that services had actually been rendered. Click here for translation Putusan Pengadilan Pajak Nomor Put70118-PP-M-IA-15-2016y ... Continue to full case
US vs. Guidant Corporation. February 2016

US vs. Guidant Corporation. February 2016

The U.S. Tax Court held in favor of the Commissioner of Internal Revenue, stating that neither Internal Revenue Code §482 nor the regulations thereunder require the Respondent to always determine the separate taxable income of each controlled taxpayer in a consolidated group contemporaneously with the making of the resulting adjustments. The Tax Court further held that §482 and the regulations thereunder allow the Respondent to aggregate one or more related transactions instead of making specific adjustments with respect to each type of transaction. US-vs.-Guidant-Corporation-and-Subsidiares-v.-Commissioner-of-Internal-Revenue ... Continue to full case
Indonesia vs P.T. Sanken Electric Indonesia Ltd, February 2016, Tax Court, Case No. Put.68357/PP/M.IA/15/2016

Indonesia vs P.T. Sanken Electric Indonesia Ltd, February 2016, Tax Court, Case No. Put.68357/PP/M.IA/15/2016

P.T. Sanken Electric Indonesia Ltd. – an Indonesian subsidiary of Sanken Electric Co., Ltd. Japan – paid royalties to its Japanese parent for use of IP. The royalty payment was calculated based on external sales and therefore did not include sales of products to group companies. The royalty payments were deducted for tax purposes. The tax authorities denied the deduction as the license agreement had not been registrered in Indonesia. Furthermore, the royalty payment was not found to have been determined in accordance with the arm’s length principle. P.T. Sanken Electric Indonesia Ltd appealed the decision of the Tax Court. Judgement of the Tax Court The tax court set aside the assessment and decided in favor of taxpayer. Click here for translation Indonesia PUT 68357-PP-MIA-15-2016 ... Continue to full case
Germany vs. License GmbH, January 2016, Supreme Tax Court, Case No I R 22/14

Germany vs. License GmbH, January 2016, Supreme Tax Court, Case No I R 22/14

The Supreme Tax Court has held that a parent company cannot be deemed to have earned income from allowing its Polish subsidiary to register locally in the group name. A German business was active in a field of patented technology associated with its own firm name, “B”. It allowed its Polish subsidiaries to register in that name, “B Sp.z.o.o.”, but made an appropriate charge for the use of the technology. It also did not authorise the Polish companies to use its logo, but left it up to them to design their own. The tax office maintained that the group name was a valuable intangible and demanded an income adjustment to reflect its use by foreign subsidiaries. However, the Supreme Tax Court has now confirmed its previous case law in holding that the mere use of the group name in the company registration of a subsidiary ... Continue to full case
Hungary vs Trademark Ltd, May 2015, Appeals Court Curia No. Kfv. I. 35.774/2014

Hungary vs Trademark Ltd, May 2015, Appeals Court Curia No. Kfv. I. 35.774/2014

The Hungarian company “Trademark Ltd” was involved in distribution of trademark rights. Trademark Ltd obtained the trademark rights from affiliated companies in Luxembourg and Barbados and then also passed trademark rights on to other affiliated company. For the purpose of determining the remuneration, only one company in the group had a transfer price record. According to this, the basis for calculating the remuneration was the turnover achieved. The tax authorities examined the nature of the prices charged between the parties and found that they were not the normal market price. The consideration for the trademark rights was therefore assessed by applying a weighted average cost of capital to the net profit margin. For FY 2006 this rate was set at 12% applied at the group level. On that basis, the amount of the trademark payments was reduced, thereby increasing the tax base of Trademark Ltd ... Continue to full case
Canada vs. Skechers USA Canada Inc. March 2015, Federal Court of Appeal

Canada vs. Skechers USA Canada Inc. March 2015, Federal Court of Appeal

In this case the Federal Court of Appeal upheld the decision of the Canadian International Trade Tribunal in which the tribunal upheld seven decisions – one for each of the years 2005 through 2011 – of the Canada Border Services Agency under subsection 60(4) of Canada’s Customs Act. Skechers Canada, a subsidiary of Skechers USA, purchases footwear to sell in Canada from its parent at a price equal to the price paid by Skechers US to its manufacturers, the cost of shipping the foodware to the US and warehousing, and an arm’s length profit. Skechers Canada also makes payments to Skechers US pursuant to a cost sharing agreement to compensate the parent for activities associated with the development and maintenance of the Skechers brand and to the creation and sale of footwear. The Court ruled that CSA payments relating to research, design, and development (R&D) were “in respect of” the goods ... Continue to full case
India vs LG Electronics India Pvt Ltd, December 2014, ITA

India vs LG Electronics India Pvt Ltd, December 2014, ITA

LG India is a wholly owned subsidiary of LG Korea, a multinational manufacturer of electronic products and electrical appliances. LG Korea and LG India entered into a technical assistance and royalty agreement in 2001 where LG India, as a licensed manufacturer, would pay a 1% royalty to LG Korea for the use of various rights for the manufacture and sale of products in India. The agreement also gave LG India a royalty-free use of the LG brand name and trademarks. The tax tribunal in 2013 held that the advertising, marketing and promotion (AMP) expenditure in excess of the arm’s length range helps to promote the brand of the foreign associated enterprise and that the Indian associated enterprise should necessarily be compensated by the foreign one. In reaching the above conclusion, the special bench applied the “bright line” test used by a US Court in DHL Corp v Commissioner. The 2014 ... Continue to full case
Indonesia vs Cussons Indonesia, July 2014, Tax Court, Put.53966/2014

Indonesia vs Cussons Indonesia, July 2014, Tax Court, Put.53966/2014

The tax authorities had disallowed royalty payments of 3% of net sales from Cussons Indonesia to its parent company in the UK, PZ Cussons International Ltd. According to the tax authorities Cussons had been unable to prove that the payment was at arm’s-length, as well as unable to provide transfer pricing documentation supporting the pricing. Cussons claimed that the royalty payments was supported with documents such as a royalty agreement, documentation for VAT payments, and withholding tax on royalty. Judgement of the Tax Court The court decided in favour of Cussons and set aside the assessment of the tax authorities Click here for translation putusan_put-53966_pp_m.ivb_15_2014_20210530 (1) ... Continue to full case
Indonesia vs Roche Indonesia, February 2014, Tax Court, Put.53966/2014

Indonesia vs Roche Indonesia, February 2014, Tax Court, Put.53966/2014

In the case of Roche Indonesia the tax authorities had disallowed deductions for royalties paid by the local company to F. Hoffmann-La Roche & Co. Deductions for marketing and and Promotions costs paid by the local company had also been disallowed. Judgement of the Tax Court The court decided predominantly in favour of the tax authorities. Roche Indonesia had been unable to prove the value, existence and ultimate owner of intangible assets for which the royalty was paid. In regards to the disallowed deductions of cost related to marketing and and promotions half of the costs were allowed and the other half disallowed. Click here for translation putusan_put.50616_pp_m.xii_b_15_2014_20210530 ... Continue to full case
Germany vs License GmbH, February 2014, Local Tax Court, Case No 4 K 1053/11 E

Germany vs License GmbH, February 2014, Local Tax Court, Case No 4 K 1053/11 E

The Local Tax Court found that the arm’s-length principle requires a licence to be paid for the use of group name where the name/trademark has value in itself. The decision of the Local Court was later overturned by the Supreme Tax Court ruling in Case no. I R 22 14  Click here for English translation Click here for other translation FG Münster Urteil vom 14 02 2014 - 4 K 1053-11 E ... Continue to full case