The main activity in a Danish branch of a German group was development, licensing and services related to engines that were being produced by external licensees.
Under a restructuring of the group, it was decided that royalty income for a particular engine type previously received by the Danish branch should be transferred to the German company. The Danish branch received a compensation corresponding to the net earnings for a two-year notice period.
The tax administration increased the taxable income of the branch claiming that the branch had made valuable contributions to the development of the type of engine in question and thereby obtained co-ownership.
The Tax Tribunal found that valuable intangible assets had been transferred, The decision was based on prior contractual arrangements and conduct of the parties.