The case concerns the valuation of intangible assets transferred from a Danish subsidiary to the US parent company. In the case, it was agreed that certain intangible assets had been transferred in connection with a written agreement that the Danish company would pay royalties for the use of the Group’s trademarks, know-how and patents.
The Danish tax authorities (SKAT) had increased the company’s taxable income on the grounds that the majority of the Danish company’s intangible assets were transferred, including the goodwill value, which was calculated in connection with the US group’s share purchase of the Danish group for a number of years before and that in this connection prepared purchase space allocation . Danish tax authorities had subsequently determined the value of the transferred intangible assets on the basis of the share trading. The company was of the opinion that the transferred intangible assets had no independent value, and that the Danish company primarily used the US group’s intangible assets and paid royalties for this use. The company had also submitted several valuations to support the claim that the Danish intangible assets had a low or no value.
The National Tax Tribunal found that Danish tax authorities had been entitled to make a discretionary assessment, in accordance with section 3B (3) of the current Tax Control Act. 8 (now subsection 9), and § 5, subs. 3, emphasizing that there was common understanding between Danish tax authorities and the company that intangible assets had been transferred and that it was therefore undisputed that a controlled transaction had taken place. This transaction should have been described in the TP documentation, even though the company considered it to be of a modest financial scope.
The National Tax Tribunal also found that, when entering into the royalty agreement between the Danish company and the group-related company, such significant and valuable intangible assets were transferred that the goodwill item also had to be considered transferred, with emphasis being placed on the rights to trademarks, know -how and patents had to be considered to be as crucial a part of the Danish group’s activities.
However, the National Tax Tribunal considered that the Danish tax authorities’s assessment of the value of the transferred intangible assets, based on the value of the previously purchased shares, was too uncertain and therefore could not be accepted. The National Tax Tribunal found that the most appropriate method for determining the value of the intangible assets transferred was the relief-from-royalty method, with royalties paid for the use of trademarks, patents and know-how after the transfer. In this connection, it was the National Tax Court’s opinion that royalties were paid primarily for the use of the intangible assets developed in the Danish group. Due to the payment of royalties to use these intangible assets, the Danish company also had access to use the goodwill that was transferred. The value of the transferred intangible assets was then calculated on the basis of the actual agreed royalties, as the rates were determined on the basis of a comparability analysis between independent parties, and could therefore be considered to be on arm’s length termsDenmark vs H Group April 2019