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Korea vs “Trademarks Co., Ltd.”, December 2024, High Court, Case no 서울고등법원 2022 누 43001

Posted on December 26, 2024 | By Courts of Korea | No comments

Category: Commercially Irrational Transactions, Intangibles - Goodwill Know-how Patents, Legal Ownership, Royalty and License Payments, Transfer Pricing Methods | Tag: Brands, DEMPE, Economic rationality, Legal ownership to intangibles, Ownership of intangibles, Profit split method (PSM), Royalty and license payments, Trademark (trade name), Use of trademark

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“Trademarks Co., Ltd.” was issued a tax assessment on the grounds that it had not charged affiliates a fee for the use of its trademarks.

The case was appealed and ended up in the High Court.

Judgment

The court ruled in favour of “Trademarks Co., Ltd.” and set aside the assessment.

The court acknowledged that several of the trademarks in question were individual marks owned and used by specific affiliates, rather than group trademarks owned by “Trademarks Co., Ltd.”. Regarding the main group trademarks, the court rejected “Trademarks Co., Ltd.”’s argument that poor group performance negated any benefit to the affiliates from using the marks. Therefore, it was economically irrational for “Trademarks Co., Ltd.” not to charge a usage fee for those trademarks. The court thus upheld the tax authority’s position in this respect. However, due to the tax authorities’ flawed method of determining additional taxable income, the court annulled the entire assessment.

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Related Guidelines

TPG2022 Chapter VI paragraph 6.209In some circumstances where reliable uncontrolled transactions cannot be identified, transactional profit split methods may be utilised to determine an arm’s length allocation of profits for the sale of goods or the provision of services involving the use of intangibles. One circumstance in which the use of transactional profit split...

TPG2022 Chapter II Annex II example 310. Company A and Company B are members of an MNE group that sells electronic appliances. For the launch of a new line of products, Company A will be responsible for its design, development and manufacturing whereas Company B will undertake the marketing functions and the global distribution of the...

TPG2022 Chapter II Annex II example 25. A Co, a member of T Group, is a company incorporated in Country A whose principal activity is the growing and processing of tea. A Co identifies, acquires and cultivates land with extremely good soil for growing tea. A Co has developed extensive know- how in respect of tea-growing,...

TPG2022 Chapter II Annex II example 11. Company A is the parent company of an MNE group in the pharmaceutical sector. Company A owns a patent for a new pharmaceutical formulation. Company A designed the clinical trials and performed the research and development functions during the early stages of the development of the product, leading to...

TPG2022 Chapter II paragraph 2.132As set out in paragraphs 6.148 to 6.149 and 6.152, in some cases, the transactional profit split method may be the most appropriate method for a transfer of fully developed intangibles (including rights in intangibles) where it is not possible to identify reliable comparable uncontrolled transactions. The transactional profit split...

TPG2022 Chapter II paragraph 2.115References to “profits” in this section should generally be taken as applying equally to losses. That is, where a transactional profit split method is determined to be the most appropriate method, it should generally also apply, and apply in the same way, regardless of whether the transaction(s) result in a...

TPG2022 Chapter II paragraph 2.116As is noted in paragraph 2.2, the selection of a transfer pricing method always aims at finding the most appropriate method for a particular case, taking into account the respective strengths and weaknesses of each method, its appropriateness in view of the nature of the accurately delineated controlled transaction, the...

TPG2022 Chapter II paragraph 2.117Guidance on how to determine whether the transactional profit split method is likely to be the most appropriate method is set out below, including the identification of certain features of a transaction which may be relevant. However it is important to note that there is no prescriptive rule for establishing...

TPG2022 Chapter VI paragraph 6.212In appropriate circumstances, transfer pricing methods or valuation techniques not dependent on the identification of reliable comparable uncontrolled transactions may also be utilised to determine arm’s length conditions for the sale of goods or the provision of services where intangibles are used in connection with the transaction. The alternative selected...

TPG2022 Chapter VI paragraph 6.211In applying a profit split method in a case involving the use of intangibles, care should be taken to identify the intangibles in question, to evaluate the manner in which those intangibles contribute to the creation of value, and to evaluate other income producing functions performed, risks assumed and assets...

Supplemental Guidance

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