Luxembourg vs Lux SARL, December 2018, Administrative Court, Case No 40455

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In a case on hidden distribution of profits, the Luxembourg tax authorities stated the following on the issue of valuation methods for intangible assets (a patent):

…the evaluation of an intellectual property right is a rather complex subject; that evaluation reports from “independent” experts in this field are often rather subjective; whereas, therefore, reference should be made to a neutral and recognized body for the evaluation of patents, in this case WIPO, which proposes three different methods of valuation, including (a) the cost method, (b) the revenue method, as well as (c) the market method; that the first method of evaluation is to be dismissed from the outset in view of the absence of research and development expenses reported by the Claimant; that the second method is based on the future revenues of the patent invention; therefore, there must be a large enough amount of data to predict future revenues over the life of the patent, which is not the case here, as the tax dispute has only the royalties collected for the years 2013 and 2014; that, finally, the market method consists in the search for a similar patent whose price is known because it has already been the subject of a transaction; whereas, however, this method raises two major problems, on the one hand, the collection of data on patents already having a price because they have been the subject of a transaction, and, on the other hand, the uniqueness and the rarity of each patent that has at least a small similarity; that in view of this finding, a precise and fair evaluation proving impossible, the present instance sets the operating value of the patent of invention on January 1 , 2014 to 1.000.000 euros under § 217 AO…

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Lux 10 Dec 2018 Adm Court 40455

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