The Netherlands vs X BV, February 2004, Appellate Court of Amsterdam V-N 2004/39.9.

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X BV, is member of the English XX-group. One of X’s parents is XX Ltd., based in the United Kingdom.

In 1992, X BV acquired licensing rights relating to the trade name J from J Ltd. Their value was determined to be GBP 19.2 million. According to the agreement, X BV paid GBP 19 million for the ten-year economic ownership of the licensing rights. J Ltd. sold the legal ownership to W BV for GBP 200,000 in which X BV owned all shares.

In 1996, X BV sells the ten-year economic ownership to W BV for GBP 2 million.

To support the GBP 19 million price for the economic ownership, a valuation report is drawn up in 1992. The valuation is based on “projected royalty streams” which showed increasing royalty streams over the ten-year period 1992-2002.

The tax authorities disagrees with the price of GBP 19 mio. and argue that the total value of the brand was GBP 43 mio. bases on a continued royalty stream. According to the authorities, GBP 19 million was attributable to the economic ownership and GBP 24 million should be attributed to the legal ownership.

In court X BV provided an opinion on the value of the legal and economic ownership of the brand in 1992. In the report it is concluded that the projected income streams did not take into account the Product Life Cycle of the brand. The report states, that to support the brand and to keep the income streams at a high level, investments in the brand will have to be made. No such expenses had been planned and it was very unlikely that there would have been significant income streams after the ten-year period.

The Court find there was no evidence that X BV had planned to invest in further support the brand. Hence, at the time of the purchase – the parties did not expect the brand to produce royalty streams after the ten year period. The Court also emphasises that as the royalty stream was in fact in decline in 1994.

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