TPcases

Database of Transfer Pricing Case Laws

Switzerland vs “TM licensee AG”, October 2022 , Federal Supreme Court, Case No 2C_824/2021, 2C_825/2021

Posted on October 12, 2022 | By Courts of Switzerland

Category: Royalty and License Payments, Transfer Pricing Documentation | Tag: Benefit test, Intra-group services, License of trademark, Royalty and license payments, Trademark licence agreement, Use of trademark

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“TM Licensee AG” was active in the marketing, sale and financing of luxury real estate in Switzerland and abroad. In 2015, an agreement was made whereby “TM Licensee AG” would pay a licence fee equalling 10% of its net sales for the use of trademarks owned by a group company in Liechtenstein.

The tax authority increased “TM Licensee AG”‘s taxable profit by CHF 655,228, asserting the existence of a deemed dividend for the excessive part of the licence payments.

An appeal was filed by “TM Licensee AG”, but it was rejected by the district court, and a further appeal was then filed with the Federal Supreme Court.

Judgment

The Federal Supreme Court dismissed the appeal of “TM Licensee AG” and ruled in favour of the tax authorities.

The court stated that the burden of proof rests with the tax authorities. However, if the tax authorities prove disproportionate conduct, it is up to the taxpayer to prove that the transaction was at arm’s length. According to the court,”TM Licensee AG” failed to prove that the royalty payments were at arm’s length.

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