One situation where transactions involving transfers of intangibles or rights in intangibles may be combined with other transactions involves a business franchise arrangement. Under such an arrangement, one member of an MNE group may agree to provide a combination of services and intangibles to an associated enterprise in exchange for a single fee. If the services and intangibles made available under such an arrangement are sufficiently unique that reliable comparables cannot be identified for the entire service/intangible package, it may be necessary to segregate the various parts of the package of services and intangibles for separate transfer pricing consideration. It should be kept in mind, however, that the interactions between various intangibles and services may enhance the value of both ... Read more

Z-Group had been subject to a joint transfer pricing audit by the tax administrations of Belgium, France, Italy, Spain, Austria and Germany in order to examine the appropriateness of the franchise fee charged between the group companies. Z Group filed a complaint where it disputed the German tax administration’s entitlement to cooperate in a coordinated cross-border external tax audit and, in this context, to exchange information with the other tax administrations. Judgement of the Tax Court The Court dismissed the complaint filed by Z Group. Excerpt “118 The defendant does not violate the principle of subsidiarity by agreeing on or conducting a coordinated examination as planned in the present case with Belgium, France, Italy, Spain and Austria. With reference to the findings of the domestic tax audit, the defendant understandably points out that the audit serves to further clarify the facts, which is not possible in this way in Germany, in order to examine the appropriateness of the franchise fee ... Read more

Following an investigation into Luxembourg’s tax treatment of McDonald’s under EU state aid regulations since 2015, the EU Commission concluded that the tax rulings granted by Luxembourg to McDonald’s in 2009 did not provide illegal state aid. According to the Commission, the law allowing McDonald’s to escape taxation on franchise income in Luxembourg – and the US – did not amount to an illegal selective advantage under EU law. The double non-taxation of McDonald’s franchise income was due to a mismatch between the laws of the United States and Luxembourg. See the 2015 announcement of formal opening of the investigations into McDonald’s tax agreements with Luxembourg from the EU Commission EU vs McDonal IP-18-5831_EN ... Read more

One situation where transactions involving transfers of intangibles or rights in intangibles may be combined with other transactions involves a business franchise arrangement. Under such an arrangement, one member of an MNE group may agree to provide a combination of services and intangibles to an associated enterprise in exchange for a single fee. If the services and intangibles made available under such an arrangement are sufficiently unique that reliable comparables cannot be identified for the entire service/intangible package, it may be necessary to segregate the various parts of the package of services and intangibles for separate transfer pricing consideration. It should be kept in mind, however, that the interactions between various intangibles and services may enhance the value of both ... Read more

The Spanish Tax administration made an income adjustment of Citresa (a Spanish subsidiary of the Schweeps Group) Corporate Income Tax for FY 2003, 2004, 2005 and 2006, resulting in a tax liability of €38.6 millon. Citresa entered into a franchise agreement and a contract manufacturing agreement with Schweppes International Limited (a related party resident in the Netherlands). The transactions between the related parties were not found to be in accordance with the arm’s length principle. In the parent company, CITRESA, the taxable income declared for the years 2003 to 2005 was increased as a result of an adjustment of market prices relating to the supply of certain fruit and other components by Citresa to Schweppes International Limited. In the subsidiary, SCHWEPPES, S.A. (SSA), the taxable income declared for the years 2003 to 2006 was increased as a result of adjustment of market prices relating to the supply of concentrates and extracts by the entity Schweppes International Limited, resident in Holland, to SSA. The taxpayer ... Read more

In 1996, X BV acquired the right to commercially exploit an intangible asset (Z) for a period of 15 years for $ 63.5 million. X BV then entered into a franchise agreements with group companies for the use of Z, including a Spanish PE of Y BV. According to the franchise agreement Y BV paid X BV a fee. According to X, in the calculation of the loss carry forward in Spain the franchise fee should not be fully attributed to the PE in Spain due to existing rules on internal roaylties. X states that the loss carry forward amounts to € 13.1 million. The tax authorities increases the loss carry forward with the fee paid to X, for the use of Z by the Spanish PE. According to the tax authorities, the loss carry forward is € 16.1 million. The District Court finds that no amount needs to be taken of the fees that Y BV paid to X ... Read more

The European Commission has formally opened an investigation into Luxembourg’s tax treatment of McDonald’s. Tax ruling granted by Luxembourg may have granted McDonald’s an advantageous tax treatment in breach of EU State aid rules On the basis of two tax rulings given by the Luxembourg authorities in 2009, McDonald’s Europe Franchising has paid no corporate tax in Luxembourg since then despite recording large profits (more than €250 million in 2013). These profits are derived from royalties paid by franchisees operating restaurants in Europe and Russia for the right to use the McDonald’s brand and associated services. The company’s head office in Luxembourg is designated as responsible for the company’s strategic decision-making, but the company also has two branches, a Swiss branch, which has a limited activity related to the franchising rights, and a US branch, which does not have any real activities. The royalties received by the company are transferred internally to the US branch of the company. The Commission ... Read more