A Dutch tobacco subsidiary faced transfer pricing corrections across tax years 2008 to 2016, with disputes over factoring costs, guarantee fees on listed bonds, and a licence termination. The Amsterdam Court of Appeal found factoring costs largely non-arm's length, accepted that Tobacco BV's derived credit rating matched the group's, and upheld most assessments and penalties, deciding predominantly in favour of the tax authority ... Read more

Medtronic applied the comparable uncontrolled transaction method to set royalty rates between its US parent and Puerto Rico manufacturing subsidiary for use of intangible property. The IRS challenged the allocation, arguing too much profit remained offshore. After Tax Court proceedings and a prior 2018 remand, the US Court of Appeals in 2025 ruled mostly in favour of the tax authority, rejecting Medtronic's CUT method application ... Read more

A Japanese conglomerate was assessed by tax authorities who applied a method they claimed was equivalent to the Transactional Net Margin Method to price transactions involving turbocharger parts and licences with a Thai affiliate. The taxpayer argued the method was not a valid TNMM equivalent. The Tokyo High Court upheld the 2023 Tokyo District Court ruling, deciding in favour of the taxpayer and rejecting the tax authority's assessment ... Read more

Samsung India paid 8% royalties to its Korean parent under a technology licence agreement. Indian tax authorities disallowed the deductions, classifying Samsung India as a contract manufacturer. The Income Tax Appellate Tribunal overturned the assessment, and the Delhi High Court upheld that decision in 2024, confirming Samsung India operated as a full-fledged licensed manufacturer and that the royalty payments were at arm's length ... Read more

Avago Technologies Trading Ltd paid royalties to a related Singapore entity, GEN IP, under a licence agreement covering semiconductor intellectual property. The Mauritius tax authority rejected Avago's TNMM approach and applied the CUP method, issuing an assessment of additional taxable income. The Assessment Review Committee upheld the assessment in 2024, dismissing Avago's appeal and confirming the CUP method as the most appropriate method for determining the arm's length royalty ... Read more

Meda AB, a Swedish pharmaceutical parent, established a Luxembourg subsidiary as contractual owner of acquired intangibles, retaining only routine compensation for group services. Swedish tax authorities reallocated profits based on actual risk control, but the Administrative Court of Appeal sided with Meda AB, finding that delineation based on risk control was inconsistent with Swedish arm's length provisions and the applicable OECD Transfer Pricing Guidelines ... Read more

Following its acquisition by a US group, Twilio Sweden AB entered into a licence agreement with its new parent. The Swedish Tax Authority assessed additional tax, treating the arrangement as a transfer of intangible assets and business functions. The Administrative Court of Appeal upheld the assessment in 2024, finding that control over intangibles had transferred to the parent and that the actual transaction, correctly delineated under OECD guidelines, was a business restructuring ... Read more

A Dutch tobacco group subsidiary faced corporate income tax assessments exceeding €2.8 billion annually for 2013–2016. The North Holland District Court found in 2023 that intra-group factoring fees overstated actual default risk, guarantee fees were non-arm's length, and a 2016 group reorganisation triggered a taxable transfer profit, deciding mostly in favour of the Dutch tax authority ... Read more

E Corp, a Japanese industrial manufacturer, supplied turbocharger parts and licensed technology to its Thai affiliate, Company A. Following an audit, Japanese tax authorities applied a method they deemed equivalent to the TNMM and issued a transfer pricing assessment. E Corp challenged the method's validity before the Tokyo District Court, which ruled in the taxpayer's favour in December 2023, finding the authority's approach did not qualify as a proper TNMM ... Read more

A Polish company deducted licence fees paid to a related party for trademark use. The tax authority disallowed the deductions by recharacterising the transactions, and the Administrative Court upheld the assessment. Poland's Supreme Administrative Court reversed the decision in December 2023, finding that in 2015 the tax authority lacked the legal basis to recharacterise related-party transactions and could only adjust the licence fee amount using an arm's length method ... Read more

A Polish taxpayer deducted licence fees paid to a related party for use of the 'B' trademark after transferring it in 2015. The tax authority disallowed the deductions, arguing the arrangement lacked commercial rationality and artificially shifted income. The Administrative Court upheld the assessment, but Poland's Supreme Administrative Court reversed the decision in 2023, ruling the legally effective transaction entitled the taxpayer to deduct the licence fees ... Read more

The Italian tax authorities challenged Otis Servizi s.r.l. over intra-group cash pooling interest rates and royalty payments made to its US parent for trademarks, know-how, and patents covering FY 2007–2009. Authorities reclassified the cash pool as a financing contract and reduced the royalty rate from 3.5% to 2% of turnover. Italy's Supreme Court ruled in favour of the taxpayer in August 2023, rejecting both adjustments ... Read more

A Portuguese subsidiary paid royalties to its Polish parent company for trademark rights while also providing unpaid management and promotion services for those brands. The tax authority disallowed the royalty deductions, arguing the arrangement deviated from arm's length conditions. After the Administrative Court annulled the assessment, the Court of Appeal reversed that decision in 2023, ruling in favour of the tax authority and finding the profit allocation lacked justification ... Read more

A Luxembourg company claimed the preferential IP tax regime under Article 50bis LIR for trademark royalty payments from a Belgian affiliate, but the tax authority challenged the classification. The Administrative Tribunal found the lump-sum payments were in substance service or software licence fees, not trademark royalties, and that the arrangement was an abuse of rights. Relief was denied, and a subsequent appeal was dismissed on procedural grounds in 2023 ... Read more

A Portuguese company appealed transfer pricing adjustments on royalties paid to its parent, alongside disallowed deductions for bad debt and other costs. The Administrative Court of Appeal partially upheld the tax authority's assessment in 2023 but dismissed the royalty correction, finding that a valid transfer pricing adjustment requires reference to comparable independent transactions and adequate justification of comparability factors ... Read more

Skechers USA transferred IP to a related Delaware entity, SKII, then licensed it back and claimed Wisconsin franchise tax deductions for royalties, management fees, and interest. The Wisconsin Department of Revenue disallowed the deductions, finding the arrangement lacked any valid non-tax business purpose and economic substance. The Wisconsin Tax Appeals Commission upheld the Department's assessments in 2023, ruling entirely in favour of the tax authority ... Read more

A Portuguese retail group assigned its trademarks to a Swiss entity under long-term licence agreements, then continued paying royalties while bearing all costs and risks of brand management. The tax authority adjusted the royalty payments under the arm's length principle, arguing the transfers lacked economic substance. The Administrative Court of Appeal in 2023 ruled mostly in favour of the tax authority, finding the arrangements would not have occurred between independent parties ... Read more

3M Company challenged IRS adjustments to royalties paid by its Brazilian subsidiary, arguing that Brazilian legal restrictions on royalty remittances should block imputed income under US transfer pricing rules. The US Tax Court ruled in favour of the tax authority in 2023, rejecting 3M's blocked income defence and upholding the IRS's authority to allocate additional royalty income to the US parent ... Read more

Dolce & Gabbana S.R.L., a trademark licensee, sub-licensed rights to its subsidiary DG Industria and engaged US affiliate DG Usa for marketing services under a cost-plus arrangement. Italy's tax authority challenged the deductibility and arm's length nature of these intra-group charges. The Supreme Court ruled mostly in favour of the tax authority in November 2022, remanding the case for re-examination on key transfer pricing and benefit-test grounds ... Read more

The licensing alternative is derived on the basis of a functional and risk analysis of the cost sharing alternative, but with a shift of the risk of cost contributions to the licensor. Accordingly, the PCT Payor’s licensing alternative consists of entering into a license with an uncontrolled party, for a term extending for what would be the duration of the CSA Activity, to license the make-or-sell rights in to-be-developed resources, capabilities, or rights of the licensor. Under such license, the licensor would undertake the commitment to bear the entire risk of intangible development that would otherwise have been shared under the CSA. Apart from any difference in the allocation of the risks of the IDA, the licensing alternative should assume contractual provisions with regard to non-overlapping divisional intangible interests, and with regard to allocations of other risks, that are consistent with the actual CSA in accordance with this section. For example, the analysis under the licensing alternative should assume a ... Read more

The PCT Payor’s cost sharing alternative corresponds to the actual CSA in accordance with this section, with the PCT Payor’s obligation to make the PCT Payments to be determined and its commitment for the duration of the IDA to bear cost contributions ... Read more

The income method evaluates whether the amount charged in a PCT is arm’s length by reference to a controlled participant’s best realistic alternative to entering into a CSA. Under this method, the arm’s length charge for a PCT Payment will be an amount such that a controlled participant’s present value, as of the date of the PCT, of its cost sharing alternative of entering into a CSA equals the present value of its best realistic alternative. In general, the best realistic alternative of the PCT Payor to entering into the CSA would be to license intangibles to be developed by an uncontrolled licensor that undertakes the commitment to bear the entire risk of intangible development that would otherwise have been shared under the CSA. Similarly, the best realistic alternative of the PCT Payee to entering into the CSA would be to undertake the commitment to bear the entire risk of intangible development that would otherwise have been shared under the ... Read more

The facts are the same as in Example 1. As a result of its sales and marketing activities, USSub develops a list of several hundred creditworthy customers that regularly purchase AA trademarked products. Neither the terms of the contract between FP and USSub nor the relevant intellectual property law specify which party owns the customer list. Because USSub has knowledge of the contents of the list, and has practical control over its use and dissemination, USSub is considered the sole owner of the customer list for purposes of this paragraph (f)(3) ... Read more

FP, a foreign corporation, is the registered holder of the AA trademark in the United States. FP licenses to its U.S. subsidiary, USSub, the exclusive rights to manufacture and market products in the United States under the AA trademark. FP is the owner of the trademark pursuant to intellectual property law. USSub is the owner of the license pursuant to the terms of the license, but is not the owner of the trademark. See paragraphs (b)(3) and (4) of this section (defining an intangible as, among other things, a trademark or a license) ... Read more

(i) USdrug, a U.S. pharmaceutical company, has developed a new drug, Nosplit, that is useful in treating migraine headaches and produces no significant side effects. Nosplit replaces another drug, Lessplit, that USdrug had previously produced and marketed as a treatment for migraine headaches. A number of other drugs for treating migraine headaches are already on the market, but Nosplit can be expected rapidly to dominate the worldwide market for such treatments and to command a premium price since all other treatments produce side effects. Thus, USdrug projects that extraordinary profits will be derived from Nosplit in the U.S. market and other markets. (ii) USdrug licenses its newly established European subsidiary, Eurodrug, the rights to produce and market Nosplit in the European market. In setting the royalty rate for this license, USdrug considers the royalty that it established previously when it licensed the right to produce and market Lessplit in the European market to an unrelated European pharmaceutical company. In many ... Read more

Non-aggregation of transactions that are not interrelated. P enters into a license agreement with S1 that permits S1 to use a proprietary process for manufacturing product X and to sell product X to uncontrolled parties throughout a specified region. P also sells to S1 product Y, which is manufactured by P in the United States and unrelated to product X. Product Y is resold by S1 to uncontrolled parties in the specified region. There is no connection between product X and product Y other than the fact that they are both sold in the same specified region. In evaluating whether the royalty paid by S1 to P for the use of the manufacturing process for product X and the transfer prices charged for unrelated product Y are arm’s length amounts, it would not be appropriate to consider the combined effects of these separate and unrelated transactions ... Read more

Aggregation of interrelated licensing, manufacturing, and selling activities. P enters into a license agreement with S1 that permits S1 to use a proprietary manufacturing process and to sell the output from this process throughout a specified region. S1 uses the manufacturing process and sells its output to S2, which in turn resells the output to uncontrolled parties in the specified region. In evaluating whether the royalty paid by S1 to P is an arm’s length amount, it may be appropriate to evaluate the royalty in combination with the transfer prices charged by S1 to S2 and the aggregate profits earned by S1 and S2 from the use of the manufacturing process and the sale to uncontrolled parties of the products produced by S1 ... Read more

Medtronic used the comparable uncontrolled transaction method to set royalty rates between its US parent and Puerto Rico manufacturing subsidiary. The IRS applied a modified comparable profits method, arguing 90% of device profits should be allocated to the US. After the Eighth Circuit found the Tax Court's 2015 factual findings insufficient on comparability, the US Tax Court reconsidered the Pacesetter agreement as a CUT, largely ruling in favour of the tax authority in this 2022 remand decision ... Read more

A Japanese manufacturer of diesel particulate filters had licensed know-how and technology to a Polish group company in exchange for royalty payments. Japan's tax authorities challenged the arm's length nature of those payments and issued an additional tax assessment. The Tokyo District Court set aside the assessment in 2020, and the Tokyo High Court dismissed the authorities' appeal in March 2022, confirming that the residual profit-split method had been correctly applied ... Read more

69. Ilcha is organised in country A. The Ilcha group of companies has for many years manufactured and sold Product Q in countries B and C through a wholly owned subsidiary, Company S1, which is organised in country B. Ilcha owns patents related to the design of Product Q and has developed a unique trademark and other marketing intangibles. The patents and trademarks are registered by Ilcha in countries B and C. 70. For sound business reasons, Ilcha determines that the group’s business in countries B and C would be enhanced if those businesses were operated through separate subsidiaries in each country. Ilcha therefore organises in country C a wholly owned subsidiary, Company S2. With regard to the business in country C: Company S1 transfers to Company S2 the tangible manufacturing and marketing assets previously used by Company S1 in country C. Ilcha and Company S1 agree to terminate the agreement granting Company S1 the following rights with relation to ... Read more

67. Company P, a resident of country A conducts a retailing business, operating several department stores in country A. Over the years, Company P has developed special know-how and a unique marketing concept for the operation of its department stores. It is assumed that the know-how and unique marketing concept constitute intangibles within the meaning of Section A of Chapter VI. After years of successfully conducting business in country A, Company P establishes a new subsidiary, Company S, in country B. Company S opens and operates new department stores in country B, obtaining profit margins substantially higher than those of otherwise comparable retailers in country B. 68. A detailed functional analysis reveals that Company S uses in its operations in country B, the same know-how and unique marketing concept as the ones used by Company P in its operations in country A. Under these circumstances, the conduct of the parties reveals that a transaction has taken place consisting in the ... Read more

64. Primarni is organised in and conducts business in country A. Company S is an associated enterprise of Primarni. Company S is organised in and does business in country B. Primarni develops a patented invention and manufacturing know-how related to Product X. It obtains valid patents in all countries relevant to this example. Primarni and Company S enter into a written licence agreement pursuant to which Primarni grants Company S the right to use the Product X patents and know-how to manufacture and sell Product X in country B, while Primarni retains the patent and know-how rights to Product X throughout Asia, Africa, and in country A. 65. Assume Company S uses the patents and know-how to manufacture Product X in country B. It sells Product X to both independent and associated customers in country B. Additionally, it sells Product X to associated distribution entities based throughout Asia and Africa. The distribution entities resell the units of Product X to ... Read more

1. 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 the granting of the patent. 2. Company A enters into a contract with Company S, a subsidiary of Company A, according to which Company A licenses the patent rights relating to the potential pharmaceutical product to Company S. In accordance with the contract, Company S conducts the subsequent development of the product and performs important enhancement functions. Company S obtains the authorisation from the relevant regulatory body. The development of the product is successful and it is sold in various markets around the world. 3. The accurate delineation of the transaction indicates that the contributions made by both Company A and Company S are unique and valuable to the development ... Read more

Where limited rights in fully developed intangibles are transferred in a licence or similar transaction, and reliable comparable uncontrolled transactions cannot be identified, a transactional profit split method can often be utilised to evaluate the respective contributions of the parties to earning the relevant income. The profit contribution of the rights in intangibles made available by the licensor or other transferor would, in such a circumstance, be one of the factors contributing to the earning of income following the transfer. However, other factors would also need to be considered. In particular, functions performed and risks assumed by the licensee/ transferee should specifically be taken into account in such an analysis. Other intangibles used by the licensor/transferor and by the licensee/transferee in their respective businesses should similarly be considered, as well as other relevant factors. Careful attention should be given in such an analysis to the limitations imposed by the terms of the transfer on the use of the intangibles by ... Read more

Limited rights in intangibles are commonly transferred by means of a licence or other similar contractual arrangement, whether written, oral or implied. Such licensed rights may be limited as to field of use, term of use, geography or in other ways. Such limited rights in intangibles are themselves intangibles within the meaning of Section A. 1 ... Read more

LLC Otis Lift, a Russian subsidiary of US parent Otis Elevator Company, paid royalties calculated on total maintenance revenue rather than only on Otis-branded goods and services as required by the licence agreement. The Russian tax authority issued an additional income assessment after finding the company had overstated deductible expenses. The Moscow Arbitration Court upheld the assessment in December 2021, ruling mostly in favour of the tax authority ... Read more

An Indonesian subsidiary of Sanken Electric Co. Japan paid royalties to its parent for IP use, calculated on external sales only. The tax authority denied the deductions, citing an unregistered licence agreement and non-arm's length pricing. The Tax Court set aside the assessment, and Indonesia's Supreme Court dismissed the tax authority's appeal in December 2021, upholding the taxpayer's position on comparability and royalty deductibility ... Read more

Coca-Cola sought reconsideration of a US Tax Court ruling that upheld a $9 billion IRS adjustment to its US income based on royalties from foreign licensees. Filed 196 days after the November 2020 opinion, the motion far exceeded the 30-day deadline. The US Tax Court denied the motion in October 2021, finding no valid excuse for the late filing and concluding it would have failed on the merits regardless ... Read more

The European Commission opened a formal investigation in 2016 into whether Dutch tax rulings granted to Nike European Operations Netherlands BV and Converse Netherlands BV provided a selective advantage through reduced royalty-based taxation, breaching EU State aid rules. The EU General Court issued an interpretation ruling in 2021, examining whether the endorsed royalty calculation methods conferred unlawful benefits under Articles 107 and 108 TFEU ... Read more

NGK-Insulators, a Japanese manufacturer of automotive diesel particulate filters, licensed know-how and technology to its Polish group company in exchange for royalty payments. Japan's tax authorities assessed additional taxes, arguing the royalties were not at arm's length. The Tokyo District Court ruled in favour of NGK-Insulators in November 2020, setting aside the tax assessment and upholding the taxpayer's transfer pricing methodology ... Read more

Coca-Cola licensed its intellectual property to foreign manufacturing affiliates, allowing royalty obligations to be satisfied through dividend remittances under a 1996 IRS settlement. The IRS challenged the methodology applied for 2007–2009, arguing it did not reflect arm's-length norms. The US Tax Court ruled in favour of the IRS in November 2020, finding that Coca-Cola's formulary apportionment approach underpriced the IP and failed to meet arm's-length standards ... Read more

A Japanese manufacturer of plating chemicals priced know-how licences and technical support services to foreign group companies using the CUP method based on internal comparables. The tax authority rejected the CUP approach and applied the residual profit split method for FY2007–2012. The Tokyo District Court dismissed the company's appeal in February 2020, confirming that material differences between the controlled and comparable transactions made CUP inappropriate ... Read more

Two Finnish subsidiaries of Borealis AG disputed reassessment decisions covering fiscal years 2008 to 2010, in which the Finnish tax authorities recharacterised intra-group licence agreements and significantly increased taxable income. The Helsinki Administrative Court ruled in favour of the tax authority in March 2019, resulting in additional tax, penalties and interest demands totalling several hundred million euros across both entities ... Read more

The European Commission has opened an in-depth investigation to examine whether tax rulings granted by the Netherlands to Nike may have given the company an unfair advantage over its competitors, in breach of EU State aid rules. Margrethe Vestager, Commissioner in charge of competition policy, said: “Member States should not allow companies to set up complex structures that unduly reduce their taxable profits and give them an unfair advantage over competitors. The Commission will investigate carefully the tax treatment of Nike in the Netherlands, to assess whether it is in line with EU State aid rules. At the same time, I welcome the actions taken by the Netherlands to reform their corporate taxation rules and to help ensure that companies will operate on a level playing field in the EU.” Nike is a US based company involved worldwide in the design, marketing and manufacturing of footwear, clothing, equipment and accessories, in particular in the sports area. The formal investigation concerns ... Read more

A Finnish construction industry group used the CUP method for intercompany licence fees and the resale price method for product sales during 2006–2008. Tax authorities rejected both methods as unreliable and applied the residual profit split method using 2010 OECD Guidelines. The Supreme Administrative Court held that the OECD Guidelines version current at the time of filing was the correct reference, ruling mostly in favour of the taxpayer ... Read more

The IRS challenged Medtronic's use of the comparable uncontrolled transaction method to price intercompany licensing agreements between its US operations and its Puerto Rico manufacturer. The Tax Court had accepted the Pacesetter agreement as the best CUT, but the US Court of Appeals vacated that decision in 2018, finding the Tax Court failed to adequately address comparability of contractual terms, intangibles treatment, and risk allocation ... Read more

1. 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 the granting of the patent. 2. Company A enters into a contract with Company S, a subsidiary of Company A, according to which Company A licenses the patent rights relating to the potential pharmaceutical product to Company S. In accordance with the contract, Company S conducts the subsequent development of the product and performs important enhancement functions. Company S obtains the authorisation from the relevant regulatory body. The development of the product is successful and it is sold in various markets around the world. 3. The accurate delineation of the transaction indicates that the contributions made by both Company A and Company S are unique and valuable to the development ... Read more

Coca-Cola used a 10-50-50 royalty formula agreed with both the IRS and Mexican tax authorities for licensing intellectual property to its Mexican subsidiary. The IRS disallowed $43.5–$50 million in foreign tax credits annually for 2007–2009, arguing higher royalties should have been deducted in Mexico. The US Tax Court ruled in favour of Coca-Cola, finding the foreign taxes were not voluntary overpayments ... Read more

A Taiwanese distributor in the Jat Health Corporation group deducted amortisations and royalty payments related to acquired distribution rights for medical equipment. The tax authority partially disallowed these deductions, finding the expenditure was not necessary or reasonable given the company's rapid revenue growth. The Taiwan Supreme Administrative Court dismissed the taxpayer's appeal in 2018, upholding the assessment and placing the burden of proof on the taxpayer to justify the payments ... Read more

A Swedish company deducted a termination fee paid to an affiliate during a 2013 group restructuring. The Swedish Tax Agency denied the deduction, arguing the cost benefited the group rather than the company itself. The Administrative Court of Appeal upheld the denial in 2017, finding that an independent party would not have incurred the expense, particularly as the company relied on a shareholder contribution to finance it ... Read more