Arditi S.p.A. is an Italian group in the lighting industry. It has a subsidiary in Hong Kong which in turn holds the shares in a Chinese subsidiary where products are manufactured. Following an audit the tax authorities held that the entities in Hong Kong and China had used the trademark owned by the Italian parent without paying royalties, and on the basis of the arm’s length principle a 5% royalty was added to the taxable income of Arditi S.p.A. Arditi appealed against this assessment alleging that it had never received any remuneration for the use of its trademark by the subsidiary, and in any case that the tax authorities had not determined the royalty in accordance with the arm’s length principle. The Court of first instance upheld the appeal of Arditi and set aside the assessment. An appeal was then filed by the tax authorities. The Court of Appeal set aside the decision of the Court of first instance finding ... Read more

“Fertilizer Licence SA” (“A”) transferred its trademarks to “B” in 2013, previously financed the transfer through a cash contribution, and then, following the transfer, paid royalties to “A” in exchange for the ability to use the assets. According to the tax authorities, a situation where an entity transfers its assets to another entity, finances the transfer and then pays for access to use those assets does not reflect the conditions that unrelated parties would establish. An unrelated party, in order to obtain such licence fees from another unrelated party, would first have to incur the costs of manufacturing or acquiring the trademarks and to finance these costs itself without the involvement of the licensee. An independent entity which has finances the creation or purchase of an intangible asset, should not incur further costs for the use of that asset. Furthermore, in determining the licence fee to “B” for the use of trademarks, “A” relied on formal legal ownership, granting “B” ... Read more

Following a business restructuring, rights in a trademark developed and used by O.B SA was transferred to a related party “A”. The newly established company A had no employees and all functions in the company was performed by O.B. SA. Anyhow, going forward O.B SA would now pay a license fee to A for using the trademark. The payments from O.B SA were the only source of income for “A” (apart from interest). According to the O.B. group placement of the trademark into a separate entity was motivated by a desire to increase recognition and creditworthiness of the group, which was a normal practice for business entities at the time. In 2014 and 2015 O.B. SA deducted license fees paid to A of PLN 6 647 596.19 and PLN 7 206 578.24. The tax authorities opened an audited of O.B. SA and determined that the license fees paid to A were excessive. To establish an arm’s length remuneration of A ... Read more

S GmbH was an Austrian trading company of a group. In the course of business restructuring, the real estate division of the Austrian-based company was initially separated from the “trading operations/brands” division on the demerger date of 31 March 2007. The trademark rights remained with the previous trading company, which was the parent company of the group, now M GmbH. On 25 September 2007, M GmbH transferred all trademark rights to a permanent establishment in Malta, which was set up in the same year, to which it also moved its place of management on 15 January 2008. Licence agreements were concluded between S GmbH and M GmbH, which entitle S GmbH to use the trademarks of M GmbH for advertising and marketing measures in connection with its business operations in return for a (turnover-dependent) licence fee. The tax authorities (re)assessed the corporate income tax for the years 2008 and 2009. The audit had shown that the licence fees were to ... Read more

LCF Zimbabwe LTD manufactures cement and similar products from limestone extracted at a mine in Zimbabwe. It also manufactures adhesives and adhesive paints and decorative paints, construction chemicals and agricultural lime. It is a wholly owned subsidiary of a large European group, which manufactures and sells building and construction materials. The issues in this case concerned tax deductibility of “master branding fees”, consumable spare parts not utilised at the tax year end, quarry overburden expenses and computer software. Furthermore there were also the question of levying penalties. Judgement of the Tax Court The Court decided in favour of the tax authorities. Excerpts: “The corollary to the finding of indivisibility is that the disallowance by the Commissioner of the 1.5% master branding fees of US$ 863 252.70 in the 2012 tax year and US$ 1 140 000 in the 2013 tax year was correct while the split of the 2% rate in respect of the first franchise agreement was wrong. I ... Read more

“Drinks Distributor S.A.” was involved in purchase, sale and distribution of alcoholic beverages in Mexico. “Drinks Distributor s.a” had entered into a non-exclusive trademark license agreement with a related party for the sale of its product. Following a restructuring process, the related party moved to Switzerland. Following an audit the Mexican tax administration, determined that deductions for marketing and advertising costs related to brands and trademarks used under the licensing agreement, were not “strictly indispensable” and therefore not deductible, cf. requirement established by the Income Tax Law in Mexico. Drinks Distributor S.A on its side held that the marketing and advertising costs were strictly indispensable and that the tax deductions should be accepted. The dispute ended up in the Federal Court of Administrative Justice. Judgement: The Court determined what should be understood as “strictly indispensable“. To establish this concept the purposes of the specific company and the specific costs must first be determined – in particular that the costs are ... Read more

The Hungarian company “Trademark Ltd” was involved in distribution of trademark rights. Trademark Ltd obtained the trademark rights from affiliated companies in Luxembourg and Barbados and then also passed trademark rights on to other affiliated company. For the purpose of determining the remuneration, only one company in the group had a transfer price record. According to this, the basis for calculating the remuneration was the turnover achieved. The tax authorities examined the nature of the prices charged between the parties and found that they were not the normal market price. The consideration for the trademark rights was therefore assessed by applying a weighted average cost of capital to the net profit margin. For FY 2006 this rate was set at 12% applied at the group level. On that basis, the amount of the trademark payments was reduced, thereby increasing the tax base of Trademark Ltd by HUF 209,357,000. Trademark Ltd disagreed with the assessment. The judgement of the Court On ... Read more

The Local Tax Court found that the arm’s-length principle requires a licence to be paid for the use of group name where the name/trademark has value in itself. The decision of the Local Court was later overturned by the Supreme Tax Court ruling in Case no. I R 22 14  Click here for English translation Click here for other translation ... Read more

In this case, the royalty payments of Accenture Norway to the Accenture Groups Swiss IP owner was at issue. The Norwegian tax authorities held that the royalty payments to Accenture Global Services in Switzerland had been excessive. The Court disagreed and decided in favor of Accenture. Click here for translation ... Read more

“H-trademark S.A.” applied for a ruling on the tax rules governing a business restructuring where trademarks were transferred to another group company and licensed back – whether Polish arm’s length provisions would apply to the transaction. The company was of the opinion that Polish arm’s length provision (article 11) would not apply, since the arrangement was covered by special Polish provisions related to financial leasing (article 17b-g). Judgement of the Court The Court found that the Polish arm’s length provisions applied to the transaction. Excerpts “In the present case, the legal problem boils down to the correct identification of the nature of the norms arising from Article 11 of the A.p.d.o.p. and its relationship with the provisions on leasing raised by the applicant (Articles 17b – 17g of the A.p.d.o.p.). Indeed, the applicant takes the view that the leasing provisions themselves introduce derogations from market conditions and that, consequently, it is not possible to examine certain activities governed by the ... Read more

A German company on behalf of its Austrian Parent X-GmbH distributed products manufactured by the Austrian X-KG. By a contract of 28 May 1992, X-GmbH granted the German company the right to use the trade mark ‘X’ registered in Austria. According to the agreement the German company paid a license fee for the right to use the trade mark. In 1991, X-GmbH had also granted X-KG a corresponding right. By a contract dated 1 July 1992, X-KG was granted exclusive distribution rights for the German market. In the meantime, the mark ‘X’ had been registered as a Community trade mark in the Internal Market. The tax authorities dealt with the payment of royalties to X-GmbH for the years in question as vGA (hidden profit distribution). Click here for English translation Click here for other translation ... Read more

In Cap Gemini, the Court concluded that the tax administration did not demonstrate the “indirect transfer of benefit” in the absence of a comparability study. The transaction in question consisted of a licence of the Cap Gemini trademark and logo. The French subsidiaries were charged with a 4% royalty, whereas European and American subsidiaries were charged no or lower royalty. The court found that the value of a trademark and logo may differ depending on each situation and market. In the ruling, the court reaffirmed that a transfer pricing assessment must be based on solid evidence. Click here for translation ... Read more

The Pharmatique Industrie case shows the high comparability standard required by the courts of France. The tax authorities used five similar license agreements in the same pharmaceutical sector, as comparables in a transfer pricing dispute regarding payments of royalties for the use of knowhow and trademarks. Judgement of the Court The court ruled in favour of the tax authorities. Excerpt “.., is not confirmed by a reading of the contracts attached to the file not only the granting of trademarks for the specialities in question, but also, as in the grants put forward by way of comparison by the administration, of manufacturing processes or know-how, the service must be regarded as providing proof of the exaggerated nature and therefore non-deductible nature of the said royalties in the above-mentioned proportion; that in any case, and without it being necessary to examine whether the royalties are deductible in principle, it follows that the company PHARMATIQUE INDUSTRIE is not entitled to maintain that ... Read more

An Australian subsidiary of Estee Lauder paid a licence fees to licensor on sales of cosmetics in Australia whether imported or made locally. At issue is whether this fees should be taken into account in determining price and thus “transaction value” of goods for purposes of assessing customs duty. Judgement of the Federal Court The Court found that the fee should not be included. “The royalties will also be part of the price of the goods if it were open to a Collector to conclude that the licence agreement was so closely connected with the contracts of sale pursuant to which the goods were imported and to the goods that together they formed a single transaction. I do not think there is any basis for the taking of such a view. The licence agreement was made in 1969 and appointed the applicant exclusive licensee of the relevant trade marks in Australia. The agreement entitled the applicant to use the trade ... Read more