“Car Lrd Corp” operated as a limited risk distributor, importing and selling finished vehicles and auto parts from related parties. It applied the TNMM with operating profit margin as the profit level indicator, but incurred substantial losses between 2017 and 2021, largely because regulatory issues led to a temporary suspension of sales. To address the downturn, the subsidiary undertook market penetration measures and recorded high selling, general and administrative expenses and promotional costs, which reduced its margins. The foreign parent also provided financial support in the form of loss compensation and reimbursements for certain expenses, which the subsidiary initially treated as non-operating income. The tax authorities disputed this treatment of the compensations and reimbursements, arguing that as a limited risk distributor the company was not entitled to bear the costs of a market penetration strategy. The taxpayer countered that these measures were a legitimate response to the sales crisis. Judgment The National Tax Tribunal upheld the tax authority’s position. It ... Read more

20. Primair, a resident of country X, manufactures watches which are marketed in many countries around the world under the R trademark and trade name. Primair is the registered owner of the R trademark and trade name. The R name is widely known in countries where the watches are sold and has obtained considerable economic value in those markets through the efforts of Primair. R watches have never been marketed in country Y, however, and the R name is not known in the country Y market. 21. In Year 1, Primair decides to enter the country Y market and incorporates a wholly owned subsidiary in country Y, Company S, to act as its distributor in country Y. At the same time, Primair enters into a long-term royalty-free marketing and distribution agreement with Company S. Under the agreement, Company S is granted the exclusive right to market and distribute watches bearing the R trademark and using the R trade name in ... Read more

20. Primair, a resident of country X, manufactures watches which are marketed in many countries around the world under the R trademark and trade name. Primair is the registered owner of the R trademark and trade name. The R name is widely known in countries where the watches are sold and has obtained considerable economic value in those markets through the efforts of Primair. R watches have never been marketed in country Y, however, and the R name is not known in the country Y market. 21. In Year 1, Primair decides to enter the country Y market and incorporates a wholly owned subsidiary in country Y, Company S, to act as its distributor in country Y. At the same time, Primair enters into a long-term royalty-free marketing and distribution agreement with Company S. Under the agreement, Company S is granted the exclusive right to market and distribute watches bearing the R trademark and using the R trade name in ... Read more