Velcro Europe, S.A., a Spanish manufacturing company within the Velcro Group, paid royalties for the use of trademarks and technology. The intellectual property was legally owned by Velcro Industries B.V., which is based in Curaçao, while Velcro Holding B.V., which is based in the Netherlands, acted as the European licensing and collection entity. Velcro Europe paid royalties to the Dutch entity and applied for an exemption from Spanish withholding tax under the EU Interest and Royalties Directive, treating Velcro Holding BV as the beneficial owner of the income. However, the tax authorities denied the exemption, arguing that Velcro Holding BV was merely an intermediary with limited substance and decision-making capacity, and not the beneficial owner of the royalties. According to the authorities, the royalties were economically destined for the Curaçao entity, meaning that the conditions of the EU Directive were not met. Consequently, the authorities applied the domestic withholding tax rate, without allowing recourse to the applicable tax treaty. Velcro ... Read more

The case concerned the valuation of certain intangible assets in connection with a company’s transfer of these assets to a newly established group company. After the transfer, the company was to continue to provide sales and service activities and routine functions relating to the intangible assets to the newly established group company. The company had two transfer pricing valuation reports prepared, both of which used the DCF method to calculate the value of the transferred intangible assets. The reports calculated the value of the entire business, after which the value of the transferred intangible assets was calculated by deducting the value of the routine functions. The required rate of return for the entire business was set at 20%, while the required rate of return for the routine functions was set at 8%. The Danish tax authorities found that the company had submitted proper TP documentation, which meant that it was not possible to make an discresionary assessment. It was then ... Read more

The EU Commission has closed the formal investigation into the Amazon State Aid case and concluded that the contested tax ruling issued by Luxembourg in favour of Amazon does not constitute State aid within the meaning of Article 107(1) TFEU. The decision was adopted on 28 November 2024, and published in the Official Journal on 28 November 2025. The decision concerns a Luxembourg tax ruling issued on 6 November 2003 in favour of an Amazon group company and examined by the European Commission under EU State aid rules. The ruling approved a transfer pricing arrangement governing the allocation of profits between a Luxembourg operating company and a related group entity, based on a royalty structure and a TNMM type remuneration for the operating company. In its earlier Opening Decision, the Commission had expressed serious doubts that the ruling complied with the arm’s length principle. Those doubts were based on the view that the ruling endorsed a remuneration and royalty outcome ... Read more

In 2013 an intra-group restructuring took place involving the transfer of trademark rights developed by an operating company to a related entity within the same corporate group. Following this transfer, the entity now holding the trademarks licensed them back to the operating company, which paid royalties and deducted them for income tax purposes. The entity holding the trademarks amortised the acquired intellectual property. Following an audit the tax authorities concluded that the licensing structure did not reflect arm’s length conditions. Relying on transfer pricing provisions, they argued that the trademark-holding entity did not perform any meaningful DEMPE functions or bear any significant economic risk. Based on this, the authorities went beyond a price adjustment and effectively reclassified the transaction by denying the deductibility of royalty payments and disallowing amortisation of the trademarks. The taxpayer challenged the assessment, arguing that, under the applicable transfer pricing provisions at the time, the authorities were only empowered to adjust prices and could not disregard ... Read more

Vodafone Idea Ltd. paid royalties in AY 2016–17 for use of the “Vodafone” and “Essar” brands: about ₹158.91 crore at 0.7 percent of net service revenue to Vodafone Ireland Marketing Ltd. and Vodafone Sales & Services Ltd., and about ₹19.17 crore at 0.35 percent of net service revenue to Rising Group Ltd. The company benchmarked these payments using the CUP as the most appropriate method and also under TNMM at the entity level. The tax authorities rejected that benchmarking claiming that the “Essar” mark had no value so the arm’s length price was Nil, and cut the “Vodafone” royalty rate to 0.25 percent, relying on a royalty arrangement between Virgin Enterprises Ltd. and Virgin Mobile USA LLC as a comparable. On that basis a transfer pricing adjustment of about ₹1,205.47 crore was issued, which the Dispute Resolution Panel later upheld. An appeal was filed with the Delhi Bench of the Income Tax Appellate Tribunal, where Vodafone Idea argued that the ... Read more

Oracle Australia purchases enterprise software and hardware from Oracle Ireland and distributes these products in Australia. The supply by Oracle Ireland to Oracle Australia is governed by complex contractual arrangements under which Oracle Australia made sublicence fee payments to Oracle Ireland. One bundle of rights which Oracle Australia obtained from Oracle Ireland related to Oracle Australia’s use of computer programs in which Oracle Ireland owned the copyright. The sublicence fee payments were made in the income years ending 31 May 2013 to 31 May 2018. If these sublicence fee payments are found to be ‘royalties’ within the meaning of Art 13(3) of the Agreement between the Government of Australia and the Government of Ireland for the Avoidance of Double Taxation, Oracle Ireland will be liable to pay withholding tax on them. An assessment was issued by the tax authorities where they concluded that the payments were royalties and that withholding taxes should therefore be paid by Oracle Ireland. A MAP ... Read more

Netflix Entertainment Services India LLP was incorporated in 2017 as the Indian group entity of Netflix. Under a distribution agreements, first with Netflix International B.V. and later directly with Netflix, Inc., the Indian entity was appointed as a non-exclusive distributor of access to the Netflix Service in India for FY 2021–22. Netflix India marketed subscriptions, entered into terms of use with Indian subscribers, invoiced and collected subscription fees, and remitted a distribution fee to its associated enterprise. The fee was computed as subscription revenue net of local costs, plus a fixed return, resulting in a return on sales of 1.36 percent. Netflix India did not receive any rights in content, technology, software, or trademarks, and did not perform content creation, platform development, or other DEMPE functions. All intellectual property and strategic decision making remained with the foreign associated enterprises. The tax authorities rejected the characterisation of Netflix India as a limited risk distributor and treated it as an entrepreneurial provider ... Read more

A tax assessment had been issued to J – G Retalho, SGPS, S.A., regarding an arrangement whereby ownership to intangibles had been transferred to a related party in Switzerland and subsequent royalty payments for use of the intangibles had been deducted in the taxable income. In the course of audit of these companies, the tax authorities concluded that the costs in question derive respectively from a contract for the use of the F… brand, sold to that entity for a period of no less than 30 years, and from a contract for the use of the P… brand, also sold to the same Swiss entity, for a period of no less than 30 years, with F… and P… continuing to deduct from their income, costs directly related to the management, promotion and development of the brands they transferred, as well as holding all the risks inherent to them. Given that F… and P… have transferred their brands, through an operation ... Read more

Two companies resident in the United States of America and forming part of the PepsiCo Group – PepsiCo, Inc (“PepsiCo”) and Stokely-Van Camp, Inc (“SVC”) – entered into agreements with Schweppes Australia Pty Ltd (“SAPL”), an Australian company, to bottle, sell and distribute beverages within Australia. Relevantly, those agreements provided that PepsiCo or SVC respectively would sell to SAPL, or cause to be sold by one of its subsidiaries, the flavour concentrates necessary for SAPL to manufacture the beverages. The agreements contained either an express or implied licence permitting SAPL to use the intellectual property owned by PepsiCo or SVC necessary to perform its obligations. The agreements did not provide for any payment by SAPL to PepsiCo or SVC of a royalty for the use of that intellectual property. At the relevant times, SAPL bought concentrate from a PepsiCo subsidiary incorporated in Australia, PepsiCo Beverage Singapore Pty Ltd (“PBS”). SAPL made no payments to either PepsiCo or SVC. The Commissioner ... Read more

The case concerning Sony India Pvt Ltd involved multiple assessment years and numerous transfer pricing issues. Most of the issues were decided in Sony’s favour. Certain matters were remanded. The only substantive issue decided against Sony concerned the lower Dividend Distribution Tax rate claim. First, the Tribunal addressed the adjustments made by the tax authorities for alleged advertisement, marketing and promotion (AMP) expenses, considering both the Bright Line Test (BLT) and the so-called ‘intensity adjustment’. The Tribunal held that neither the BLT nor the intensity adjustment is a permissible method under the Income Tax Act for benchmarking AMP expenses. Both the substantive and protective AMP adjustments were deleted. Regarding the royalty payment, the tax authorities had determined the arm’s length price as zero under the CUP method, on the basis that the manufacturing subcontractors, rather than Sony India, should have paid the royalty. However, the Tribunal rejected this approach, relying on its own earlier decision in Sony’s AY 2016-17 case ... Read more

Following an audit, the tax authorities concluded that the payments received by Hyatt under the Strategic Oversight Services Agreements (SOSAs) constituted royalties under Article 12 of the India–UAE Double Tax Agreement (DTA), or alternatively, business profits attributable to a permanent establishment (PE) in India. The Income Tax Appellate Tribunal found that Hyatt had a PE in India, after which Hyatt filed an appeal with the High Court. The High Court examined both issues. Regarding royalties, the High Court ruled against the tax authorities. The Court held that the payments did not constitute “royalty” for the use of intellectual property, know-how, or technical services, as defined in the Indian Income Tax Act or Article 12 of the DTA. However, regarding the PE, the High Court ruled that Hyatt did have a fixed-place PE in India under Article 5, due to its continuous and significant involvement in the operations of the Indian hotels under the SOSA. This meant that the payments could ... Read more

In these three combined cases, the tax authorities had increased “A-TM Licensor Sp. z o. o.”’s tax base by disallowing some of the royalty payments made to related parties for the “A” trademark, deeming them excessive. They reclassified the licensing agreements with the related party as service contracts for trademark administration and applied the transactional net margin method. “A-TM Licensor Sp. z o. o.” argued that the decision was unlawful and that the claim was time-barred. They also claimed that the regulation on transfer pricing methods lacked a proper statutory basis. The first-instance court dismissed the complaint, agreeing with the tax authorities that the transactions with related parties did not reflect arm’s length conditions, that the licensees only performed formal legal functions and that “A-TM Licensor Sp. z o. o.” remained the economic owner of the trademark. The court also held that the suspension of the limitation period due to the initiation of criminal fiscal proceedings was valid and not ... Read more

The transaction involved L. Sp. z o.o., a Polish operating company belonging to the L. Capital Group, and related group entities that successively became the formal legal owners of the ‘L.’ trademark following a series of steps within the group in 2014. These steps included a contribution in kind of the trademark, its sale, the subsequent transformation of the acquiring company into a partnership and its subsequent liquidation. From September 2015 to August 2016, L. sp. z o.o. paid licence fees to the related entity B. sp. z o.o. sp.j. for use of the trademark, deducting these fees as tax-deductible costs. The tax authorities took the position that the licence fees did not reflect arm’s length conditions within the meaning of Article 11 of the Corporate Income Tax Act, as it was in force at the time. Based on a functional analysis, the authorities concluded that the licensor entity performed only administrative and legal protection functions in relation to the ... Read more

SC (Pty) Ltd (SCL), was part of a supermarket group with a Mauritian subsidiary, SIL, that held trademarks and managed treasury functions for non RSA operations. Under franchise agreements, non RSA subsidiaries paid royalties of 1 percent of gross sales to SIL for use of the group’s intellectual property and know how. SCL received a rutine remuneration for the services performed for SIL. Following a transfer pricing audit, the South African Revenue Service (SARS) concluded that it was evident from the conduct of both SIL and SCL, their respective employees and boards, and the general correspondence provided to SARS, that SCL had in fact determined the strategies with respect to the group’s expansion into the African market. SCL set the standard with regard to the development of marketing intangibles in non-RSA jurisdictions. SIL was only responsible for entering into the franchise agreements after they had been drafted and vetted by SCL employees. SARS therefore concluded that the real development, enhancement, ... Read more

Accenture A/S had been issued a tax assessment on two types of intra-group transactions – loan of employees (IAA) and royalty payments for access to and use of intangible assets. The loan of employees (IAA) were temporary intra-group loans of “idle” employees who were not in the process of or were about to perform specific tasks for the operating company in which they were employed. To a large extent, these were cross-border loans of employees. In the loan of employees, the borrowing operating company provided a consultancy service to a customer, and it was also the borrowing operating company that bore the business risk. The royalty payments related to Accenture A/S’ use of the Group’s intangible assets, which were reportedly owned by a Swiss company. In the case, it was stated that the Accenture Group’s operating companies’ intangible assets and future development and improvements of the same had been transferred to the Swiss company, and the other operating companies’ access ... Read more

Oracle Australia purchases enterprise software and hardware from Oracle Ireland and distributes these products in Australia. The supply by Oracle Ireland to Oracle Australia is governed by complex contractual arrangements under which Oracle Australia made sublicence fee payments to Oracle Ireland. One bundle of rights which Oracle Australia obtained from Oracle Ireland related to Oracle Australia’s use of computer programs in which Oracle Ireland owned the copyright. The sublicence fee payments were made in the income years ending 31 May 2013 to 31 May 2018. If these sublicence fee payments are found to be ‘royalties’ within the meaning of Art 13(3) of the Agreement between the Government of Australia and the Government of Ireland for the Avoidance of Double Taxation, then Oracle Ireland will be liable to pay withholding tax on them. An assessment was issued by the tax authorities where they concluded that the payments were royalties and that withholding taxes should therefore be paid by Oracle Ireland. A ... Read more

RIn this case, JCB India Ltd. challenged the assessment order for the assessment year 2017–18, where the tax authorities made a transfer pricing adjustment of approximately ₹166 crores to the royalty payments made by the company to its associated enterprises (AEs). JCB argued that the arm’s length price for royalties should be 4%, in line with a Mutual Agreement Procedure (MAP) settled between Indian and UK tax authorities for previous years. The company further contended that similar royalty arrangements were consistent with those already accepted in earlier years, and that a recently signed Advance Pricing Agreement (APA) for assessment years 2018–19 to 2022–23, which set the royalty rate at 5%, should guide the treatment of the royalty payments in the current year as well. Decision The Tribunal noted that while the royalty arrangements with UK AEs were covered under the MAP and APA in other years, the current assessment year (2017–18) was not included. As a result, the Tribunal held ... Read more

“NAILS KtF” is a member of a group engaged in the development, manufacture and sale of artificial nail materials. It sells products to related parties and pays a fee to a related party for the use of trademarks and know-how related to the products. It had also paid a related party in Cyprus for certain services. Following an audit, the tax authorities issued an assessment relating to the pricing of the royalty transaction, the sale of goods and penalties relating to tax evasion through reclassification and lack of documentation for the services. “Nails KtF” filed an appeal, which ended up in the Supreme Administrative Court. Among the arguments put forward by “Nails KtF” in the appeal was the fact that the tax authorities had used an external expert to determine the arm’s length royalty rate, which “Nails KtF” argued was a delegation of power in violation of administrative rules. Judgment The Supreme Administrative Court upheld parts of the first instance ... Read more

The Central Company for the Production of Soft Drinks Ltd. holds exclusive rights to distribute Coca-Cola products in Israel. The dispute arose when the tax authorities classified part of the payments made by the company to Coca-Cola as royalties for the use of Coca-Cola’s trademarks and intellectual property, making them subject to withholding tax. The company appealed to the district court, arguing that no portion of the payments constituted royalties. Instead, they argued that the payments were solely for the concentrates utilized in the production of beverages and that the tax authority had not previously classified them as royalties. Judgment The court ruled that the payments involved the use of Coca-Cola’s intellectual property and were therefore correctly classified as royalties by the tax authorities. It dismissed the company’s appeals for the years 2010-2017 and upheld the tax assessments, requiring the company to pay the withholding taxes on the royalty payments. Excerpts in English “15. Moreover, even if I assume in ... Read more

The Australian Tax Office (ATO) has applied for special leave to appeal to the High Court of Australia against the Full Federal Court’s decision in PepsiCo, Inc. v Commissioner of Taxation [2024] FCAFC 86. At issue was the ‘royalty-free’ use of intangible assets under an agreement whereby PepsiCo Singapore sold concentrate to Schweppes Australia. According to the ATO, part of the payments made by Schweppes Australia to PepsiCo Singapore were in fact royalties for the use of trademarks and trade names, which were subject to Australian withholding taxes. See also ATO’s draft ruling TR 2024/D1. In June 2024, the Full Federal Court found that PepsiCo was not liable for royalty withholding tax and that the diverted profits tax (DPT) did not apply, overturning the previous decision of the Federal Court which, in a judgment dated 30 November 2023, had ruled in favour of the ATO and found PepsiCo liable for additional withholding taxes and penalties ... Read more

In TC opinion of November 18, 2020 and TC opinion of November 8, 2023, the US Tax Court agreed with the US tax authorities (IRS) that Coca-Cola’s US-based income should be increased by $9 billion in a dispute over royalties from its foreign-based licensees. The principal holding was that the Commissioner did not abuse his discretion in reallocating income to Coca-Cola using a “comparable profits method” (TNMM) that treated independent Coca-Cola bottlers as comparable parties. However, one question remained. Coca-Colas’s Brazilian subsidiary paid no actual royalties to Coca-Cola during 2007–2009. Rather, it compensated Coca-Cola for use of its intangibles by paying dividends of $886,823,232. The court held that the Brazilian subsidiary’s arm’s-length royalty obligation for 2007–2009 was actually about $1.768 billion, as determined by the IRS. But the court held that the dividends remitted in place of royalties should be deducted from that sum. This offset reduces the net transfer pricing adjustment to petitioner from the Brazilian supply point to ... Read more

Samsung India, a subsidiary of Samsung Korea, manufactures and sells mobile phones in India and overseas. Under a technology licence agreement Samsung India paid royalties of 8% to Samsung Korea. Following an audit, the tax authorities determined that Samsung India was a contract manufacturer and therefore the payment of royalties on its sales to group companies was not considered to be at arm’s length. Deductions for the royalty payments were disallowed and an assessment of additional taxable income was issued. Samsung India appealed to the Income Tax Appellate Tribunal, which overturned the assessment, finding that the royalty payments were at arm’s length as Samsung India was not acting as a contract manufacturer but rather as a full-fledged licensed manufacturer. The tax authorities then appealed to the High Court. Judgment The Delhi High Court upheld the ITAT’s decision and ruled in favour of Samsung India. The court found that the royalty payments were at arm’s length as the subsidiary was acting ... Read more

Avago Technologies Trading Ltd is active in the semiconductor industry and licenses intellectual property under a licence agreement with GEN IP, a related party in Singapore. This agreement allows Avago to sublicense the manufacture of Avago products to both related and unrelated parties. The issue was whether the royalty payments made by Avago to GEN IP were at arm’s length. The tax authorities determined that the payments were not at arm’s length and issued an assessment of additional taxable income. In order to determine the arm’s length royalty payments, the tax authorities disregarded the TNMM method used by Avago and instead used the CUP method. Avago filed an appeal with the Assessment Review Committee. Decision. The Assessment Review Committee upheld the tax assessment and dismissed Avago’s complaint. Click here for other translation ... Read more

At issue was the “royalty-free” use of intangible assets under an agreement whereby PepsiCo’s Singapore affiliate sold concentrate to Schweppes Australia, which then bottled and sold PepsiCo soft drinks for the Australian market. As no royalties were paid under the agreement, no withholding tax was paid in Australia. The Australian Taxation Office (ATO) determined that the payments for “concentrate” from Schweppes to PepsiCo had been misclassified and were in part royalty for the use of PepsiCo’s intangibles (trademarks, branding etc.), and an assessment was issued for FY2018 and FY2019 where withholding tax was determined on that basis. The assessment was issued under the Australian diverted profits tax provisions. The assessment was appealed to the Federal Court, which in November 2023 found in favour of the tax authorities. PepsiCo then appealed to the Full Federal Court. Judgment In a split decision, the Full Federal Court overturned the decision of the Federal Court and found in favour of PepsiCo. Excerpts “In summary, ... Read more

Country Road Clothing NZ Ltd paid its Australian parent company, Country Road Clothing Pty Ltd, separtely for products and licensing of intangibles, mainly techniques for shop layout, design, trademarks, and shop marketing. In the period between January 2014 and June 2018, more than $20 million was paid in royalty and the company did not believe it was required to pay customs duties on that amount. New Zealand Customs Service disagreed and found that the royalty payment should have been included in the price of the products for duty purposes and issued a duty reassessment. This reassessment was then appealed by Country Road Clothing to the Customs Appeal Authority. Country Road Clothing maintained that the payments were an “arm’s-length” royalty paid to the Australian parent for the complete and comprehensive bundle of intangibles governing every aspect of the retail operations. Accordingly, the royalties were not for the goods it imports, nor were they sufficiently related to the proceeds of sale returned ... Read more

At issue was whether the Most Favoured Nation (MFN) clause in the DTAs with Spain, Switzerland, and Chile were activated by the DTA with the United Kingdom, which excluded payments for technical services, technical assistance, and consultancy from the definition of royalties, treating them instead as business profits. ​ Judgment The court concluded that the MFN clauses in the DTAs with Spain and Switzerland were conditional on Colombia agreeing to a lower tax rate with a third state, which did not occur with the United Kingdom DTA. ​Therefore, the treatment of these services as royalties remained unchanged. ​ For the DTA with Chile, the court determined that the MFN clause required an express agreement on an exemption or a lower rate, which was not met by the DTA with the United Kingdom. Consequently, the MFN clause was not activated, and the services continued to be treated as royalties. ​ The court upheld the decision of the tax authorities, denying the ... Read more

“No Royalty Corp” had a trademark registered in its own name. The trademark was used by other companies in the group, but no royalties or licence payments were received. Following an audit, the tax authorities issued a notice of assessment in which royalties had been added to the taxable income of the company in accordance with the arm’s length principle. “No Royalty Corp” filed an appeal claiming that the trademark was developed and owned by all companies in the group and therefore no payments should be made for there use of the trademark. Decision The Court upheld the assessment issued by the tax authorities. According to the court, it lacked economic rationality for the owner of the trademark to allow other companies to use its trademark without receiving any compensation. Click here for English translation Click here for other translation ... Read more

A tax assessment had been issued, regarding an arrangement whereby ownership to intangibles had been transferred to an related party in Switzerland and subsequent royalty payments for use of the intangibles had been deducted in the taxable income. “… In the course of the general external inspections carried out on the accounts of each of these companies, it was concluded that the costs in question derive respectively from a contract for the use of the F… brand, sold to that entity for a period of no less than 30 years, and from a contract for the use of the P… brand, also sold to the same Swiss entity. brand, also sold to the same Swiss entity, for a period of no less than 30 years, with F… and P… continuing to deduct from their income, costs directly related to the management, promotion and development of the brands they transferred, as well as holding all the risks inherent to them. Given ... Read more

“Fiber Corp” was established on November 3, 1966, and engages in the manufacture, processing, sales, import, export, and agency services of chemical fiber products. The tax authoritieis conducted a comprehensive corporate tax audit from May 29, 2013, to October 10, 2013, and determined that: “Fiber Corb” did not collect royalties for use of its trademarks from domestic and overseas related parties for the fiscal years 2008 to 2012. “Fiber Corb” also did not collect royalties for technology/knowhow used by its overseas subsidiary in China for the fiscal years 2010 to 2012. Based on these findings, the tax authorities issued a tax assessments for the fiscal years 2003 to 2012 where an arm’s length royalty had been added to the taxable income of “Fiber Corp”. A complaint was filed that ended up in court. Decision The Court upheld the assessment issued by the tax authorities. According to the court, the affiliated companies benefited from using the trademarks, leading to increased revenue ... Read more

ABD Limited is a South African telecommunications company with subsidiaries worldwide. These subsidiaries are operating companies, with local shareholders, but having ABD as a significant shareholder. ABD licences its intellectual property to these operating companies (referred to as Opcos) in return for which they pay ABD a royalty. The present case involves the royalty payments made by fourteen of the Opcos to ABD during the periods 2009 to 2012. ABD charged all of them the same royalty rate of 1% for the right to use its intellectual property. In 2011 ABD retained the services of a consultancy to advise it on what royalty it should charge its various Opcos.The consultancy procured research on the subject and then, informed by that, came up with the recommendation that a royalty of 1% could be justified. The tax authorities (SARS) found that a 1% royalty rate was not at arms-length and issued an assessment where the royalty rate had instead been determined to ... Read more

SA Compagnie Gervais Danone was the subject of an tax audit at the end of which the tax authorities questioned, among other things, the deduction of a compensation payment of 88 million Turkish lira (39,148,346 euros) granted to the Turkish company Danone Tikvesli, in which the french company holds a minority stake. The tax authorities considered that the payment constituted an indirect transfer of profits abroad within the meaning of Article 57 of the General Tax Code and should be considered as distributed income within the meaning of Article 109(1) of the Code, subject to the withholding tax provided for in Article 119a of the Code, at the conventional rate of 15%. SA Compagnie Gervais Danone brought the tax assessment to the Administrative Court and in a decision issued 9 July 2019 the Court discharged SA Compagnie Gervais Danone from the taxes in dispute. This decision was appealed by the tax authorities and in June 2021 the Administrative Court of ... Read more

A sales, marketing and management service agreement entered into in 1993 between Asian Hotels Limited and Hyatt International-Southwest Asia Limited had been replaced by various separate agreements – a Strategic Oversight Services Agreements, a Technical Services Agreement, a Hotel Operation Agreement with Hyatt India, and trademark license agreements pursuant to which Asian Hotels Limited was permitted to use Hyatt’s trademark in connection with the hotel’s operation. In 2012, the tax authorities issued assessment orders for FY 2009-2010 to FY 2017-2018, qualifying a portion of the service payments received by Hyatt as royalty and finding that Hyatt had a PE in India. Hyatt appealed the assessment orders to the Income Tax Appellate Tribunal, which later upheld the order of the tax authorities. Aggrieved with the decision, Hyatt filed appeals before the High Court. Judgment of the High Court The High Court set aside in part and upheld in part the decision of the Tribunal. The court set aside the decision of ... Read more

A Dutch company “Tobacco B.V.” belonging to an internationally operating tobacco group was subjected to (additional assessment) corporate income tax assessments according to taxable amounts of €2,850,670,712 (2013), €2,849,204,122 (2014), €2,933,077,258 (2015) and €3,067,630,743 (2016), and to penalty fines for the year 2014 of €1,614,709, for the year 2015 of €363,205 and for the year 2016 of €125,175,082. In each case, the dispute focuses on whether the fees charged by various group companies for supplies and services can be regarded as business-related. Also in dispute is whether transfer profit should have been recognised in connection with a cessation of business activities. One of the group companies provided factoring services to “Tobacco B.V.”. The factoring fee charged annually for this includes a risk fee to cover the default risk and an annual fee for other services. The court concluded that the risk was actually significantly lower than the risk assumed in determining the risk fee, that the other services were routine ... Read more

In 2017 the European Commission concluded that Luxembourg had granted undue tax benefits to Amazon of around €250 million. According to the Commission, a tax ruling issued by Luxembourg in 2003 – and prolonged in 2011 – lowered the tax paid by Amazon in Luxembourg without any valid justification. The tax ruling enabled Amazon to shift the vast majority of its profits from an Amazon group company that is subject to tax in Luxembourg (Amazon EU) to a company which is not subject to tax (Amazon Europe Holding Technologies). In particular, the tax ruling endorsed the payment of a royalty from Amazon EU to Amazon Europe Holding Technologies, which significantly reduced Amazon EU’s taxable profits. This decision was brought before the European Courts by Luxembourg and Amazon, and in May 2021 the General Court found that Luxembourg’s tax treatment of Amazon was not illegal under EU State aid rules. An appeal was then filed by the European Commission with the ... Read more

S. spółka z o.o. had deducted licence fees paid for the use of a trademark owned by a related party. Following an audit, the tax authority issued an assessment where these deductions had been disallowed. An appeal was filed with the Administrative Court which later upheld the tax assessment, and S. spółka z o.o. then filed an appeal with the Supreme Administrative Court. Judgment of the Supreme Administrative Court The Court ruled in favour of S. spółka z o.o. and set aside the decision of the Administrative Court and the tax assessment. Excerpt “In the present case, it should have been considered that the tax authorities created their own clause, assessing the case on the basis of the entirety of the acts performed between the applicant and its controlled companies – going beyond the scope of Article 11(1)-(4) of the u.p.d.o.p. Indeed, in the legal state of affairs in 2015, there was no legal basis for assessing legal acts and ... Read more

P.B. had deducted licence fees paid for the use of the trademark “B” which was owned by a related party. Following an audit, the tax authority issued an assessment where deductions for the fees had been disallowed. The tax authority stated that the transactions carried out by the P.B. in 2015 concerning the trademark, both in terms of the disposal of this asset and in terms of the subsequent acquisition of the right to use it, escape the notion of rational management and that these activities occurred under conditions that were clearly different from market conditions. According to the authority, their undoubted result was an unjustified transfer of income to the related entity B. sp. z o.o. An appeal was filed with the Administrative Court which later upheld the tax assessment, and P.B. then filed an appeal with the Supreme Administrative Court. Judgment of the Supreme Administrative Court The Court ruled in favour of P.B. by setting aside the decision ... Read more

At issue was the “royalty-free” use of intangible assets under an agreement whereby PepsiCo’s Singapore affiliate sold concentrate to Schweppes Australia, which then bottled and sold PepsiCo soft drinks for the Australian market. As no royalties were paid under the agreement, no withholding tax was paid in Australia. The Australian Taxation Office (ATO) determined that the payments for “concentrate” from Schweppes to PepsiCo had been misclassified and were in part royalty for the use of PepsiCo’s intangibles (trademarks, branding etc.), and an assessment was issued for FY2018 and FY2019 where withholding tax was determined on that basis. The assessment was issued under the Australian diverted profits tax provisions. The assessment was appealed to the Federal Court in February 2022. Judgment of the Court The Federal Court ruled in favor of the tax authorities. Following the decision of the Court, the ATO issued an announcement concerning the case. According to the announcement it welcomes the decision. “This decision confirms PepsiCo, Inc ... Read more

The case involved whether royalties paid under a technology transfer agreement between Nestlé Argentina and Nestlé SA (Switzerland) should be added to the customs value of imported goods between 2008 and 2011. The tax authorities argued that the royalties should be added to the customs value because the goods imported were linked to the licensed intellectual property and often purchased from related companies. On appeal, the Tax Court revoked the assessment of the tax authorities which sought to add a portion of royalties to the declared FOB value of imported raw materials and goods. The Tax Court found that the legal criteria for such an adjustment under the WTO Valuation Agreement (Articles 1 and 8) had not been met. Specifically, it held that the royalties were not shown to be a condition of sale of the imported goods, nor were they directly related to them, nor excluded from the declared price. The royalty payments were tied instead to the use ... Read more

Herbalife International India is a subsidiary of HLI Inc., USA. It is engaged in the business of dealing in weight management, food and dietary supplements and personal care products. The return of income for the assessment year 2006-07 was filed declaring Nil income. The Indian company had paid royalties and management fees to its US parent and sought to justify the consideration paid to be at arm’s length. In the transfer pricing documentation the Transactional Net Margin Method (TNMM) had been selected as the most appropriate method for the purpose of bench marking the transactions. The case was selected for scrutiny by the tax authorities and following an audit, deductions for administrative services were denied and royalty payments were reduced. Disagreeing with the assessment Herbalife filed an appeal which was later dismissed by the Tax Appellate Tribunal. An appeal was then filed with the High Court, which remaned the case for a reexamination by the Tax Appellate Tribunal, holding that ... Read more

In TC opinion of 18 November 2020 the US Tax Court agreed with the US tax authorities (IRS) that Coca-Cola’s US-based income should be increased by $9 billion in a dispute over royalties from its foreign-based licensees. The principal holding was that the Commissioner did not abuse his discretion in reallocating income to Coca-Cola using a “comparable profits method” (TNMM) that treated independent Coca-Cola bottlers as comparable parties. However, one question remained. Coca-Colas’s Brazilian subsidiary paid no actual royalties to Coca-Cola during 2007–2009. Rather, it compensated Coca-Cola for use of its intangibles by paying dividends of $886,823,232. The court held that the Brazilian subsidiary’s arm’s-length royalty obligation for 2007–2009 was actually about $1.768 billion, as determined by the IRS. But the court held that the dividends remitted in place of royalties should be deducted from that sum. This offset reduces the net transfer pricing adjustment to petitioner from the Brazilian supply point to about $882 million. Thus, the issue to ... Read more

K.P. is active in retail sale of computers, peripheral equipment and software. In December 2013 it had transfered valuable trademarks to its subsidiary and in the years following the transfer incurred costs in form of licence fees for using the trademarks. According to the tax authorities the arrangement was commercially irrationel and had therfore been recharacterised. Not satisfied with the assessment an appeal was filed. Judgment of the Provincial Administrative Court. The Court decided in favor of K.P.  According to the Court recharacterization of controlled transactions was not possible under the Polish arm’s length provisions in force until the end of 2018. Click here for English translation Click here for other translation ... Read more

SAS Arrow Génériques is in the business of distributing generic medicinal products mainly to the pharmacy market, but also to the hospital market in France. It is 82.22% owned by its Danish parent company, Arrow Groupe ApS, which is itself a wholly-owned subsidiary of the Maltese company Arrow International Limited. In 2010 and 2011, SAS Arrow Génériques paid royalties to its Danish parent, Arrow Group ApS, and to a related party in the UK, Breath Ltd. According to the French tax authorities, the royalties constituted a benefit in kind granted to Arrow Group ApS and Breath Ltd, since SAS Arrow Génériques had not demonstrated the reality and nature of the services rendered and had therefore failed to justify the existence and value of the consideration that it would have received from the payment of these royalties, which constitutes an indirect transfer of profits to related companies. On appeal, the Administrative Court decided in favour of SAS Arrow Génériques. The tax ... Read more

These cases concerned whether the tax authorities had been entitled to exercise an assessment of two types of intra-group transactions made between H1 A/S and a number of group companies. The cases also concerned whether, if so, the tax authorities’ estimated assessment could be set aside. The two types of controlled transactions were employee loans (IAA) and royalty payments for access to and use of intangible assets. The employee loans (IAA) were temporary intra-group loans of “idle” employees who were not in the process of or were about to perform specific tasks for the operating company in which they were employed. To a large extent, these were cross-border employee loans. In the employee loans, the borrowing operating company provided a consultancy service to a customer, and it was also the borrowing operating company that bore the business risk. The TP documentation stated that the lending operating company did not provide a consultancy service and that the earnings on a consultancy ... Read more

Due to the economic situation of automotive suppliers in Germany in 2006, “Cutting Tech GMBH” established a subsidiary (CB) in Bosnien-Herzegovina which going forward functioned as a contract manufacturer. CB did not develop the products itself, but manufactured them according to specifications provided by “Cutting Tech GMBH”. The majority of “Cutting Tech GMBH”‘s sales articles were subject to multi-stage production, which could include various combinations of production processes. In particular, “Cutting Tech GMBH” was no longer competitive in the labour-intensive manufacturing processes (cut-off grinding, turning, milling) due to the high wage level in Germany. Good contribution margins from the high-tech processes (adiabatic cutting, double face grinding) increasingly had to subsidise the losses of the labour-intensive processes. Individual production stages, however, could not be outsourced to external producers for reasons of certification and secrecy. In addition, if the production had been outsourced, there would have been a great danger that a third company would have siphoned off “Cutting Tech GMBH”‘s know-how ... Read more

Following an audit of Otis Servizi s.r.l. for FY 2007, 2008 and 2009 an assessment of additional taxable income was issued by the Italian tax authorities. The first part of the assessment related to interest received by OTIS in relation to the contract called “Cash management service for Group Treasury” (hereinafter “Cash Pooling Contract”) signed on 20 March 2001 between OTIS and the company United Technologies Intercompany Lending Ireland Limited (hereinafter “UTILI”) based in Ireland (hereinafter “Cash Pooling Relief”). In particular, the tax authorities reclassified the Cash Pooling Agreement as a financing contract and recalculated the rate of the interest income received by OTIS to be between 5.1 and 6.5 per cent (instead of the rate applied by the Company, which ranged between 3.5 and 4.8 per cent); The second part of the assessment related to of the royalty paid by OTIS to the American company Otis Elevator Company in relation to the “Licence Agreement relating to trademarks and company ... Read more

K. S.A. had made an in-kind contribution to a subsidiary (a partnership) in the form of previously created or acquired and depreciated trademark protection rights for individual beer brands. The partnership in return granted K. S.A. a licence to use these trademarks (K. S.A. was the only user of the trademarks). The partnership made depreciations on these intangible assets, which – due to the lack of legal personality of the partnership – were recognised as tax deductible costs directly by K. S.A. According to the tax authorities the role of the partnership was limited to the administration of trademark rights, it was not capable of exercising any rights and obligations arising from the licence agreements. Therefore the prerequisites listed in Article 11(1) of the u.p.d.o.p. were met, allowing K. S.A.’s income to be determined without regard to the conditions arising from those agreements. The assessment issued by the tax authorities was later set aside by the Provincial Administrative Court. An ... Read more

SA SACLA, which trades in protective clothing, footwear and small equipment, was the subject of a tax audit covering the financial years 2007, 2008 and 2009. In 2008, Sacla had sold a portfolio of trademarks to a related party, Involvex SA, a company incorporated under Luxembourg law, for the sum of 90,000 euros. In a proposed assessment issued in 2011, the tax authorities increased Sacla’s taxable income on the basis of Article 57 of the General Tax Code, taking the view that Sacla had made an indirect transfer of profits in the form of a reduction in the selling price by selling a set of brands/trademarks held by it for EUR 90,000 to a Luxembourg company, Involvex, which benefited from a preferential tax regime. The tax authorities had estimated the value of the trademarks at €20,919,790, a value that was reduced to €11,288,000 following interdepartmental discussions. In a February 2020, the Lyon Administrative Court of Appeal, after rejecting the objection of ... Read more

The tax authorities had issued a notice of assessment which disallowed tax deductions for royalties paid by R…Cash & C…, S.A. to its Polish parent company, O…Mark Sp. Z.o.o. R… Cash & C…, S.A. appealed to the Administrative Court, which later annulled the assessment. The tax authorities then filed an appeal with the Administrative Court of Appeal. Judgment of the Court The Court of Appeal revoked the judgment issued by the administrative court and decided in favour of the tax authorities. Extracts “It is clear from the evidence in the case file that the applicant has succeeded in demonstrating that the agreement to transfer rights is not based on effective competition, in the context of identical operations carried out by independent entities. The studies presented by the challenger do not succeed in overturning this assertion, since, as is clear from the evidence (12), they relate to operations and market segments other than the one at issue in the case. The ... Read more

Institute of International Research España S.L. belongs to the international group Informa Group Brand, of which Informa PLC, a company listed on the London Stock Exchange, is the parent company. In 2006 it had entered into a licence agreement (“for the use of the Licensed Property, Copyright, Additional Property Derived Alwork, the Mark and Name of the Licensor for the sale of Research and Dissemination Services”) under which it paid 6.5% of its gross turnover to a related party in the Netherlands – Institute of International Research BV. Furthermore, in 2007 it also entered into a “Central Support Services Agreement” with its parent Informa PLC according to which it paid cost + 5% for centralised support services: management, finance, accounting, legal, financial, fiscal, audit, human resources, IT, insurance, consultancy and special services. Following an audit, the tax authorities issued assessments of additional income for the FY 2007 and 2008 in which deductions of the licence payments and cost of intra-group ... Read more

The case concerned a Polish taxpayer who was a partner in two related limited partnerships, one operating company and one brand company. The operating company had developed and registered trademarks and industrial designs used in its retail business. Through intra group restructuring, ownership of these intangibles was transferred to the brand company, which then licensed them back to the operating company in return for substantial annual royalties. As a result, the brand company claimed amortisation deductions on the acquired intangibles, while the operating company deducted the royalty payments as business expenses. Following a audit for FY 2016, the tax authorities challenged this structure. They concluded that the arrangement did not meet the arm’s length standard, relied on functional arguments resembling DEMPE analysis, and took the view that independent parties would not have entered into comparable transactions. On that basis, the authorities effectively recharacterising the licensing arrangement, reduced the royalty income, denied amortisation of the trademarks, and disallowed the corresponding royalty ... Read more