Tag: Royalty payment

Payments of any kind received as consideration for the use of, or the right to use intellectual property, such as a copyright, patent, trade mark, design or model, plan, secret formula or process.

Kenya vs Seven Seas Technologies Ltd, December 2021, High Court of Kenya, Income Tax Appeal 8 of 2017 [2021] KEHC 358

Kenya vs Seven Seas Technologies Ltd, December 2021, High Court of Kenya, Income Tax Appeal 8 of 2017 [2021] KEHC 358

Seven Seas Technologies under a software license agreement purchased software from a US company – Callidus software – for internal use and for distribution to local customers. Following an audit, the tax authorities found that Seven Seas Technologies had not been paying withholding taxes on payments in respect of the software license agreement with Callidas. An assessment was issued according to which these payments were found to by a “consideration for the use and right to use copyright in the literary work of another person” as per section 2 of the Income Tax Act, thus subject to withholding tax under Section 35 (1)(b) of the Kenyan Income Tax Act. Seven Seas Technologies contested the assessment before the Tax Appeals Tribunal where, in a judgement issued 8 December 2016, the tribunal held that Seven Seas Technologies had acquired rights to copyright in software that is commercially exploited and that the company on that basis should have paid withholding tax. A decision ... Read more
Indonesia vs P.T. Sanken Indonesia Ltd., December 2021, Supreme Court, Case No. 5291/B/PK/PJK/2020

Indonesia vs P.T. Sanken Indonesia Ltd., December 2021, Supreme Court, Case No. 5291/B/PK/PJK/2020

P.T. Sanken Indonesia Ltd. – an Indonesian subsidiary of Sanken Electric Co., Ltd. Japan – paid royalties to its Japanese parent for use of IP. The royalty payment was calculated based on external sales and therefore did not include sales of products to group companies. The royalty payments were deducted for tax purposes. Following an audit, the tax authorities issued an assessment where deductions for the royalty payments were denied. According to the authorities the license agreement had not been registrered in Indonesia. Furthermore, the royalty payment was found not to have been determined in accordance with the arm’s length principle. P.T. Sanken issued a complaint over the decision with the Tax Court, where the assessment later was set aside. This decision was then appealed to the Supreme Court by the tax authorities. Judgement of the Supreme Court The Supreme Court dismissed the appeal of the tax authorities and upheld the decision of the Tax Court. The OECD Transfer Pricing Guidelines ... Read more
Brazil vs AES SUL Distribuidora Gaúcha de Energia S/A, August 2021, Superior Tribunal de Justiça, CaseNº 1949159 - CE (2021/0219630-6)

Brazil vs AES SUL Distribuidora Gaúcha de Energia S/A, August 2021, Superior Tribunal de Justiça, CaseNº 1949159 – CE (2021/0219630-6)

AES SUL Distribuidora Gaúcha de Energia S/A is active in footwear industry. It had paid for services to related foreign companies in South Africa, Argentina, Canada, China, South Korea, Spain, France, Holland, Italy, Japan, Norway, Portugal and Turkey. The tax authorities were of the opinion that withholding tax applied to these payments, which they considered royalty, and on that basis an assessment was issued. Not satisfied with this assessment AES filed an appeal, which was allowed by the court of first instance. An appeal was then filed by the tax authorities with the Superior Tribunal. Judgement of the Superior Tribunal de Justiça The court upheld the decision of the court of first instance and dismissed the appeal of the tax authorities. Excerpts “Therefore, the income from the rendering of services paid to residents or domiciled abroad, in the cases dealt with in the records, is not subject to the levy of withholding income tax. The refund of amounts proved to ... Read more
Indonesia vs PT PK Manufacturing Indonesia, March 2021, Supreme Court, Case No. 131/B/PK/Pjk/2021

Indonesia vs PT PK Manufacturing Indonesia, March 2021, Supreme Court, Case No. 131/B/PK/Pjk/2021

PT PK manufacturing Ltd was a contract manufacturer of cabins for excavators for the Japanese parent, Press Kogyo Co. Ltd. Japan, and paid royalties for “use of IP”. Following an audit, the tax authorities issued an assessment where deductions for royalty payments were disallowed due to lack of documentation for ownership to said IP. Furthermore, the tax authorities did not see any economic benefit for the contract manufacturer in paying the royalties, as it had been continuously loss making. The Company disagreed and brought the case to court. The Tax Court ruled in favor of the tax authorities. According to a decision issued 4 December 2019 the existence and ownership to the Intellectual Property in question had not been sufficiently documented. An request for review was then filed with the Supreme Court. Judgement of the Supreme Court The Supreme Court dismissed the request and upheld the decision of the Tax court. “(…) Therefore, the object of the dispute in the ... Read more
UK vs Royal Bank of Canada, June 2020, First-tier Tribunal, Case No [2020] UKFTT 267 (TC), TC07751

UK vs Royal Bank of Canada, June 2020, First-tier Tribunal, Case No [2020] UKFTT 267 (TC), TC07751

A UK PE of the Royal Bank of Canada had (through its Canadian head office) advanced loans of CAD $540 million in the early 1980s to Sulpetro Limited (“Sulpetro”), a Canadian company, to help fund the exploitation by its group of companies of rights to drill for oil, largely in the Buchan field of the North Sea. The Sulpetro group sold its interest in the Buchan oil field to the BP group in 1986, in exchange for various sums including an entitlement to contingent royalty payments on production from the oil field (linked to the excess of the market price of the oil in question above a benchmark level) (“the Payments”). Sulpetro was already in financial difficulties at the time of the sale to BP and ultimately went into receivership in 1993, by which time some Payments had started to be made due to the rise in oil prices. After the remainder of its assets were realised, Sulpetro still owed ... Read more
Indonesia vs PK manufacturing Ltd, March 2020 Supreme Court, Case No. 366/B/PK/Pjk/2020

Indonesia vs PK manufacturing Ltd, March 2020 Supreme Court, Case No. 366/B/PK/Pjk/2020

PK manufacturing Ltd was a contract manufacturer of cabins for excavators for the Japanese parent and paid royalties for use of IP owned by the parent. Following an audit, the tax authorities issued an assessment where deductions for royalty payments were disallowed due to lack of documentation for ownership to Intellectual Property by the Japanese parent. Furthermore, the tax authorities did not see any economic benefit for the contract manufacturer in paying the royalties, as it had been continuously loss making. The Company disagreed and brought the case to court. The Court of Appeal ruled in favor of the tax authorities. Existence and ownership to the Intellectual Property in question had not been sufficiently documented by the Japanese parent company. The Supreme Court dismissed the request for review filed by PK Co. Ltd. Click here for translation putusan_366_b_pk_pjk_2020_20200908cl ... Read more
Panama vs "AC S.A.", January 2020,  Administrative Tribunal, Case No TAT-RF-002

Panama vs “AC S.A.”, January 2020, Administrative Tribunal, Case No TAT-RF-002

“AC S.A” is engaged in sale of ventilation, heating and cooling equipment in Panama. AC S.A pays royalties for use of IP owned by the parent company of the AC Group. Following a audit carried out by the Tax Administration in Panama it was concluded that the profits of AC S.A 2.04% was below the arm’s length range determined by application of a TNM-method. After removing non-comparables from the benchmark study provided by the company, the interquartile range had a lower quartile of 6.15% and a median of 8.41%. Hence an assessment of additional taxable income was issued for FY 2014, bringing the profits of AC S.A up to the median (8.41%) of the adjusted benchmark. AC Corp disagreed with the assessment and brought the case before the Administrative Tribunal. The Administrative Tribunal decided in favor of the tax authorities, but made adjustment to the benchmark resulting in a lower quartile of 3.16% and a median of 6.2%. The adjustment ... Read more
Indonesia vs PK manufacturing Ltd, January 2019 Court of Appeal, Case No. PUT-115599.15/2014/PP/M.XIIIB Tahun 2019

Indonesia vs PK manufacturing Ltd, January 2019 Court of Appeal, Case No. PUT-115599.15/2014/PP/M.XIIIB Tahun 2019

PK manufacturing Ltd was a contract manufacturer of cabins for excavators for the Japanese parent and paid royalties for use of IP owned by the parent. Following an audit, the tax authorities issued an assessment where deductions for royalty payments were disallowed due to lack of documentation for ownership to Intellectual Property by the Japanese parent. Furthermore, the tax authorities did not see any economic benefit for the contract manufacturer in paying the royalties, as it had been continuously loss making. The Company disagreed and brought the case to court. The Court of Appeal ruled in favor of the tax authorities. Existence and ownership to the Intellectual Property in question had not been sufficiently documented by the Japanese parent company. Part 1 – Click here for translation Part 2 – Click here for translation Putusan Nomor ... Read more
Disneyland Paris under tax investigation

Disneyland Paris under tax investigation

French Tax Officials raided Disney’s Paris Office. The tax investigation focuses on a fee that Disneyland Paris paid for use of Disney’s intellectual property. The same payment appeared to be associated with services provided by a U.K. unit tasked with managing “Disney activities in Europe, the Middle East and Africa since 2011,”. The problem, in this case, is that the company’s decision to combine the two costs made it impossible for tax officials to confirm whether the pricing had been at arm’s length. Disney lost four lawsuits it filed to challenge the order authorizing French tax officials to raid the Paris offices. The rulings noted tax authorities’ concerns spring from an audit of the Paris-based subsidiary’s tax filings from 2012 to 2015. More than 90% of the French Disney unit’s profit was sent to the U.K. during the first half of the decade. Four years ago, The Walt Disney Co. was under fire after investigative reporters with the International Consortium ... Read more
Indonesia vs Cussons Indonesia, June 2017, Supreme Court, Nomor 907/B/PK/PJK/2017

Indonesia vs Cussons Indonesia, June 2017, Supreme Court, Nomor 907/B/PK/PJK/2017

The tax authorities had disallowed royalty payments of 3% of net sales from Cussons Indonesia to its parent company in the UK, PZ Cussons International Ltd. According to the tax authorities Cussons had been unable to prove that the transaction was at arm’s-length, as well as unable to provide transfer pricing documentation. Cussons claimed that the royalty payments was supported with documents such as royalty agreement, VAT payment, and withholding tax on royalty. Cussons further argued that sales in Indonesia were positively influenced by Cusson’s trademark. Following a tax court decision (Put.53966/2014) in favour of Cussons, the tax authorities brought an appeal to the Supreme Court. Judgement of the Supreme Court The Supreme Court dismissed the appeal of the tax authorities and upheld the decision in favour of Cussons. Click here for translation putusan_907_b_pk_pjk_2017_20210530 ... Read more
Indonesia vs "Indonesia Ltd", April 2016 Supreme Court, Case No. Put-70118/PP/M.IA/15/2016

Indonesia vs “Indonesia Ltd”, April 2016 Supreme Court, Case No. Put-70118/PP/M.IA/15/2016

In this case “Indonesia Ltd” paid royalties for use of IP owned by the Japanese parent. Following an audit, the tax authorities issued an assessment where the royalty payments were disallowed. Judgement of the Court The Court ruled in favour of the taxpayer. According to the court “Indonesia Ltd” had been able to prove that services had actually been rendered. Click here for translation Putusan Pengadilan Pajak Nomor Put70118-PP-M-IA-15-2016y ... Read more
Indonesia vs P.T. Sanken Electric Indonesia Ltd, February 2016, Tax Court, Case No. Put.68357/PP/M.IA/15/2016

Indonesia vs P.T. Sanken Electric Indonesia Ltd, February 2016, Tax Court, Case No. Put.68357/PP/M.IA/15/2016

P.T. Sanken Electric Indonesia Ltd. – an Indonesian subsidiary of Sanken Electric Co., Ltd. Japan – paid royalties to its Japanese parent for use of IP. The royalty payment was calculated based on external sales and therefore did not include sales of products to group companies. The royalty payments were deducted for tax purposes. The tax authorities denied the deduction as the license agreement had not been registrered in Indonesia. Furthermore, the royalty payment was not found to have been determined in accordance with the arm’s length principle. P.T. Sanken Electric Indonesia Ltd appealed the decision of the Tax Court. Judgement of the Tax Court The tax court set aside the assessment and decided in favor of taxpayer. Click here for translation Indonesia PUT 68357-PP-MIA-15-2016 ... Read more
Indonesia vs Cussons Indonesia, July 2014, Tax Court, Put.53966/2014

Indonesia vs Cussons Indonesia, July 2014, Tax Court, Put.53966/2014

The tax authorities had disallowed royalty payments of 3% of net sales from Cussons Indonesia to its parent company in the UK, PZ Cussons International Ltd. According to the tax authorities Cussons had been unable to prove that the payment was at arm’s-length, as well as unable to provide transfer pricing documentation supporting the pricing. Cussons claimed that the royalty payments was supported with documents such as a royalty agreement, documentation for VAT payments, and withholding tax on royalty. Judgement of the Tax Court The court decided in favour of Cussons and set aside the assessment of the tax authorities Click here for translation putusan_put-53966_pp_m.ivb_15_2014_20210530 (1) ... Read more
Indonesia vs Roche Indonesia, February 2014, Tax Court, Put.53966/2014

Indonesia vs Roche Indonesia, February 2014, Tax Court, Put.53966/2014

In the case of Roche Indonesia the tax authorities had disallowed deductions for royalties paid by the local company to F. Hoffmann-La Roche & Co. Deductions for marketing and and Promotions costs paid by the local company had also been disallowed. Judgement of the Tax Court The court decided predominantly in favour of the tax authorities. Roche Indonesia had been unable to prove the value, existence and ultimate owner of intangible assets for which the royalty was paid. In regards to the disallowed deductions of cost related to marketing and and promotions half of the costs were allowed and the other half disallowed. Click here for translation putusan_put.50616_pp_m.xii_b_15_2014_20210530 ... Read more
Indonesia vs Sharp Semiconductor Indonesia, December 2013, Tax Court, Put.49339/2013

Indonesia vs Sharp Semiconductor Indonesia, December 2013, Tax Court, Put.49339/2013

In the case of Sharp Semiconductor Indonesia the tax authorities had disallowed deductions for royalties paid by the local company to the Japanese Sharp Corporation. Judgement of the Tax Court The court decided predominantly in favour of the tax authorities. According to the court Sharp Semiconductor Indonesia had not been able to prove the existence of know-how, the existence of training provided, the value of intangible property owned by Sharp Corporation. Moreover, Sharp Semiconductor Indonesia only sells its product to related parties and royalty fees are first relevant once the product is sold to independent parties. Finally Sharp Semiconductor Indonesia was not able to prove the economic benefit it had received from the trademark “Sharp”. Click here for translation putusan_put.49339_pp_m.xii_15_2013_20210530 ... Read more
US vs. Sherwin-Williams Company, October 2002, Massachusetts Supreme Judicial Court, Case No 438 Mass. 71

US vs. Sherwin-Williams Company, October 2002, Massachusetts Supreme Judicial Court, Case No 438 Mass. 71

Sherwin-Williams is an Ohio corporation, headquartered in Cleveland, and is engaged in the manufacture, distribution and sale of paints and paint-related products. In 1991, it formed two subsidiaries under Delaware law to hold certain tradenames, trademarks and service marks that it had developed. Sherwin-Williams and the subsidiaries teen entered into nonexclusive licensing agreements for the right to use these various intangibles. In filing its 1991 state income tax return, Sherwin-Williams deducted all royalty and interest expenses accrued under the agreement, in computing taxable income. Following an audit, the Department of Revenue disallowed the deductions and assessed additional tax, because the transfer and license back of the marks was a “sham” disallowed under the “sham-transaction doctrine”. According to the Department of Revenue the royalty payments were not deductible, because the transactions had no valid business purpose and transactions were not at “arm’s-length.” On appeal, the Appellate Tax Board upheld the assessment of the tax authorities. Judgement for the Court The Supreme ... Read more
US vs Proctor & Gamble Co, April 1992, Court of Appeal (6th Cir.), Case No  961 F.2d 1255

US vs Proctor & Gamble Co, April 1992, Court of Appeal (6th Cir.), Case No 961 F.2d 1255

Proctor & Gamble is engaged in the business of manufacturing and marketing of consumer and industrial products. Proctor & Gamble operates through domestic (US) and foreign subsidiaries and affiliates. Proctor & Gamble owned all the stock of Procter & Gamble A.G. (AG), a Swiss corporation. AG was engaged in marketing Proctor & Gamble’s products, generally in countries in which Proctor & Gamble did not have a marketing subsidiary or affiliate. Proctor & Gamble and AG were parties to a License and Service Agreement, known as a package fee agreement, under which AG paid royalties to Proctor & Gamble for the nonexclusive use by AG and its subsidiaries of Proctor & Gamble’s patents, trademarks, tradenames, knowledge, research and assistance in manufacturing, general administration, finance, buying, marketing and distribution. The royalties payable to Proctor & Gamble were based primarily on the net sales of Proctor & Gamble’s products by AG and its subsidiaries. AG entered into agreements similar to package fee agreements ... Read more
US vs Proctor & Gamble, September 1990, US Tax Court, Opinion No. 16521-84.

US vs Proctor & Gamble, September 1990, US Tax Court, Opinion No. 16521-84.

Proctor & Gamble is an US corporation engaged in the business of manufacturing and marketing of consumer and industrial products. Proctor & Gamble operates through domestic and foreign subsidiaries and affiliates. Proctor & Gamble owned all the stock of Procter & Gamble A.G. (AG), a Swiss corporation. AG was engaged in marketing Proctor & Gamble’s products, generally in countries in which Proctor & Gamble did not have a marketing subsidiary or affiliate. Proctor & Gamble and AG were parties to a License and Service Agreement, known as a package fee agreement, under which AG paid royalties to Proctor & Gamble for the nonexclusive use by AG and its subsidiaries of Proctor & Gamble’s patents, trademarks, tradenames, knowledge, research and assistance in manufacturing, general administration, finance, buying, marketing and distribution. The royalties payable to Proctor & Gamble were based primarily on the net sales of Proctor & Gamble’s products by AG and its subsidiaries. AG entered into agreements similar to package ... Read more