Skechers US Inc. had formed a related party entity, SKII, in 1999 and transferred IP and $18 million in cash to the entity in exchange for 100 percent of the stock. Skechers then licensed the IP back from SKII and claimed a franchise tax deduction for the royalties and also deductions for management fees and interest expenses on the unpaid balance of royalty fees. The Wisconsin tax authorities held that these were sham transaction lacking business purpose and disallowed the deductions. Judgement of the Tax Appeals Commission The Tax Appeals Commission ruled in favor of the tax authorities. Excerpt “(…) The burden of proof is on Petitioner to prove that the Department’s assessment is incorrect by clear and satisfactory evidence. In this case, Petitioner must prove that it had a valid nontax business purpose for entering into the licensing transaction that generated the royalty deductions claimed on its Wisconsin tax returns and that the licensing transaction had economic substance. Both ... Read more

Skechers USA ITALIA SRL – a company operating in the sector of the marketing of footwear and accessories – challenged a notice of assessment, relating to FY 2004, by which, at the outcome of a tax audit, its business income was adjusted as a result of the ascertained inconsistency of the transfer prices relating to purchases of goods from the parent company (and sole shareholder) resident in Switzerland. The tax authorities had contested the uneconomic nature of the taxpayer company’s operations, given the losses recognised in various financial years, attributing the uneconomic nature to the artificial manipulation of the transfer prices of the purchases of goods and recalculating, consequently, the negative income component constituted by the aforesaid costs pursuant to Article 110, paragraph 7 of the TUIR, with the consequent non-deductibility of the same to the extent exceeding the normal value of the price of the goods in question. Skechers held that the losses did not derive from the costs ... Read more

In this case the Federal Court of Appeal upheld the decision of the Canadian International Trade Tribunal in which the tribunal upheld seven decisions – one for each of the years 2005 through 2011 – of the Canada Border Services Agency under subsection 60(4) of Canada’s Customs Act. Skechers Canada, a subsidiary of Skechers USA, purchases footwear to sell in Canada from its parent at a price equal to the price paid by Skechers US to its manufacturers, the cost of shipping the foodware to the US and warehousing, and an arm’s length profit. Skechers Canada also makes payments to Skechers US pursuant to a cost sharing agreement to compensate the parent for activities associated with the development and maintenance of the Skechers brand and to the creation and sale of footwear. The Court ruled that CSA payments relating to research, design, and development (R&D) were “in respect of” the goods sold for export into Canada and thus part of the “price paid or payable” for ... Read more