Italien fashion group, Dolce & Gabbana s.r.l. (hereinafter DG s.r.l.), the licensee of the Dolce&Gabbana trademark, entered into a sub-licensing agreement with its subsidiary Dolce&Gabbana Industria (hereinafter DG Industria or Industria) whereby the former granted to the latter the right to produce, distribute and sell products bearing the well-known trademark throughout the world and undertook to carry out promotion and marketing activities in return for royalties. DG s.r.l., in order to carry out promotion and marketing activities in the U.S.A., made use of the company Dolce&Gabbana Usa Inc. (hereinafter DG Usa) with contracts in force since 2002; in particular, on March 16, 2005, it entered into a service agreement whereby DG Usa undertook to provide the aforesaid services in return for an annual fee payable by DG s.r.l.; this consideration is determined on the basis of the costs analytically attributable to the provision of the agreed services in addition to a mark up, i.e. a mark-up, determined in a variable ... Read more

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

SA SACLA, which trades in protective clothing and footwear as well as small equipment, was subject of a tax audit covering the FY 2007, 2008 and 2009. In a proposed assessment issued in December 2011, the tax authorities increased its taxable income on the basis of Article 57 of the General Tax Code, by considering that SACLA, 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, had carried out an indirect transfer of profits in the form of a reduction in the selling price. In a ruling of February 2020, the Lyon Administrative Court of Appeal, after dismissing the plea of irregularity in the judgment, decided that an expert would carry out an valuation to determine whether the sale price of the trademarks corresponded to their value. The valuation should take into consideration an agreed exemption from payment of royalties for a period of five ... Read more

(i) Facts. FP, a foreign producer of wristwatches, is the registered holder of the YY trademark in the United States and in other countries worldwide. FP enters into an exclusive, five-year, renewable agreement with its newly organized U.S. subsidiary, USSub. The contractual terms of the agreement grant USSub the exclusive right to re-sell YY trademark wristwatches in the United States, obligate USSub to pay a fixed price per wristwatch throughout the entire term of the contract, and obligate both FP and USSub to undertake without separate compensation specified types and levels of marketing activities. (ii) The consideration for FP’s and USSub’s marketing activities, as well as the consideration for the exclusive right to re-sell YY trademarked merchandise in the United States, are embedded in the transfer price paid for the wristwatches. Accordingly, pursuant to paragraph (f)(4)(i) of this section, ordinarily no separate allocation would be appropriate with respect to these embedded contributions. (iii) Whether an allocation is warranted with respect to the transfer price ... Read more

Comparability under this method is less dependent on close physical similarity between the products transferred than under the comparable uncontrolled price method. Substantial differences in the products may, however, indicate significant functional differences between the controlled and uncontrolled taxpayers. Thus, it ordinarily would be expected that the controlled and uncontrolled transactions involve the production of goods within the same product categories. Furthermore, significant differences in the value of the products due, for example, to the value of a trademark, may also affect the reliability of the comparison. Finally, the reliability of profit measures based on gross profit may be adversely affected by factors that have less effect on prices. For example, gross profit may be affected by a variety of other factors, including cost structures (as reflected, for example, in the age of plant and equipment), business experience (such as whether the business is in a start-up phase or is mature), or management efficiency (as indicated, for example, by expanding ... Read more

The facts are the same as in Example 5, except that Product X is branded with a valuable trademark that is owned by P. A, B, and C distribute unbranded competing products, while D and E distribute products branded with other trademarks. D and E do not own any rights in the trademarks under which their products are sold. The value of the products that A, B, and C sold are not similar to the value of the products sold by S. The value of products sold by D and E, however, is similar to that of Product X. Although close product similarity is not as important for a reliable application of the resale price method as for the comparable uncontrolled price method, significant differences in the value of the products involved in the controlled and uncontrolled transactions may affect the reliability of the results. In addition, because in this case it is difficult to determine the effect the trademark will have ... Read more

Effect of Trademark. The facts are the same as in Example 1, except that USM affixes its valuable trademark to the property sold in the controlled transactions, but does not affix its trademark to the property sold in the uncontrolled transactions. Under the facts of this case, the effect on price of the trademark is material and cannot be reliably estimated. Because there are material product differences for which reliable adjustments cannot be made, the comparable uncontrolled price method is unlikely to provide a reliable measure of the arm’s length result. See § 1.482-3(b)(2)(ii)(A) ... Read more

Contractual terms imputed from economic substance. (i) FP, a foreign producer of athletic gear, is the registered holder of the AA trademark in the United States and in other countries worldwide. In year 1, FP enters into a licensing agreement that affords its newly organized United States subsidiary, USSub, exclusive rights to certain manufacturing and marketing intangible property (including the AA trademark) for purposes of manufacturing and marketing athletic gear in the United States under the AA trademark. The contractual terms of this agreement obligate USSub to pay FP a royalty based on sales, and also obligate both FP and USSub to undertake without separate compensation specified types and levels of marketing activities. Unrelated foreign businesses license independent United States businesses to manufacture and market athletic gear in the United States, using trademarks owned by the unrelated foreign businesses. The contractual terms of these uncontrolled transactions require the licensees to pay royalties based on sales of the merchandise, and obligate ... Read more

Ferragamo France, which was set up in 1992 and is wholly owned by the Dutch company Ferragamo International BV, which in turn is owned by the Italian company Salvatore Ferragamo Spa, carries on the business of retailing shoes, leather goods and luxury accessories and distributes, in shops in France, products under the ‘Salvatore Ferragamo’ brand, which is owned by the Italian parent company. An assessment had been issued to Ferragamo France in which the French tax authorities asserted that the French subsidiary had not been sufficiently remunerated for additional expenses and contributions to the value of the Ferragamo trademark. The French subsidiary had been remunerated on a gross margin basis, but had incurred losses in previous years and had indirect cost exceeding those of the selected comparable companies. In 2017 the Administrative Court decided in favour of Ferragamo and dismissed the assessment issued by the tax authorities. According to the Court the tax administration had not demonstrated the existence of ... Read more

The French Accor hotel group was the subject of an tax audit related to FY 2010, during which the tax authorities found that Accor had not invoiced a fee for the use of its trademarks by its Brazilian subsidiary, Hotelaria Accor Brasil, in an amount of 8,839,047. The amount not invoiced was considered a deemed distribution of profits and the tax authorities applied a withholding tax rate of 25% to the amount which resulted in withholding taxes in an amount of EUR 2.815.153. An appeal was filed by Accor with the Administrative Court. In a judgment of 7 July 2020, the Administrative Court partially discharged Accor from the withholding tax up to the amount of the application of the conventional reduced rate of 15% (related to dividends), and rejected the remainder of the claim. The Administrative Court considered that income deemed to be distributed did not fall within the definition of dividends under article 10 of the tax treaty with ... Read more

At issue was whether the acquisition value of an inventory acquired from a related company should be adjusted on the basis of Swedish arm’s length provisions or alternatively tax avoidance provisions According to the arm’s length rule in Chapter 18, Section 11 of the Income Tax Act, the acquisition value is to be adjusted to a reasonable extent if the taxpayer or someone closely related to the taxpayer has taken steps to enable the taxpayer to obtain a higher acquisition value than appears reasonable and it can be assumed that this has been done in order to obtain an unjustified tax advantage for one of the taxpayer or someone closely related to the taxpayer. Company (A) acquired a trademark from another company (B) in the same group for a price corresponding to its market value and used the acquisition value as the basis for depreciation deductions totalling approximately SEK 827 million. At B, the tax value of the trademark amounted ... 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

On 30 November 2012, X sold its trademarks to subsidiary C which in turn sold the trademarks to subsidiary D. X and D then entered into a trademark license agreement according to which X would pay license fees to D. These license fees were deducted by X in its 2013 tax return. The tax authorities claimed that X had understated its taxabel income as the license fees paid by X to D for the use of trademarks were not related to obtaining or securing a source of revenue. The decision stated that in the light of the principles of logic and experience, the actions taken by the taxpayer made no sense and were not aimed at achieving the revenue in question, but instead at generating costs artificially – only for tax purposes. An appeal was filed by X. Judgement of the Administrative Court The court set aside the assessment of the tax authorities and decided in favor of X. According ... Read more

Ikea France (SNC MIF) had concluded a franchise agreement with Inter Ikea Systems BV (IIS BV) in the Netherlands by virtue of which it benefited, in particular, as a franchisee, from the right to operate the ‘Ikea Retail System’ (the Ikea concept), the ‘Ikea Food System’ (food sales) and the ‘Ikea Proprietary Rights’ (the Ikea trade mark) in its shops. In return, Ikea France paid Inter Ikea Systems BV a franchise fee equal to 3% of the amount of net sales made in France, which amounted to EUR 68,276,633 and EUR 72,415,329 for FY 2010 and 2011. These royalties were subject to the withholding tax provided for in the provisions of Article 182 B of the French General Tax Code, but under the terms of Article 12 of the Convention between France and the Netherlands: “1. Royalties arising in one of the States and paid to a resident of the other State shall be taxable only in that other State”, ... Read more

A restructuring that followed the acquisition of Timberland by VF Enterprises in 2011 resulted in an intra-group transfer of ownership to valuable intangibles to a Swiss corporation, TBL Investment Holdings. The IRS was of the opinion that gains from the transfer was taxable. Judgement of the US Tax Court The tax court upheld the assessment of the tax authorities. Excerpt: “we have concluded that petitioner’s constructive distribution to VF Enterprises of the TBL GmbH stock that petitioner constructively received in exchange for its intangible property was a “disposition” within the meaning of section 367(d)(2)(A)(ii)(II). We also conclude, for the reasons explained in this part IV, that no provision of the regulations allows petitioner to avoid the recognition of gain under that statutory provision.” “Because we do not “agree[] to reduce the adjustment to income for the trademarks based on a 20-year useful life limitation, pursuant to Temp. Treas. Reg. § 1.367(d)-1T,” we determine, in accordance with the parties’ stipulation, that ... Read more

101. Company A is the Parent company of an MNE group with operations in country S. Company B is a member of the MNE group with operations in country T, and Company C is also a member of the MNE group with operations in country U. For valid business reasons the MNE group decides to centralise all of its intangibles related to business conducted outside of country S in a single location. Accordingly, intangibles owned by Company B are sold to Company C for a lump sum, including patents, trademarks, know-how, and customer relationships. At the same time, Company C retains Company B to act as a contract manufacturer of products previously produced and sold by Company B on a full-risk basis. Company C has the personnel and resources required to manage the acquired lines of business, including the further development of intangibles necessary to the Company B business. 102. The MNE group is unable to identify comparable uncontrolled transactions ... Read more

97. Company A is the Parent of an MNE group with operations in country X. Company A owns patents, trademarks and know-how with regard to several products produced and sold by the MNE group. Company B is a wholly owned subsidiary of Company A. All of Company B’s operations are conducted in country Y. Company B also owns patents, trademarks and know-how related to Product M. 98. For sound business reasons related to the coordination of the group’s patent protection and anti-counterfeiting activities, the MNE group decides to centralise ownership of its patents in Company A. Accordingly, Company B sells the Product M patents to Company A for a lump-sum price. Company A assumes responsibility to perform all ongoing functions and it assumes all risks related to the Product M patents following the sale. Based on a detailed comparability and functional analysis, the MNE group concludes that it is not able to identify any comparable uncontrolled transactions that can be ... Read more

73. Första is a consumer goods company organised and operating in country A. Prior to Year 1, Första produces Product Y in country A and sells it through affiliated distribution companies in many countries around the world. Product Y is well recognised and attracts a premium compared to its competitors, to which Första is entitled as the legal owner and developer of the trademark and related goodwill giving rise to that premium. 74. In Year 2, Första organises Company S, a wholly owned subsidiary, in country B. Company S acts as a super distributor and invoicing centre. Första continues to ship Product Y directly to its distribution affiliates, but title to the products passes to Company S, which reinvoices the distribution affiliates for the products. 75. Beginning in Year 2, Company S undertakes to reimburse the distribution affiliates for a portion of their advertising costs. Prices for Product Y from Company S to the distribution affiliates are adjusted upward so ... Read more

69. Ilcha is organised in country A. The Ilcha group of companies has for many years manufactured and sold Product Q in countries B and C through a wholly owned subsidiary, Company S1, which is organised in country B. Ilcha owns patents related to the design of Product Q and has developed a unique trademark and other marketing intangibles. The patents and trademarks are registered by Ilcha in countries B and C. 70. For sound business reasons, Ilcha determines that the group’s business in countries B and C would be enhanced if those businesses were operated through separate subsidiaries in each country. Ilcha therefore organises in country C a wholly owned subsidiary, Company S2. With regard to the business in country C: Company S1 transfers to Company S2 the tangible manufacturing and marketing assets previously used by Company S1 in country C. Ilcha and Company S1 agree to terminate the agreement granting Company S1 the following rights with relation to ... 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

The term “brand” is sometimes used interchangeably with the terms “trademark” and “trade name.” In other contexts a brand is thought of as a trademark or trade name imbued with social and commercial significance. A brand may, in fact, represent a combination of intangibles and/or other items, including among others, trademarks, trade names, customer relationships, reputational characteristics, and goodwill. It may sometimes be difficult or impossible to segregate or separately transfer the various items contributing to brand value. A brand may consist of a single intangible, or a collection of intangibles, within the meaning of Section A. 1 ... Read more

A trade name (often but not always the name of an enterprise) may have the same force of market penetration as a trademark and may indeed be registered in some specific form as a trademark. The trade names of certain MNEs may be readily recognised, and may be used in marketing a variety of goods and services. Trade names are intangibles within the meaning of Section A. 1 ... Read more

A trademark is a unique name, symbol, logo or picture that the owner may use to distinguish its products and services from those of other entities. Proprietary rights in trademarks are often confirmed through a registration system. The registered owner of a trademark may exclude others from using the trademark in a manner that would create confusion in the marketplace. A trademark registration may continue indefinitely if the trademark is continuously used and the registration appropriately renewed. Trademarks may be established for goods or services, and may apply to a single product or service, or to a line of products or services. Trademarks are perhaps most familiar at the consumer market level, but they are likely to be encountered at all market levels. Trademarks are intangibles within the meaning of Section A. 1 ... Read more

When evaluating whether a taxpayer was following a business strategy that temporarily decreased profits in return for higher long-run profits, several factors should be considered. Tax administrations should examine the conduct of the parties to determine if it is consistent with the purported business strategy. For example, if a manufacturer charges its associated distributor a below-market price as part of a market penetration strategy, the cost savings to the distributor may be reflected in the price charged to the distributor’s customers or in greater market penetration expenses incurred by the distributor. A market penetration strategy of an MNE group could be put in place either by the manufacturer or by the distributor acting separately from the manufacturer (and the resulting cost borne by either of them), or by both of them acting in a co-ordinated manner. Furthermore, unusually intensive marketing and advertising efforts would often accompany a market penetration or market share expansion strategy. Another factor to consider is whether ... Read more

Differences in the specific characteristics of property or services often account, at least in part, for differences in their value in the open market. Therefore, comparisons of these features may be useful in delineating the transaction and in determining the comparability of controlled and uncontrolled transactions. Characteristics that may be important to consider include the following: in the case of transfers of tangible property, the physical features of the property, its quality and reliability, and the availability and volume of supply; in the case of the provision of services, the nature and extent of the services; and in the case of intangible property, the form of transaction (e.g. licensing or sale), the type of property (e.g. patent, trademark, or know-how), the duration and degree of protection, and the anticipated benefits from the use of the property. For further discussion of some of the specific features of intangibles that may prove important in a comparability analysis involving transfers of intangibles or ... Read more

In 2019, the Danish parent company of the group, EAC Invest A/S, had been granted a ruling by the tax tribunal that, in the period 2008-2011, due to, inter alia, quite exceptional circumstances involving currency restrictions in Venezuela, the parent company should not be taxed on interest on a claim for unpaid royalties relating to trademarks covered by licensing agreements between the parent company and its then Venezuelan subsidiary, Plumrose Latinoamericana C.A. The Tax tribunal had also found that neither a payment of extraordinary dividends by the Venezuelan subsidiary to the Danish parent company in 2012 nor a restructuring of the group in 2013 could trigger a deferred taxation of royalties. The tax authorities appealed against the decisions to the High Court. Judgement of the High Court The High Court upheld the decisions of the tax tribunal with amended grounds and dismissed the claims of the tax authorities. Excerpts: Interest on unpaid royalty claim “The High Court agrees that, as ... Read more

Neopost Italia s.r.l. had paid service fees and royalties to its French parent. Following an audit, deductions for these intra-group transactions was adjusted by the tax authorities due to non compliance with the arm’s length principle and lack of documentation. However, for the purpose of determining an arm’s length remuneration a benchmark study had been performed by the tax authorities in which one of the comparables was not independent. The Court of Appeal upheld the decision of the tax authorities. Judgement of the Supreme Court The Supreme Court set aside the decision of the Court of Appeal and remanded the case to the court of first instance. In regards to the comparable company in the benchmark that was not independent, the Supreme Court found that: “it is entirely arbitrary, in comparing the two companies, to assert that the price charged by one of the two is the market price while the other is not”; this is a ruling that affects ... Read more

SA SACLA, which trades in protective clothing and footwear, as well as small equipment, was the subject of an tax audit covering the FY 2007, 2008 and 2009. In a proposed assessment issued in December 2011, the tax authorities increased its taxable income, on the basis of Article 57 of the General Tax Code, by considering that SACLA, by selling, a set of brands held by it for EUR 90,000 to a Luxembourg company, Involvex, which benefited from a preferential tax regime, had carried out an indirect transfer of profits in the context of a reduction in the selling price. In a ruling of February 2020, the Lyon Administrative Court of Appeal, after dismissing the plea of irregularity in the judgment, decided that an expert would carry out an valuation to determine whether the sale price of the trademarks corresponded to their value. The valuation should take into consideration an agreed exemption from payment of royalties for a period of ... Read more

While living in France, Israel Daniel Amram (IDA) devised an idea for the development of a unique and efficient computerized interface that would link insurance companies and physicians and facilitate financial accounting between medical service providers and patients. IDA registered the trademark “SEPHIRA” and formed a company in France under the name SAS SEPHIRA . IDA then moved to Israel and formed Sephira & Offek Ltd. Going forward the company in Israel would provid R&D services to SAS SEPHIRA in France. All of the taxable profits in Israel was labled as “R&D income” which is taxed at a lower rate in Israel. Later IDA’s rights in the trademark was sold to Sephira & Offek Ltd in return for €8.4m. Due to IDA’s status as a “new Immigrant” in Israel profits from the sale was tax exempt. Following the acquisition of the trademark, Sephira & Offek Ltd licensed the trademark to SAS SEPHIRA in return for royalty payments. In the books ... Read more

New Wave Norway AS is a wholly owned subsidiary of the Swedish New Wave Group AB. The group operates in the wholesale market for sports and workwear and gift and promotional items. It owns trademark rights to several well-known brands. The sales companies – including New Wave Norway AS – pay a concept fee to New Wave Group AB, which passes on the fee to the concept-owning companies in the Group. All trademark rights owned by the group are located in a separate company, New Wave Group Licensing SA, domiciled in Switzerland. For the use of the trademarks, the sales companies pay royalties to this company. There is also a separate company that handles purchasing and negotiations with the Asian producers, New Wave Group SA, also based in Switzerland. For the purchasing services from this company, the sales companies pay a purchasing fee (“sourcing fee”). Both the payment of royalties and the purchase fee are further regulated in the group’s ... Read more

Transactions had taken place between Vibac S.p.A. and related foreign group companies related to use of trademarks and royalty/license payments. It was up to the Vibac S.p.A. to demonstrate that the remuneration received from related companies for use of the trademark of the products had been at arm’s length. According to the company the royalty had been set at a low price to ensure that the foreign subsidiaries were more competitive. An upward adjustment was issued by the tax authorities rejecting the taxpayer’s argument that the below market royalty was explained by the need to enable its foreign subsidiary to penetrate more effectively the US market. The tax authorities argued that such a strategy could only be justifiable in a limited period. The tax authorities determined the arm’s length royalty payment by application of the Resale Price Method (RPM). However, due to the uniqueness of the asset transferred, which hardly allows the identification of comparable transactions, the same circular, while ... 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

Ferragamo France, which was set up in 1992 and is wholly owned by the Dutch company Ferragamo International BV, which in turn is owned by the Italian company Salvatore Ferragamo Spa, carries on the business of retailing shoes, leather goods and luxury accessories and distributes, in shops in France, products under the ‘Salvatore Ferragamo’ brand, which is owned by the Italian parent company. An assessment had been issued to Ferragamo France in which the French tax authorities asserted that the French subsidiary had not been sufficiently remunerated for additional expenses and contributions to the value of the Ferragamo trademark. The French subsidiary had been remunerated on a gross margin basis, but had incurred losses in previous years and had indirect cost exceeding those of the selected comparable companies. The Administrative Court decided in favour of Ferragamo and dismissed the assessment. According to the Court the tax administration has not demonstrated the existence of an advantage granted by Ferragamo France to ... Read more

The question in this case was whether royalty payments from a loss making Danish subsidiary Adecco A/S (H1 A/S in the decision) to its Swiss parent company Adecco SA (G1 SA in the decision – an international provider of temporary and permanent employment services active throughout the entire range of sectors in Europe, the Americas, the Middle East and Asia – for use of trademarks and trade names, knowhow, international network intangibles and business concept were deductible expenses for tax purposes or not. In 2013, the Danish tax authorities (SKAT) had amended Adecco A/S’s taxable income for the years 2006-2009 by a total of DKK 82 million. Adecco A/S submitted that the company’s royalty payments were operating expenses deductible under section 6 (a) of the State Tax Act and that it was entitled to tax deductions for royalty payments of 1.5% of the company’s turnover in the first half of 2006 and 2% up to and including 2009, as these prices ... Read more

SA Sacla, a French company trading in protective clothing and footwear, as well as small equipment, was audited for fiscal years 2007, 2008 and 2009. The French tax administration issued an assessment, considering that SA Sacla by selling brands owned by it for an amount of 90,000 euros to a Luxembourg company, Involvex, had indirectly transfered profits abroad. Due to inconclusive results of various valuations presented by the tax authorities and the taxpayer, an expert opinion was ordered by the Court on the question of whether the price of the brands sold by SA Sacla to the company Involvex had been at arm’s length. DECIDES: Article 1: Before ruling on the request of SA SACLA, an expert will carry out an assessment in order to determine whether the selling price of the brands sold by SA SACLA corresponds to their value, taking into account the exemption payment of royalties for a period of 5 years granted by the company Involvex ... Read more

Nestlé del Uruguay S.A. had deducted royalty payments to its parent company located in Switzerland for the right to use certain local brands such as Águila, El Chaná, Vascolet, Bracafé and Copacabana. Royalties were calculated as 5% of sales, with the exception of payments for the Águila brand products, where royalties were calculated as 2% of sales. The tax administration (DGI) found that the royalty payments had not been at arm’s length. In defense of this position, it was argued that these local brands had been developed by Nestlé Uruguay itself, and then transferred to Nestlé Switzerland in 1999 for a sum of USD 1. Nestle Uruguay disagreed and argued that the tax administration was applying transfer pricing rules retroactively to a transaction concluded in 1999, when such rules did not yet exist. Judgement of the Court The Court considered that the Nestlé Uruguay should not pay 5% in royalties for the right to use trademarks it had developed itself ... Read more

The question in this case was whether royalty payments from a loss making Danish subsidiary Adecco A/S (H1 A/S in the decision) to its Swiss parent company Adecco SA (G1 SA in the decision – an international provider of temporary and permanent employment services active throughout the entire range of sectors in Europe, the Americas, the Middle East and Asia – for use of trademarks and trade names, knowhow, international network intangibles, and business concept were deductible expenses for tax purposes or not. In  2013, the Danish tax authorities (SKAT) had amended Adecco A/S’s taxable income for the years 2006-2009 by a total of DKK 82 million. “Section 2 of the Tax Assessment Act. Paragraph 1 states that, when calculating the taxable income, group affiliates must apply prices and terms for commercial or economic transactions in accordance with what could have been agreed if the transactions had been concluded between independent parties. SKAT does not consider it in accordance with section ... Read more

In FY 2005 Shell Timur Sdn Bhd in Malaysia had sold its economic rights in trademarks to a group company, Shell Brands International AG. The sum (RM257,200,000.00) had not been included in the taxable income, but had – according to Shell – been treated as a capital receipt which is not taxable. The tax authorities conducted a transfer pricing audit beginning in June 2015 and which was finalized in 2018. Following the audit an assessment was issued where the gain had been added to the taxable income of Shell Timur Sdn Bhd. According to the tax authorities they were allowed to issue the assessment after the statutory 5-year time-bar in cases of fraud, wilful default or negligence of a taxpayer. An application for leave was filed by Shell. Courts decision The Court dismissed the application. Excerpt “I am, by the doctrine of stare decisis, bound by these pronouncements of the Court of Appeal and Federal Court. Hence, it is crystal ... Read more

ST Dupont is a French luxury manufacturer of lighters, pens and leather goods. It is majority-owned by the Dutch company, D&D International, which is wholly-owned by Broad Gain Investments Ltd, based in Hong Kong. ST Dupont is the sole shareholder of distribution subsidiaries located abroad, in particular ST Dupont Marketing, based in Hong Kong. Following an audit, an adjustment was issued for FY 2009, 2010 and 2011 where the tax administration considered that the prices at which ST Dupont sold its products to ST Dupont Marketing (Hong Kong) were lower than the arm’s length prices, that royalty rates had not been at arm’s length. Furthermore adjustments had been made to losses carried forward. Not satisfied with the adjustment ST Dupont filed an appeal with the Paris administrative Court. Judgement of the Administrative Court The Court set aside the tax assessment in regards to license payments and resulting adjustments to loss carry forward but upheld in regards of pricing of the ... Read more

Government licences and concessions may be important to a particular business and can cover a wide range of business relationships. They may include, among others, a government grant of rights to exploit specific natural resources or public goods (e.g. a licence of bandwidth spectrum), or to carry on a specific business activity. Government licences and concessions are intangibles within the meaning of Section A. 1. However, government licences and concessions should be distinguished from company registration obligations that are preconditions for doing business in a particular jurisdiction. Such obligations are not intangibles within the meaning of Section A. 1 ... Read more

The term “brand” is sometimes used interchangeably with the terms “trademark” and “trade name.” In other contexts a brand is thought of as a trademark or trade name imbued with social and commercial significance. A brand may, in fact, represent a combination of intangibles and/or other items, including among others, trademarks, trade names, customer relationships, reputational characteristics, and goodwill. It may sometimes be difficult or impossible to segregate or separately transfer the various items contributing to brand value. A brand may consist of a single intangible, or a collection of intangibles, within the meaning of Section A. 1 ... Read more

A trade name (often but not always the name of an enterprise) may have the same force of market penetration as a trademark and may indeed be registered in some specific form as a trademark. The trade names of certain MNEs may be readily recognised, and may be used in marketing a variety of goods and services. Trade names are intangibles within the meaning of Section A. 1 ... Read more

A trademark is a unique name, symbol, logo or picture that the owner may use to distinguish its products and services from those of other entities. Proprietary rights in trademarks are often confirmed through a registration system. The registered owner of a trademark may exclude others from using the trademark in a manner that would create confusion in the marketplace. A trademark registration may continue indefinitely if the trademark is continuously used and the registration appropriately renewed. Trademarks may be established for goods or services, and may apply to a single product or service, or to a line of products or services. Trademarks are perhaps most familiar at the consumer market level, but they are likely to be encountered at all market levels. Trademarks are intangibles within the meaning of Section A. 1 ... Read more

When evaluating whether a taxpayer was following a business strategy that temporarily decreased profits in return for higher long-run profits, several factors should be considered. Tax administrations should examine the conduct of the parties to determine if it is consistent with the purported business strategy. For example, if a manufacturer charges its associated distributor a below-market price as part of a market penetration strategy, the cost savings to the distributor may be reflected in the price charged to the distributor’s customers or in greater market penetration expenses incurred by the distributor. A market penetration strategy of an MNE group could be put in place either by the manufacturer or by the distributor acting separately from the manufacturer (and the resulting cost borne by either of them), or by both of them acting in a co-ordinated manner. Furthermore, unusually intensive marketing and advertising efforts would often accompany a market penetration or market share expansion strategy. Another factor to consider is whether ... Read more

Differences in the specific characteristics of property or services often account, at least in part, for differences in their value in the open market. Therefore, comparisons of these features may be useful in delineating the transaction and in determining the comparability of controlled and uncontrolled transactions. Characteristics that may be important to consider include the following: in the case of transfers of tangible property, the physical features of the property, its quality and reliability, and the availability and volume of supply; in the case of the provision of services, the nature and extent of the services; and in the case of intangible property, the form of transaction (e.g. licensing or sale), the type of property (e.g. patent, trademark, or know-how), the duration and degree of protection, and the anticipated benefits from the use of the property. For further discussion of some of the specific features of intangibles that may prove important in a comparability analysis involving transfers of intangibles or ... Read more

The French tax authorities had issued an assessment for the fiscal years 2002, 2003 and 2004 related to royalty fees paid by IKEA France to foreign group companies. It was claimed that the royalty fees paid were exessive. The Court reject the position of the authorities. It had not been proven that the fees paid by IKEA France to foreign IKEA companies were excessive based on the arm’s length principle and on Article 57 of the CGI. The Court stresses the irrelevance of the comparables presented by the administration: “Considering that the nine trademarks used as comparables by the administration relate to the French market, the furniture sector and distribution methods similar to that of Ikea; that, however, as the company Ikea Holding France argues, the Minister does not give any precise indication on the content of the services rendered to the franchisees of these trademarks in return for their royalty; these trademarks are notoriously inferior to Ikea’s and they ... Read more

By a trademark license agreement dated August 22, 2008, a group company in Luxembourg granted another group company a non-exclusive right to use and exploit the brands registered in the territory of the Grand Duchy of Luxembourg, Benelux and the European Community for an initial period of ten years, renewable tacitly each time for a period of one year and this against a license fee paid and calculated annually corresponding to 3% of this turnover. By letters of 30 January 2015, the Tax Office informed the company that they intended to refuse to deduct the royalties paid to the company for the years 2010, 2011 and 2010. Click here for translation ... Read more

The Coca-Cola Company submitted a petition to the U.S. Tax Court, requesting a redetermination of the deficiencies in Federal income tax for the years ended December 31, 2007, 2008 and 2009, as set forth by the Commissioner of Internal Revenue in a Notice of Deficiency dated September 15, 2015. The total amount in dispute is over $3.3 billion for the 3-year period. Major issues in the dispute include the method used to allocate profit to seven foreign subsidiaries, which use licensed trademarks and formulas to carry out the manufacture and sale of beverage concentrates in markets outside of the United States, as well as the application of correlative adjustments for foreign tax credits. The Coca-Cola Company claims that it used the same allocation method that had been reviewed and approved by the Internal Revenue Service during audits of tax years from 1996 through 2006, the same that was established in a Closing Agreement with respect to the 1987 through 1995 ... Read more

LuxCo TM sold trademarks to a newly established sister company. The price had been set at €975,000. The tax authorities issued an assessment where the price had been set at €6,475,000 and the difference was considered to be hidden profit distribution. The Administrative court ruled in favor of the tax authorities. LuxCo TM’s valuation had been based on wrong facts and assumptions. Click here for translation ... Read more