Uruguay vs Nestlé del Uruguay S.A., December 2019, Tribunal de lo Contencioso Administrativo, Case No 786/2019

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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.

“…the Court shares the report of the tax inspectors of the International Taxation Department of the DGI insofar as they state: “It is… questionable… that Nestlé del Uruguay S.A. pays royalties for the use of trademarks developed and operated by the company itself… Nestlé Uruguay developed, maintained and operated the local brands… in Uruguay, contributing to generate the value of these brands…”.

“This conclusion… does not imply the retroactive application of the transfer pricing rules to previously operated brand assignments, but rather the application of such rules only for the period… where there was relevant activity by the plaintiff with respect to the exploitation of the local brands”.

Instead royalties for use of all the local brands – not only on the Águila brand – should be calculated as 2% of sales.

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Uruguay vs Nestlé December 2019 Sent_TCA_786_2019


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