Category: Intangibles – Goodwill Know-how Patents

In transfer pricing the word “intangible†is intended to address something which is not a physical asset or financial asset, which is capable of being owned or controlled for use in commercial activities, and whose use or transfer would be compensated had it occurred in a transaction between independent parties in comparable circumstances.

In discussions of transfer pricing various categories of intangibles are described and labels applied. Distinctions are sometimes made between trade intangibles and marketing intangibles, between “soft†intangibles and “hard†intangibles, between routine and non-routine intangibles, and between other classes and categories of intangibles.

Examples of intangibles are: Patents, Know-how and trade secrets, trademarks, trade names and brands, rights under contracts and government licences, licences and similar limited rights in intangibles, goodwill and ongoing concern value.

Denmark vs Maersk Oil and Gas A/S (TotalEnergies EP Danmark A/S), September 2023, Supreme Court, Case No BS-15265/2022-HJR and BS-16812/2022-HJR

Denmark vs Maersk Oil and Gas A/S (TotalEnergies EP Danmark A/S), September 2023, Supreme Court, Case No BS-15265/2022-HJR and BS-16812/2022-HJR

Maersk Oil and Gas A/S (later TotalEnergies EP Danmark A/S) continued to make operating losses, although the group’s combined oil and gas operations were highly profitable. Following an audit of Maersk Oil, the tax authorities considered that three items did not comply with the arm’s length principle. Maersk Oil incurred all the expenses for preliminary studies of where oil and gas could be found, but the results of these investigations and discoveries were handed over to the newly established subsidiaries free of charge. Licence agreements were signed with Qatar and Algeria for oil extraction. These agreements were entered into with the subsidiaries as contracting parties, but it was Maersk Oil that guaranteed that the subsidiaries could fulfil their obligations and committed to make the required technology and know-how available. Expert assistance (time writing) was provided to the subsidiaries, but these services were remunerated at cost with no profit to Maersk Oil. An assessment was issued where additional taxable income was determined on an aggregated basis as a share of profits from the activities – corresponding to a royalty of approximately 1,7 % of the turnover in the two subsidiaries. In 2018, the Tax Court upheld the decision and Maersk Oil and Gas A/S subsequently appealed to the High Court. In 2022, the High Court held that the subsidiaries in Algeria and Qatar owned the licences for oil extraction, both formally and in fact. In this regard, there was therefore no transaction. Furthermore the explorations studies in question were not completed until the 1990s and Maersk Oil and Gas A/S had not incurred any costs for the subsequent phases of the oil extraction. These studies therefore did not constitute controlled transactions. The Court therefore found no basis for an annual remuneration in the form of royalties or profit shares from the subsidiaries in Algeria and Qatar. On the other hand, the Regional Court found that Maersk Oil and Gas A/S’ so-called performance guarantees for the subsidiaries in Algeria and Qatar were controlled transactions and should therefore be priced at arm’s length. In addition, the Court found that technical and administrative assistance (so-called time writing) to the subsidiaries in Algeria and Qatar at cost was not in line with what could have been obtained if the transactions had been concluded between independent parties. These transactions should therefore also be priced at arm’s length. The High Court referred the cases back to the tax authorities for reconsideration. An appeal was then filed by the tax authorities with the Supreme Court. Judgement of the Supreme Court The Supreme Court decided in favour of the tax authorities and upheld the original assessment. The court stated that the preliminary exploration phases in connection with oil exploration and performance guarantees and the related know-how had an economic value for the subsidiaries, for which an independent party would require ongoing payment in the form of profit share, royalty or the like. They therefore constituted controlled transactions. Furthermore, the court stated that Maersk Oil and Gas A/S’ delivery of timewriting at cost price was outside the scope of what could have been achieved if the agreement had been entered into at arm’s length. Finally, the transactions were considered to be so closely related that they had to be assessed and priced on an aggregated basis and Maersk Oil and Gas A/S had not provided any basis for overturning the tax authorities’ assessment. Click here for English translation Click here for other translation Denmark vs Mogas September 2023 Suprem Court Case no 15265-16812-2022
Italy vs Otis Servizi s.r.l., August 2023, Supreme Court, Sez. 5 Num. 23587 Anno 2023

Italy vs Otis Servizi s.r.l., August 2023, Supreme Court, Sez. 5 Num. 23587 Anno 2023

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 names” and the “Agreement for technical assistance and licence to use technical data, know-how and patents” signed on 1 January 2004 (hereinafter referred to as the “Royalty Relief”). In particular, the tax authorities had deemed the royalty agreed upon in the aforesaid contracts equal to 3.5% of the turnover as not congruous, recalculating it at 2% and disallowing its deductibility to the extent of the difference between the aforesaid rates. Not satisfied with the assessment an appeal was filed by OTIS. The Regional Tax Commission upheld the assessments and an appeal was then filed with the Supreme Court. Judgement of the Supreme Court The Court decided in favour of OTIS, set aside the assessment and refered the case back to the Regional Tax Commission in a different composition. Excerpt related to interest received by OTIS under the cash pooling contract “In the present case, the Agenzia delle Entrate redetermined the rate of the interest income received by the OTIS in relation to the contract between the same and UTILI (cash pooling contract) concerning the establishment of a current account relationship for the unitary management of the group treasury. UTILI, as pooler or group treasurer, had entered into a bank account agreement with a credit institution in its own name, but on behalf of the group companies. At the same time, OTIS had mandated that bank to carry out the various tasks in order to fully implement the cash pooling agreement. Under this contract, all participating companies undertook to transfer their bank account balances (assets or liabilities) daily to the pooling company, crediting or debiting these balances to the pool account. As a result of this transfer, the individual current account balances of each participating company are zeroed out (‘zero balance cash pooling’). Notwithstanding the fact that the tax authorities do not dispute that this is a case relating to “zero balance cash pooling” (a circumstance that is, moreover, confirmed by the documents attached to the appeal), it should be noted that the same practice documentation of the Revenue Agency leads to the exclusion that, in the hypothesis in question, the cause of the transaction can be assimilated to a loan. In particular, in Circular 21/E of 3 June 2015, it is stated (p. 32) that “with reference to the sums moved within the group on the basis of cash pooling contracts in the form of the so-called zero balance system, it is considered that a financing transaction cannot be configured, pursuant to Article 10 of the ACE Decree. This is because the characteristics of the contract – which provides for the daily zeroing of the asset and liability balances of the group companies and their automatic transfer to the centralised account of the parent company, with no obligation to repay the sums thus transferred and with accrual of interest income or expense exclusively on that account – do not allow the actual possibility of disposing of the sums in question in order to carry out potentially elusive transactions’. These conclusions are confirmed in the answer to Interpretation No. 396 of 29 July 2022 (p. 5) where it is specified that ‘cash pooling contracts in the form of the so-called zero balance stipulated between group companies are characterised by reciprocal credits and debits of sums of money that originate from the daily transfer of the bank balance of the subsidiary/subsidiary to the parent company. As a result of this contract, the balance of the bank account held by the subsidiary/subsidiary will always be zero, since it is always transferred to the parent company. The absence of the obligation to repay the remittances receivable, the reciprocity of those remittances and the fact that the balance of the current account is uncollectible and unavailable until the account is closed combine to qualify the negotiated agreement as having characteristics that are not attributable to a loan of money in the relationship between the companies of the group’. That being so, the reasoning of the judgment under appeal falls below the constitutional minimum in so far as the CTR qualified the cash pooling relationship as a loan on the basis of the mere assertion that “the obligation to repay each other by the closing date of the account is not found in the case”. In so doing, the Regional Commission identified a generic financing contract function in the cash pooling without distinguishing between “notional cash pooling” and “zero balance cash pooling”, instead excluding, on the basis of the same documentation of practice of the Tax Administration, that in the second case (“zero balance”), a loan contract can be configured. The reasoning of the contested decision does not therefore make the basis of the decision discernible, because it contains arguments objectively incapable of making known the reasoning followed by the judge in forming his own conviction, since it cannot be left to the interpreter to supplement it with the most varied, hypothetical conjectures” (Sez. U. no. 22232 of 2016), the trial judge having failed to indicate in a congruous manner the elements from which he drew
France vs SA SACLA, July 2023, CAA of LYON, Case No. 22LY03210

France vs SA SACLA, July 2023, CAA of LYON, Case No. 22LY03210

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 irregularity of the judgment, decided that an expert would carry out a valuation to determine whether the sale price of the trademarks corresponded to their value. The valuation was to take into account an agreed exemption from the payment of royalties for a period of five years granted by Involvex to SA SACLA. The expert’s report was filed on 8 April 2021 and, upon receipt of the report, SA SACLA asked the court to modify the judgment by considering that the value of the transferred trademarks should be set at between EUR 1.3 million and EUR 2.1 million and that the penalties for wilful infringement should be waived. By judgement of 19 August 2021, the court rejected SACLA’s request and set the value of the trademarks – in accordance with the expert’s report – at 5,897,610 euros. “The value of the trademarks transferred by SACLA, initially declared by that company in the amount of EUR 90,000 excluding tax, was corrected by the tax authorities to EUR 11,288,000 excluding tax, and was then reduced by the judgment under appeal to EUR 8,733,348 excluding tax. It follows from the investigation, in particular from the expert’s report filed on 8 April 2021, that this value, taking into account the exemption from payment of royalties granted by the purchaser of the trademarks in the amount of 2,400,000 euros excluding tax and after taking into account corporate income tax, must be established at the sum of 5,897,610 euros excluding tax. The result is a difference between the agreed price and the value of the trade marks transferred in the amount of EUR 5 807 610 excluding tax, which constitutes an advantage for the purchaser. The applicant, who merely contests the amount of that advantage, does not invoke any interest or consideration of such a nature as to justify such an advantage. In these circumstances, the administration provides the proof that it is responsible for the existence of a reduction in the price of the sale of assets and the existence of an indirect transfer of profits abroad.” SACLA then appealed to the Supreme Administrative Court, which by decision no. 457695 of 27 October 2022 set aside articles 3 and 6 of the judgement from the Administrative Court of Appeal and remanded the case for further considerations. “2. In a judgment before the law of 13 February 2020, the Lyon Administrative Court of Appeal decided that, before ruling on the Sacla company’s request, an expert appraisal would be carried out in order to determine whether the sale price of the trademarks sold by that company corresponded to their value, taking into consideration, in particular, the waiver of payment of royalties for a period of five years granted by the purchasing company, Involvex, to the Sacla company. In order to fulfil the mission entrusted to them by the court, the expert and his assistant first considered four methods, then abandoned the method of comparables and the method of capitalisation of royalties, and finally retained only two methods, the method of historical costs and the method of discounting future flows, from which they derived a weighted average. It follows from the statements in the judgment under appeal that the court, after considering that the historical cost method did not allow the effect of corporation tax to be taken into account with any certainty and led to a valuation almost eight times lower than the discounted cash flow method, rejected the former method and adopted only the latter and considered that there was no need to carry out a weighting, since, in its view, the discounted cash flow method proved to be the most accurate. 3. It follows from the statements in the judgment under appeal that the court, after fixing the value of the trade marks transferred by Sacla at EUR 8 733 348 exclusive of tax, an amount also retained by the administrative court, intended to apply the discount recommended by the expert report of 7 April 2021 in order to take account of the exemption from payment of royalties granted for five years by the purchaser of the trade marks. In fixing the amount of that discount at EUR 2 400 000 exclusive of tax, whereas the expert report which it intended to apply estimated it, admittedly, at that amount in absolute terms, but by applying a rate of 37% to a value of the trade marks transferred estimated at EUR 6 500 000, the Court distorted that expert report and gave insufficient reasons for its judgment.” Judgement of the Administrative Court of Appeal The Court ruled as follows “…by selling on 19 October 2008 a set of trademarks held by it at a reduced price to Involvex, a company incorporated under Luxembourg law, had carried out an indirect transfer of profits. In a judgment of 10 October 2017, the Lyon Administrative Court, after finding that there was no need to rule on the claims for suspension of payment submitted at first instance, granted partial discharge of the additional corporation tax and social security contributions to
Poland vs "E S.A.", June 2023, Provincial Administrative Court, Case No I SA/Po 53/23

Poland vs “E S.A.”, June 2023, Provincial Administrative Court, Case No I SA/Po 53/23

In 2010, E S.A. transferred the legal ownership of a trademark to subsidiary S and subsequently entered into an agreement with S for the “licensing of the use of the trademarks”. In 2013, the same trademark was transferred back to E. S.A. As a result of these transactions, E. S.A., between 2010 and 2013, recognised the licence fees paid to S as tax costs, and then, as a result of the re-purchase of those trademarks in 2013 – it again made depreciation write-offs on them, recognising them as tax costs. The tax authority found that E S.A. had reported income lower than what would have been reported had the relationships not existed. E S.A. had  overestimated the tax deductible costs by PLN […] for the depreciation of trademarks, which is a consequence of the overestimation for tax purposes of the initial value of the trademarks repurchased from S – 27 December 2013 – by the amount of PLN […]. The function performed by S between 2010 and 2013 was limited to re-registration of the trademarks with the change of legal ownership. In the tax authority’s view, the expenses incurred by E S.A. for the reverse acquisition of the trademarks did not reflect the transactions that unrelated parties would have entered into, as they do not take into account the functions that E S.A. performed in relation to the trademarks. A tax assessment was issued where – for tax purposes – the transaction had instead been treated as a service contract, where S had provided protection and registration services to E S.A. A complaint was filed by E S.A. Judgement of the Court The Court found that there was no legal basis for re-characterisation in Poland for the years in question and that the issue should instead be resolved by applying the Polish anti-avoidance provision. On that basis, the case was referred back for further consideration. Excerpts “In principle, the tax authorities did not present any argumentation showing from which rules of interpretation they came to the conclusion that such an application of the above-mentioned provisions is legally possible and justified in the present case. It should be noted in this regard that Article 11(1) in fine speaks of the determination of income and tax due without – ‘[…] taking into account the conditions arising from the relationship…’, but does not allow for the substitution of one legal act (a licence agreement) for another act (an agreement for the provision of administration services), and deriving from the latter the legal consequences for the determination of the amount of the tax liability. There should be no doubt in this case that, in fact, the authorities made an unjustified reclassification of the legal act performed in the form of the conclusion of a valid licensing contract, when they concluded (referring to the OECD Guidelines – Annex to Chapter VI – Illustrative Examples of Recommendations on Intangible Assets, example 1, point 4) that the transactions carried out by E. and S. in fact constitute, for the purposes of assessing remuneration, a contract for the provision of trademark administration services and the market price in such a case should be determined for administration services. As the applicant rightly argued, such a possibility exists as of 1 January 2019, since Article 11c(4) uses the expression – “[…] without taking into account the controlled transaction, and where justified, determines the income (loss) of the taxpayer from the transaction appropriate to the controlled transaction”. This is what is meant by the so-called recharacterisation, i.e. the reclassification of the transaction, which is what the tax authorities actually did in the present case. At the same time, the Court does not share the view expressed in the jurisprudence of administrative courts, referring to the content of the justification of the draft amending act, according to which, the solutions introduced in 2019 were of a clarifying rather than normative nature (cf. the judgment of the WSA in Rzeszów of 20 October 2022, I SA/Rz 434/22). The applicant rightly argues in this regard that the new regulation is undoubtedly law-making in nature and that the provisions in force until the end of 2018 did not give the tax authorities such powers. It is necessary to agree with the view expressed in the literature that a linguistic interpretation of Article 11(1) of the A.p.d.o.p. and Article 11c of the A.p.d.o.p. proves that Article 11c of that Act is a normative novelty, as the concepts and premises it regulates cannot be derived in any way from the wording of Art. 11(1) u.p.d.o.p. (cf. H. LitwiÅ„czuk, Reclassification (non-recognition) of a transaction made between related parties in the light of transfer pricing regulations before and after 1.01.2019, “Tax Review” of 2019, no. 3).” “It follows from the justification of the contested decisions that, in applying Article 11(1) and (4) of the TAX Act to the facts of this case, the tax authorities referred to the OECD Guidelines, inter alia, to the example provided therein (Anex to Chapter VI – Illustrative Examples of Recommendations on Intangible Assets, example 1, point 4), from which, according to the authorities, it follows that the transactions carried out by E. S.A. and S. for the purposes of assessing remuneration constitute, in fact, a contract for the provision of trademark administration services and, in that case, the market price should be determined for such services. In this context, it should be clarified that the OECD Guidelines (as well as other documents of this organisation), in the light of the provisions of Article 87 of the Constitution of the Republic of Poland, do not constitute a source of universally binding law. Neither can they determine in a binding manner the basic structural elements of a tax, since the constitutional legislator in Article 217 of the Basic Law has subjected this sphere exclusively to statutory regulations. Since these guidelines do not constitute a source of law, they can therefore neither lead to an extension of the powers of the tax authorities nor of the
Portugal vs R... Cash & C..., S.A., June 2023, Tribunal Central Administrativo Sul, Case 2579/16.6 BELRS

Portugal vs R… Cash & C…, S.A., June 2023, Tribunal Central Administrativo Sul, Case 2579/16.6 BELRS

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. Judgement of the Court The Court of Appeal revoked the judgement 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 provision for the payment of royalties for the transfer of the brands, together with the unpaid provision of management and promotion services for the brands in question by the applicant, prove that there has been a situation that deviates from full competition, with the allocation of income in a tax jurisdiction other than the State of source, without any apparent justification. The application of the profit splitting method (Article 9 of Ministerial Order 1446-C/2001 of 21 December 2001) does not deserve censure. Intangible assets are at stake, so invoking the comparability of transactions, in cases such as the present one, does not make it possible to understand the relationships established between the companies involved. It should also be noted that the Polish company receiving the royalties has minimal staff costs, and that brand amortisation costs account for 97.72% of its operating costs. As a result, the obligations arising for the defendant from the licence agreement in question are unjustified. In view of the demonstration of the deviation from the terms of an arm’s length transaction, it can be seen that the taxpayer’s declaratory obligations (articles 13 to 16 of Ministerial Order 1446-C/2001, of 21.12.200) have not been complied with, as there is a lack of elements that would justify the necessary adjustment. Therefore, the correction under examination does not deserve to be repaired and should be confirmed in the legal order. By ruling differently, the judgement under appeal was an error of judgement and should therefore be replaced by a decision dismissing the challenge.” Click here for English translation. Click here for other translation Portugal 2579-16-6 BELRS ORG
Israel vs Medtronic Ventor Technologies Ltd, June 2023, District Court, Case No 31671-09-18

Israel vs Medtronic Ventor Technologies Ltd, June 2023, District Court, Case No 31671-09-18

In 2008 and 2009 the Medtronic group acquired the entire share capital of the Israeli company, Ventor Technologies Ltd, for a sum of $325 million. Subsequent to the acquisition various inter-company agreements were entered into between Ventor Technologies Ltd and Medtronics, but no transfer of intangible assets was recognised by the Group for tax purposes. The tax authorities found that all the intangibles previously owned by Ventor had been transferred to Medtronic and issued an assessment of additional taxable profits. An appeal was filed by Medtronic Ventor Technologies Ltd. Judgement of the District Court The court dismissed the appeal and upheld the assessment issued by the tax authorities. Click here for English translation Israel vs medtronic-ventor ORG
Denmark vs "IP ApS", March 2023, Tax Tribunal, Case No. SKM2023.135.LSR

Denmark vs “IP ApS”, March 2023, Tax Tribunal, Case No. SKM2023.135.LSR

The case concerned the valuation of intangible assets transferred from a Danish company to an affiliated foreign company. The Tax Tribunal basically agreed with the valuation of the expert appraisers according to the DCF model, but corrected the assumptions with regard to revenue growth in the budget period and the value of the tax advantage. Finally, the Tax Tribunal found that the value of product Y should be included in the valuation, as all rights to product Y were covered by the intra-group transfer. Excerpts “It was the judges’ view that the turnover growth for the budget period should be set in accordance with Company H’s own budgets prepared prior to the transfer. This was in accordance with TPG 2017 paragraphs 6.163 and 6.164 and SKM2020.30.LSR.” “With reference to OECD TPG section 6.178 on adjustment for tax consequences for the buyer and seller and SKM2020.30.LSR, the National Tax Tribunal ruled that the full value of the buyer’s tax asset should be added to the value of the intangible assets when valuing according to the DCF model.” Click here for English translation Click here for other translation SKM2023-135 LSR ORG

Poland vs “Cosmetics sp. z o.o.”, March 2023, Supreme Administrative Court, Case No II FSK 2034/20

“Cosmetics sp. z o.o.” is a Polish distributor of cosmetics. It purchases the goods from a related foreign company. The contract concluded between “Cosmetics sp. z o.o.” and the foreign company contained a provision according to which 3% of the price of the goods purchased was to be paid (in the form of royalties) for the right to use the trademarks for the promotion, advertising and sale of the products. However, the invoices issued by the foreign company for the sale of the goods in question did not show the amount paid for the right to use the trademarks as a separate item. The invoices simply stated the price of the goods purchased. “Cosmetics sp. z o.o. requested an “individual interpretation” from the tax authorities as to whether the royalty payments included in the price of the goods were subject to withholding tax in Poland. According to Cosmetics sp. z o.o., the answer should be no, as the “royalty” element was an ancillary part of the main transaction – the purchase of the goods. The tax authority disagreed. According to the authorities, the payment of royalties for the right to use trademarks was not an ancillary element of the main transaction and its importance was not insignificant. Under the CIT Act and the relevant double tax treaty (DTT), the payment of royalties would be subject to withholding tax. Dismissing an appeal filed by Cosmetics sp. z o.o., the Administrative Court held that there were two separate transactions – one for the acquisition of goods and one for the acquisition of the right to use the trademark. Therefore, the tax authority’s interpretation was correct. Judgement of the Supreme Administrative Court. The Supreme Administrative Court upheld the decision of the Administrative Court and dismissed the appeal of “Cosmetics sp. z o.o.”. According to the court, it was clear from the agreement that the fee consisted of two transactions, one of which was a licence fee (royalty). Therefore, the claim that the tax authority was trying to separate this payment from the payment for the goods was not justified. Excerpt “The issue in dispute in the case is the taxation withholding tax on the amount paid by the Appellant to a foreign entity on account of the right to use trademarks, included in the agreement on the purchase of goods from that entity. Instead, the resolution of the above problem depends on whether the fee for the use of trademarks remains an ancillary element of the main consideration – the purchase of goods – and should then share the tax fate of that consideration, or whether it constitutes a separate element of the contract, which is subject to a separate method of taxation. The author of the cassation appeal argued that the elements comprising the subject matter of the contract and making up the price paid should be qualified together, as a single consideration. In the opinion of the Company’s attorney, a transaction transferring the right to use trademarks should not be treated as generating a licence fee, since the right is related only to the possibility of further resale of goods, and thus “the scope of the licence granted to the Applicant was significantly limited”. In support of the above argumentation, the attorney referred to the opinion of a representative of international tax doctrine, Professor Michelle Markham. Referring to the excerpt from the publication quoted on p. 6 of the cassation complaint concerning the issue analysed in the case, the panel finds that it is not relevant to the case at hand. Firstly, it is clear from the full context of the quoted sentence that these are considerations on the basis of US tax law regulations. Secondly, the quoted passage refers specifically to such contracts, the subject of which are at least two services (including one intangible service) covered by a single price, where it could be unreasonable to try to separate them for tax purposes. However, we do not face such a situation in the case, as the Company’s agreement with the Establishment clearly separates the remuneration for the right to use trademarks in the amount of 3% of the value of the purchased goods – even if the above amount is not specified on the invoices. Above all, however, the Supreme Administrative Court draws attention to the introduction in the agreement of a provision concerning the granting of a paid licence for the use of trademarks within the scope presented in the application, which is of fundamental importance in the case under consideration. Pursuant to Article 155 of the Act of 30 June 2000. – Industrial Property Law (Journal of Laws of 2019, item 2309; hereinafter: ‘p.w.p.’), the right of protection for a trademark suffers a significant limitation as a result of the exhaustion of the right to market the goods. “Pursuant to Article 155(1) p.w.p., the right of protection for a trademark does not extend to acts concerning goods with the trademark, consisting in particular in offering them for sale or further marketing of goods bearing the trademark, if the goods have been placed on the market in the territory of Poland by the authorised entity or with its consent. (…) By the act of placing the marked goods on the market, by the rightsholder or a third party acting with his consent, the rightsholder’s competence to use the trade mark in such a manner as to further distribute the goods is deemed to be exhausted. Therefore, the purchaser – as the owner of the goods – may continue to resell the goods and, in doing so, to advertise using the holder’s mark. Exhaustion, however, covers only one exclusive competence of the right holder, which is the right to put the marked goods on the market, and concerns only normal distribution processes of the marked goods, understood as a whole, which do not threaten the loss of connection with the goods.” (U. PromiÅ„ska, Industrial Property Law, 5th edition, LexisNexis 2011, p. 340). Transferring the above considerations to the grounds
Italy vs Dolce & Gabbana S.R.L., November 2022, Supreme Court, Case no 02599/2023

Italy vs Dolce & Gabbana S.R.L., November 2022, Supreme Court, Case no 02599/2023

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 percentage based on the amount of the cost. In order to verify the fairness of the consideration, the parties have provided for the obligation of analytical reporting as well as an amicable settlement procedure through an auditing company. Lastly, DG s.r.l., DG Usa and DG Industria entered into another agreement, supply agreement, whereby DG Industria appointed DG Usa as its distributor for the USA in mono-brand shops, DG Usa committed to DG s.r.l. to adapt the shops to its high quality standards functional to increasing brand awareness, and DG s.r.l. committed to pay a service fee. The service contribution was recognised in relation to the costs exceeding a percentage of the turnover realised through the mono-brand sales outlets. In the course of an audit, the Italian Revenue Agency made the following findings in relation to the tax year 1 April 2004 to 31 March 2005: first, it denied the deductibility from the taxable income for IRES and IRAP purposes of part of the fees paid by DG s.r.l. to DG USA under the service contract and precisely: a) of the costs of certain services (in particular, it recognised the costs for commercial sales, executive consultant, advertising Madison sales, advertising all others and not the others), because, provided that these were generic services, falling within the normal activity of the reseller of goods, remunerated by the resale margin, and that the reimbursable costs were defined generically, without provision of a ceiling, a reporting method and prior approval by DG s.r.l., it pointed out that it could only recognise the costs rendered in the interest >>also of the parent company<<; b) the portion corresponding to the chargeback of the mark-up, referring to Revenue Agency Circular No. 32/80 on intra-group services, where it provides that the mark-up in favour of the service provider is recognisable only where the services constitute the typical activity of the service provider and not for those services rendered by the parent company that have no market value or are attributable to the general management or administrative activity of the parent company; secondly, it denied the deductibility of the consideration paid by DG s.r.l. to DG Usa under the supply agreement, pointing out that the costs to be considered for the purposes of the contribution would be generically identified, there would be no obligation of adequate reporting or prior approval, which would in fact transfer to DG s.r.l. the risk of substantial inefficiencies of DG Usa, a risk that no independent third party would have assumed, and that the party had not adequately demonstrated that the costs corresponded to the normal value of the costs inasmuch as the documentation produced, relating to other fashion groups, concerned persons who were also owners of the mark, directly interested in its development and promotion. DG s.r.l. brought an appeal before the Provincial Tax Commission of Milan, which rejected it. An appeal was then brought before the Regional Tax Commission of Lombardy which was likewise rejected. In particular, the Regional Tax Commission, for what is relevant herein rejected the preliminary objections (failure to contest the recovery by means of a report; insufficiency and contradictory motivation); reconstructed the subject matter of the dispute, pointing out that the Agency had contested some costs of the service agreement, excluding their inherent nature; for the costs deemed inherent, it had recalculated the amount, excluding the mark-up; for the supply agreement, it had re-taxed the costs, excluding their deductibility due to lack of inherent nature in relation to the service agreement, it confirmed that the costs for the excluded services were not inherent, because: a) DG Usa also carried out activities pertaining to the retailer DG Industria, distributor of Dolce&Gabbana branded products in the U.S. and the costs were connected to this marketing activity; b) the correlation deducted by the company between the costs recharged to DG s.r.l. and the revenues that the latter obtains as a result of the royalties paid by DG Industria, because the costs connected to services intended to increase sales are those of the retailer and not of the licensee of the trademark, to which are inherent only the costs intended to increase the prestige of the trademark itself; c) the costs incurred in the interest of both DG s.r.l. and DG Usa is not relevant and the only cost items recognisable in favour of the former are those pertaining exclusively to its relevance; d) for the purpose of proving congruity, the expert’s report by Prof. Lorenzo Pozza and the certification by Mahoney Cohen & company were irrelevant, since they were mere opinions that were not binding on the administration; (e) the mark up was not deductible since the services rendered by DG USA were rendered in the interest of both DG s.r.l., licensee of the mark, and DG Industria, reseller, and it was not possible to take into consideration the actions of the latter in favour of Itierre s.p.a., reseller and therefore different from DG s.r.l.; (f) the recharging of costs to DG s.r.l. was formally obligatory in the antero but largely
Italy vs Arditi S.p.A., December 2022, Supreme Administrative Court, Case No 37437/2022

Italy vs Arditi S.p.A., December 2022, Supreme Administrative Court, Case No 37437/2022

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 the assessment issued by the tax authorities regarding royalties well-founded. An appeal was then filed by Arditi with the Supreme Administrative Court. Judgement of the Court The Supreme Administrative Court dismissed the appeal of Arditi and upheld the decision of the Court of Appeal and thus the assessment of additional royalty income issued by the tax authorities. Excerpts “1.1. The plea is unfounded. In fact, it should be recalled that “On the subject of the determination of business income, the rules set forth in Article 110, paragraph 7, Presidential Decree no. 917 of 1986, aimed at repressing the economic phenomenon of “transfer pricing”, i.e. the shifting of taxable income as a result of transactions between companies belonging to the same group and subject to different national regulations, does not require the administration to prove the elusive function, but only the existence of “transactions” between related companies at a price apparently lower than the normal price, while it is the taxpayer’s burden, by virtue of the principle of proximity of proof pursuant to art. 2697 of the Civil Code and on the subject of tax deductions, the onus is on the taxpayer to prove that such ‘transactions’ took place for market values to be considered normal within the meaning of Art. 9, paragraph 3, of the same decree, such being the prices of goods and services practiced in conditions of free competition, at the same stage of marketing, at the time and place where the goods and services were purchased or rendered and, failing that, at the nearest time and place and with reference, as far as possible, to price lists and rates in use, thus not excluding the usability of other means of proof” (Cass. 19/05/2021, n. 13571). Now, the use of a trade mark must be presumed not to have a normal value of zero, which can also be expressed, as the judgment under appeal does, by the exceptionality of the relative gratuitousness. This places the onus on the taxpayer to prove that such gratuitousness corresponds to the normal value, that is, to the normality of the fact that such use takes place without consideration.” (…) “3. The third plea alleges failure to examine a decisive fact, in relation to Article 360(1)(5) of the Code of Civil Procedure, since the appeal judges failed to assess the circumstance that a large part of the production of the Chinese subsidiary was absorbed by the Italian parent company. 3.1. This plea is inadmissible, since with it the taxpayer tends to bring under this profile the examination of the exceptional nature of the gratuitousness of the use of the mark, held by the CTR. In fact, the latter was well aware of the null value of the consideration for the use of the trade mark, while the fact that the trade mark itself was the subject of co-use was expressly taken into consideration by the appellate court, and the fact that its transfer free of charge in any case corresponded to a ‘valid economic reason’, constitutes a mere deduction, whereas the failure to mention the circumstance that the majority of the Chinese company’s transactions were directed to another subsidiary (this time a Brazilian one), without entering into the merits of its relevance, constitutes at most an aspect concerning the assessment of a single element of the investigation, which cannot be denounced under the profile under examination (Cass. 24/06/2020, n. 12387).” Click here for English translation Click here for other translation Italy vs Arditi SPA 20221221 n37437
France vs Bupa Insurance, December 2022, Conseil d'État, Case No 450796 (ECLI:FR:CECHR:2022:450796.20221221)

France vs Bupa Insurance, December 2022, Conseil d’État, Case No 450796 (ECLI:FR:CECHR:2022:450796.20221221)

In 2009 a British company – Bupa Insurance Limited – absorbed the Danish company International Health Insurance, whose shares it had acquired in 2005 and which had had a French branch since 1993. Following an audit for FY 2009 and 2010, the tax authorities considered that the French branch had passed on to Bupa Insurance Limited, free of charge, the customers associated with its insurance business in France, and considered this transaction to be an indirect transfer of profits within the meaning of Article 57 of the General Tax Code. The Administrative Court of Appeal set aside the assessment and an appeal was then filed with the Conseil d’État by the tax authorities. Judgement of the Supreme Administrative Court The Supreme Administrative Court upheld the decision from the CAA and dismissed the appeal of the tax authorities. Excerpts “3. It is clear from the statements in the judgment under appeal that the Marseille Administrative Court of Appeal held that the French branch of the Danish company International Health Insurance bore the operating risk of the insurance business carried out in France prior to 1 January 2009, but noted that prior to that date, the insurance contracts offered by this branch were governed by Danish law and did not benefit from any particular adaptation to the French situation, and that all the services offered to the insured parties, in particular the assistance service, were provided in Denmark, that the contracts concluded with the insurance brokers responsible for canvassing on French territory were partly concluded by the Danish company, that nothing in the file established that the employees of the French branch had the function of developing their own clientele for the benefit of the branch, and that the registration of French clients according to a specific quotation, although it allowed for an accounting analysis specific to clients who had concluded contracts with brokers operating on French territory, did not demonstrate that the activity of the branch would have consisted of developing such a client base. The Court deduced from these findings that the Minister did not establish that this branch had real commercial autonomy before 1 January 2009 and, consequently, the existence of a free transfer of customers leading to the presumption of an indirect transfer of profits to the British company Bupa Insurance Limited. 4. By ruling, in the light of the factors mentioned in point 3, which it assessed in a sovereign manner, that, since the French branch of the Danish company did not have genuine commercial autonomy, the fact that it had borne the operating risk inherent in the insurance business carried on in France prior to 1 January 2009 was not sufficient to establish the existence of its own customer base, In order to deduce that no free transfer of clientele, likely to characterise an indirect transfer of profits within the meaning of Article 57 of the General Tax Code, had been established, the Marseille Administrative Court of Appeal, which ruled in a sufficiently reasoned and uncontradicted judgment, did not commit an error of law or incorrectly characterise the facts before it. 5. It follows from the foregoing that the Minister has no grounds for seeking the annulment of the judgment which he is challenging. “ Click here for English translation Click here for other translation France vs Bupa Insurance Limited December 2022 Conseil d'État Case no 450796
Spain vs "XZ Insurance SA", October 2022, Tribunal Economic-Administrative Central  (TEAC), Case No Rec. 00/03631/2020/00/00

Spain vs “XZ Insurance SA”, October 2022, Tribunal Economic-Administrative Central (TEAC), Case No Rec. 00/03631/2020/00/00

“XZ Insurance SA” is the parent company in a group engaged in insurance activities in its various branches, both life and non-life, finance, investment property and services. An audit was conducted for FY 2013-2016 and in 2020 an assessment was issued in relation to both controlled transactions and other transactions. Among outher issued the tax authorities determined that “XZ Insurance SA” did not receive any royalty income from the use of the XZ trademark by to other entities of the group, both domestic and foreign. In the assessment the tax authorities determined the arm’s length royalty percentage for use of the trademarks to be on average ~0,5%. “In order to estimate the market royalty, the first aspect to be studied is the existence of an internal comparable or comparable trademark assignment contracts. And we have already stated that the absence of valid internal and external comparables has led us to resort to the use of other generally accepted valuation methods and techniques. In this respect, it should be noted that this situation is frequent when valuing transactions related to intangibles, and the Guidelines have expressly echoed this situation (in particular, in paragraphs 6.138, 6.153, 6.156, 6.157 and 6.162, which are transcribed in section 6.2 of this Report).” A complaint was filed by “XZ Insurance SA” Judgement of the TEAC The TEAC dismissed the complaint of “XZ Insurance SA” and upheld the tax assessment. Excerpts from the decision concerning the assessment of income for use of the trademarks by other group companies “On this issue, it is worth pointing out an idea that the complainant uses recurrently in its written submissions. The complainant considers that if there is no growth in the number of policies and premiums, it should not be argued that the use of the XZ brand generates a profit in the subsidiaries. However, as the Inspectorate has already replied, it is not possible to identify the increase in the profit of the brand with the increase in premiums, nor that the growth, in certain countries, of the entities is exclusively due to the value of the brand. Logically, increases and decreases in premiums are due to multiple factors, including the disposable income of the inhabitants of each country, tax regulations, civil liability legislation, among others, and we cannot share the complainant’s view that the brand does not generate a profit in the event of a decrease in premiums in the market. Furthermore, insofar as the enforceability of the royalty is conditioned by the fact that the assignment produces a profit for the company using the brand, there is greater evidence as to the usefulness of the brand in the main markets in which the group operates and in which it is most relevant: Spain, COUNTRY_1, Latin American countries, COUNTRY_2, COUNTRY_3, COUNTRY_4 and COUNTRY_5. Finally, one aspect that draws the attention of this TEAC is the contrast between what the complainant demands that the administration should do and the attitude of the administration in the inspection procedure. On the one hand, it demands that the administration carry out a detailed analysis of the valuation of the profit generated by the trademark for the group, but, on the other hand, there is a total lack of contribution on the part of the entity in providing specific information on the valuation of the trademark that could facilitate the task it demands of the administration. In fact, this information was requested by the Inspectorate, to which it replied that “there are no studies available on the value or awareness and relevance of the XZ brand in the years under inspection” (…) “It follows from the above that it has not been proven that the different entities of the group made direct contributions or contributions that would determine that, effectively, the economic ownership of the trademark should be shared. Therefore, this TEAC must consider, given the existing evidence, that both the legal and economic ownership of the trademark corresponds to the entity XZ ESPAÑA. In short, it is clear from the facts set out above that certain entities of the group used, and use, for the marketing of their services and products, a relevant and internationally established trademark, the “XZ” trademark, which gives them a prestige in the market that directly and undoubtedly has an impact on their sales figures, with the consequent increase in their economic profit. It is clear from the above that there was, in the years audited, a transfer of use of an established, international brand, valued by independent third parties (according to the ONFI report, according to …, between … and …. million euros in the years under review) and maintained from a maintenance point of view (relevant advertising and promotional expenses). Therefore, it is reasonable to conclude, as does the Inspectorate, that, in a transaction of this type – the assignment of the “XZ” trademark – carried out at arm’s length, a payment for the use of the intangible asset would have been made to its owner, without prejudice to the fact that the value assigned to the assignment of use of the aforementioned trademark may be disputed; but what seems clear, and this is what the TEAC states, is that it is an intangible asset whose assignment of use has value. In conclusion, the TEAC considers that the entity owning the trademark (XZ SPAIN) had an intangible asset and transferred its use, for which it should receive income; by transferring the use of the asset to group entities, both domiciled in Spain and abroad, it is appropriate to calculate that income for XZ SPAIN by applying the regime for related-party transactions.” (…) “In section 6 of the report, as we have already analysed, ONFI attempts to find external comparables, insofar as there are no internal comparables within the group, reaching the conclusion that they cannot be identified in the market analysed. Consequently, it proceeds to estimate the royalty that XZ Spain should receive, by applying other methodologies that allow an approximation to the arm’s length price, based
France vs SA SACLA, October 2022, Conseil d'État, Case No. 457695  (ECLI:FR:CECHS:2022:457695.20221027)

France vs SA SACLA, October 2022, Conseil d’État, Case No. 457695 (ECLI:FR:CECHS:2022:457695.20221027)

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 years granted by Involvex to SA SACLA. The expert report was filed on 8 April 2021 and after receiving the report SA SACLA asked the court to change the judgment by considering that the value of the transferred trademarks should be set at a sum of between 1.3 and 2.1 million euros and that penalties for deliberate breach should be discharged. By judgement of 19 August 2021 the court dismissed the request filed by SACLA and determined the value of the trademarks – in accordance with the expert report – to be 5,897,610 euros. “The value of the trademarks transferred by SACLA, initially declared by that company in the amount of EUR 90,000 excluding tax, was corrected by the tax authorities to EUR 11,288,000 excluding tax, and was then reduced by the judgment under appeal to EUR 8,733,348 excluding tax. It follows from the investigation, in particular from the expert’s report filed on 8 April 2021, that this value, taking into account the exemption from payment of royalties granted by the purchaser of the trademarks in the amount of 2,400,000 euros excluding tax and after taking into account corporate income tax, must be established at the sum of 5,897,610 euros excluding tax. The result is a difference between the agreed price and the value of the trade marks transferred in the amount of EUR 5 807 610 excluding tax, which constitutes an advantage for the purchaser. The applicant, who merely contests the amount of that advantage, does not invoke any interest or consideration of such a nature as to justify such an advantage. In these circumstances, the administration provides the proof that it is responsible for the existence of a reduction in the price of the sale of assets and the existence of an indirect transfer of profits abroad.” An appeal was then filed by SACLA with the Supreme Administrative Court Judgement of the Supreme Court The Supreme Court set aside articles 3 and 6 of the Judgement from the Administrative Court of Appeal. “Article 3: The judgment of the Lyon Administrative Court of 10 October 2017 is reversed insofar as it is contrary to the present judgment. … … Article 6: The remainder of the parties’ submissions is rejected.” Excerpts “2. In a judgment before the law of 13 February 2020, the Lyon Administrative Court of Appeal decided that, before ruling on the Sacla company’s request, an expert appraisal would be carried out in order to determine whether the sale price of the trademarks sold by that company corresponded to their value, taking into consideration, in particular, the waiver of payment of royalties for a period of five years granted by the purchasing company, Involvex, to the Sacla company. In order to fulfil the mission entrusted to them by the court, the expert and his assistant first considered four methods, then abandoned the method of comparables and the method of capitalisation of royalties, and finally retained only two methods, the method of historical costs and the method of discounting future flows, from which they derived a weighted average. It follows from the statements in the judgment under appeal that the court, after considering that the historical cost method did not allow the effect of corporation tax to be taken into account with any certainty and led to a valuation almost eight times lower than the discounted cash flow method, rejected the former method and adopted only the latter and considered that there was no need to carry out a weighting, since, in its view, the discounted cash flow method proved to be the most accurate. (3) It follows from the statements in the judgment under appeal that the court, after fixing the value of the trade marks transferred by Sacla at EUR 8 733 348 exclusive of tax, an amount also retained by the administrative court, intended to apply the discount recommended by the expert report of 7 April 2021 in order to take account of the exemption from payment of royalties granted for five years by the purchaser of the trade marks. In fixing the amount of that discount at EUR 2 400 000 exclusive of tax, whereas the expert report which it intended to apply estimated it, admittedly, at that amount in absolute terms, but by applying a rate of 37% to a value of the trade marks transferred estimated at EUR 6 500 000, the Court distorted that expert report and gave insufficient reasons for its judgment. (4) It follows from the foregoing that, without needing to rule on the other grounds of appeal, Articles 3 to 6 of the contested judgment should be set aside and, in the circumstances of the case, the State should be ordered to pay the sum of EUR 3 000 to Coverguards Sales under Article L. 761-1 of the Code of Administrative Justice.” Click here for English translation Click here for other translation France vs Scala Council of State 27 Oct 2022 ORG
Netherlands vs "Agri B.V.", September 2022, Court of Appeal, Case No AWB-16_5664 (ECLI:NL:RBNHO:2022:9062)

Netherlands vs “Agri B.V.”, September 2022, Court of Appeal, Case No AWB-16_5664 (ECLI:NL:RBNHO:2022:9062)

“Agri B.V.” is a Dutch subsidiary in an international group processing agricultural products. Following a restructuring in 2009 “Agri B.V.” had declared a profit of € 35 million, including € 2 million in exit profits. In an assessment issued by the tax authorities this amount had been adjusted to more than € 350 million. Judgement of the Court of Appeal The Court of appeal decided predominantly in favour of the tax authorities. An expert was appointed to determine the value of what had been transferred, and based on the valuation report produced by the expert the court set the taxable profit for 2009/2010 to €117 million. Excerpt “The Functional Analysis of [company 9] submitted, the Asset Sale and Purchase Agreements, the Manufacturing Services Agreements and the Consulting services and assistance in conducting business activities agreements show that there was a transfer of more than just separate assets and liabilities. The factual and legal position of [company 2] and [company 1] has changed significantly as a result of the reorganization. In this respect, the Court considered the following. 27. Whereas prior to the reorganization [company 1] operated independently under its own name on the purchasing and sales markets, independently hedged price risks and ran the full risk of good and bad luck in all its activities, after the reorganization it only provides (production) services to [company 3] for a fixed fee for a certain period of time. The claimant’s contention that already with the establishment of the [company 6] in 2000 there was far-reaching coordination as a result of which [company 1] no longer operated completely independently but only as a processing facility is only supported by written statements from employees in 2019. These statements are difficult to reconcile with the 2009 Functional Analysis, in which the [company 6] is not even mentioned. Therefore, the Court does not attach the value that the claimant wishes to see attached to these statements. That [company 3] and [company 4] were involved in the (strategic) planning of [company 1] prior to the reorganization is not surprising in view of the global activities of the group. However, no more can be deduced from the Functional Analysis than that [company 3] and [company 4] were operating in cooperation with [company 1]. That the form in which this cooperation is cast detracts from the independence of [company 1] described elsewhere in the Functional Analysis has not become plausible on the basis of the documents. 28. A similar analysis can be made of [company 2’s] activities before and after the reorganisation. Whereas prior to the reorganisation [company 2] operated independently under its own name on the purchasing and sales markets, independently hedged price risks (not only for its own benefit, but for the benefit of the activities of all group companies that it coordinated worldwide), and ran the full risk of good and bad opportunities in all its activities, after the reorganisation it only provides (production) services to [company 3] for a fixed fee for a limited period of time. 29. The claimant has stated without contradiction that the profitability of [company 4] depends to a large extent on daily global and regional price fluctuations over which [company 4] has no influence, and that the market developments are therefore analysed on a daily basis. From the description of the market expertise of [company 3] after the reorganization in the Functional Analysis (see recital 8), the Court deduces that the market expertise present in the group of [company 4], gained from hedging, taking positions on markets and contract negotiations, forms the basis for the activities of [company 3] after the reorganization. This description explicitly states that this knowledge plays a key role in improving the profitability of the Dutch oilseed business. In that connection, reference is made to the fact that [company 3] will set the price and volume guidelines for purchases and sales, conclude the contracts and take care of the hedging. It is established that all these activities were carried out by [company 1] and [company 2] prior to the reorganisation. It has not become plausible that, prior to the reorganization, [company 3] was already engaged in such similar activities that those of [company 1] and [company 2] can only be regarded as additional. During the reorganization, not only stocks, current purchase and sales contracts, currency contracts and futures, etc. were transferred to [company 3], but also dozens of employees, including traders from [company 1] and [company 2], were transferred to [company 3]. The Court therefore deems it plausible that the aforementioned market expertise was not actually invested in [company 3] itself until the transfer of these employees. 30. The prices agreed as part of the reorganisation only concern the transfer of assets and liabilities. However, in view of the foregoing, this transfer cannot be viewed separately from the concentration of market expertise at [company 3] that was previously held by [company 1] and [company 2]. The fact that the market expertise at the latter company was also supported by employees who were not employed by it does not mean that this knowledge should not be attributed to the company of [company 2]. In addition to market expertise, the power of decision regarding purchases, sales and hedging was also transferred from [company 1] and [company 2] to [company 3]. Since having market expertise, seen against the background of the aforementioned power of decision, plays a key role in the activities of [company 3] after the reorganization aimed at increasing profitability, the Court deems it plausible that a value must be attributed to it separately that has not already been reflected in the agreed prices for the assets and liabilities. The Court also sees support for this conclusion in the circumstance that the turnover and cash flow of [company 1] and [company 2] – as has not been contradicted by the claimant – decreased considerably after the reorganization, while those of [company 3] increased considerably.” Click here for English translation Click here for other translation ECLI_NL_RBNHO_2022_9062
France vs Ferragamo France, June 2022, Administrative Court of Appeal (CAA), Case No 20PA03601

France vs Ferragamo France, June 2022, Administrative Court of Appeal (CAA), Case No 20PA03601

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 an advantage granted by Ferragamo France to the Italien parent, Salvatore Ferragamo SPA, nor the amount of this advantage. This decision was later upheld by the Administrative Court of Appeal. An appel was then filed by the tax authorities with the Supreme Court. The Supreme Court (Conseil d’Etat) overturned the decision and remanded the case back to the Administrative Court of Appeal for further considerations. “In ruling that the administration did not establish the existence of an advantage granted to the Italian company on the grounds that the French company’s results for the financial years ending from 2010 to 2015 had been profitable without any change in the company’s transfer pricing policy, whereas it had noted that the exposure of additional charges of wages and rents in comparison with independent companies was intended to increase, in a strategic market in the luxury sector, the value of the Italian brand which did not yet have the same notoriety as its direct competitors, the administrative court of appeal erred in law. Moreover, although it emerged from the documents in the file submitted to the trial judges that the tax authorities had established the existence of a practice falling within the provisions of Article 57 of the General Tax Code, by showing that the remuneration granted by the Italian company was not sufficient to cover the additional expenses which contributed to the value of the Salvatore Ferragamo trade mark incurred by the French subsidiary and by arguing that the latter had been continuously loss-making since at least 1996 until 2009, the court distorted the facts and documents in the file. By dismissing, under these conditions, the existence of an indirect transfer of profits to be reintegrated into its taxable income when the company did not establish, by merely claiming a profitable situation between 2010 and 2015, that it had received a consideration for the advantage in question, the court incorrectly qualified the facts of the case.” Judgement of the Administrative Court of Appeal The Administrative Court of Appeal issued a final decision in June 2022 in which the 2017 decision of the Paris Administrative Court was annulled and the tax assessment issued by the tax authorities reinstated. “Firstly, Ferragamo France argued that the companies included in the above-mentioned panel were not comparable, since most of their activities were carried out in the provinces, whereas its activity was concentrated in international tourist areas, mainly in Paris, and their workforce was less than ten employees, whereas it employed 68 people, that they are mere distributors whereas it also manages a network of boutiques and concessions in department stores, and that some of them own their premises whereas it rents its premises for amounts much higher than the rents in the provinces, the relationship between external charges and turnover thus being irrelevant. However, most of the comparables selected by the administration, which operate as multi-brand distributors in the luxury ready-to-wear sector, were proposed by Ferragamo France itself. Moreover, the company does not indicate the adjustments that should be made to the various ratios of salary and external costs used to obtain a result that it considers more satisfactory, even though it has been established that additional costs in the area of salaries and property constitute an advantage granted to Salvatore Ferragamo Spa. Furthermore, apart from the fact that it has not been established that some of the companies on the panel own their premises, Ferragamo France does not allege that excluding the companies in question from the calculation of the ratios would result in a reduction in the amount of the adjustments. Lastly, as regards the insufficient consideration of the management of a network of department stores’ boutiques and concessions, Ferragamo France does not provide any specific information in support of its allegations, whereas the comparison made by the administration is intended to assess the normality of the remuneration of its retail activity.” … It follows from all of the above that the Minister of the Economy, Finance and Recovery is entitled to argue that it was wrong for the Administrative Court of Paris, in the judgment under appeal, to discharge, in terms of duties and increases, the supplementary corporate tax assessment to which Ferragamo France was subject in respect of the financial year ended in 2010, of the withholding tax charged to it for 2009 and 2010 and of the supplementary minimum business tax and business value added contribution charged to it for 2009 and 2010 respectively. This judgment must therefore be annulled and the aforementioned taxes, in duties and increases, must be remitted to Ferragamo France.” Click here for English Translation Click here for other translation France vs Ferragamo CAA de PARIS, 2ème chambre, 30_06_2022, 20PA03601
Malaysia vs Keysight Technologies Malaysia, May 2022, High Court, Case No WA-144-03-2020

Malaysia vs Keysight Technologies Malaysia, May 2022, High Court, Case No WA-144-03-2020

Keysight Technologies Malaysia Sdn Bhd (KTM) was incorporated in 1998 and active as a full-fledged manufacturer of various microwave devices and test instruments in which capacity it had also developed valuable intangibles. In 2008, KTM was converted into a contract manufacturer under an agreement with Agilent Technologies International s.a.r.l. and at the same time KLM purportedly transferred its intangibles to Agilent Technologies. KTM received an amount of RM 821 million which it reported as non-taxable gains form sale of intangibles in its tax return. Following an audit the tax authorities issued a notice of assessment for FY 2008 where the sum of RM 821 million had been considered revenue in nature and thus taxable under Section 4(f) of the ITA. This resulted in a claim of RM 311 million together with a 45% penalty. According to the tax authorities the transfer of technical knowhow was not actually a sale as KTM was still using the technical knowhow in its manufacturing activities. The proceeds were related to the conversion of KLM from a full-fledged manufacturer to a contract manufacturer, which had resulted in a reduction in taxable profits. “The gain on the transfer of technical knowhow was for the payment on the loss of income since it was related to the change of the Appellant’s function from a full-fledged manufacturer to a contract manufacturer which resulted in a reduction of profit margin of the Appellant after the change of the function.” KTM filed an appeal against the assessment in which it stated that proceeds from the sale of know-how were not revenue in nature and therefore not taxable under the ITA. KLM also appealed against the penalty imposed under Section 113(2) of the ITA. The appeal was dismissed by the Special Commissioners of Income Tax, and an appeal was then filed by KTM with the High Court. Judgement of the High Court The High Court Judge dismissed KTM’s appeal and upheld the decision of the Special Commissioners of Income Tax. According to the High Court KTM had “failed to support the claim that the gain from the transfer of technical knowhow (i.e. the marketing and manufacturing intangibles) by KTM to Agilent Technologies International totalling of RM821,615,000.00 is an outright sale.â€. There were no documents showing that the IP rights had been registered in the name of Agilent Technologies International s.a.r.l. Hence the proceeds was considered revenue in nature and taxable under Section 4(f) of the Income Tax Act 1967(“ITAâ€). Click here for translation Malaysia vs Teysight Technologies 20-05-2022 Case No WA-144-03-2020
France vs SAS Oakley Holding, May 2022, CAA of Lyon, No 19LY03100

France vs SAS Oakley Holding, May 2022, CAA of Lyon, No 19LY03100

SNC Oakley Europe, a subsidiary of SAS Oakley Holding, which belonged to the American group Oakley Inc. until its takeover in 2007 by the Italian group Luxottica, carried on the business of distributing clothing, footwear, eyewear and accessories of the Oakley brand on European territory. Following the takeover SNC Oakley Europe in 2008 transferred its distribution activity on the French market to another French company, Luxottica France, and its distribution activity on the European market to companies incorporated in Ireland, Luxottica Trading and Finance and Oakley Icon, and deducted restructuring costs in an amount of EUR 15,544,267. The tax authorities qualified these costs as an advantage granted without consideration to its sister companies, constituting, on the one hand, an abnormal management act and, on the other hand, an indirect transfer of profits within the meaning of Article 57 of the General Tax Code on the grounds that its costs had not been re-invoiced to the Italian company, the head of the group, which had taken the initiative to reorganise the distribution activity. SAS Oakley Holding filed an appeal with the administrative Court which decided in favor of the tax authorities. Not satisfied with the result, an appeal was then filed with the CAA of Lyon. Judgement of the CAA The Court of appeal set aside the decision of the court of first instance and ruled in favor of SAS Oakley Holding. Excerpt “…On the basis of such considerations, and while it is up to the administration to assess whether the transactions in question correspond to acts of normal commercial management with regard solely to the company’s own interests, the administration, In such considerations, and whereas it is up to it to assess whether the transactions at issue correspond to acts of normal commercial management with regard to the company’s own interests alone, the administration, which did not have to rule on the appropriateness of SNC Oakley Europe’s choice to sell its business assets in order to retain only the activity of promoting distribution in the network of sports shops on the French market, establishes neither the existence of an abnormal act of management nor proof of the existence of a practice that falls within the provisions of Article 57 of the General Tax Code. 7. Furthermore, it appears from the investigation that, by deed dated March 19, 2008, SNC Oakley Europe sold to the Irish company Luxottica Trading and Finance Ltd the goodwill related to its distribution activity within the “optical” network on the European market, with the exception of the French market, for the sum of EUR 17,773,551.29. By deed dated April 29, 2008, it sold to the French company Luxottica France the goodwill related to its distribution activity within the “optics” network on the French market for an amount of EUR 1,222,525.59. Finally, by deed dated 30 June 2008, it sold to the Irish company Oakley Icon Ltd the goodwill related to its distribution activity within the “sports” network on the European market for the amount of 5,857,175.13 euros. The tax authorities do not dispute that these transfer prices were in line with the market price. However, the transfer of the business assets related to the activities that SNC Oakley Europe sold necessarily had as a counterpart, as it results from the transfer contracts, the assumption by this company of the costs related to the refusal of retailers, distributors and sales agents to transfer their contracts to the transferee companies as well as the costs related to the termination of the employees’ contracts, pursuant to the provisions of Article L. 122-12 of the French Labour Code, which are reproduced in the present report. 122-12 of the French Labour Code, taken over as of 1 May 2008 in Article L. 1224-1 of this code, which only requires the transfer of current employment contracts in the event of the transfer by an employer to another employer of an autonomous economic entity, retaining its identity, and whose activity is continued and taken over by the new employer. Thus, the administration cannot be considered, by the considerations related in point 6 above on the appropriateness of the restructuring, as demonstrating that the charges in dispute should not have been borne by SNC Oakley Europe. By justifying the increase by the fact that the latter did not claim any consideration or compensation “from the party that initiated the takeover and reorganisation of the business”, i.e. the Italian company Luxottica Group, it does not demonstrate either that any advantage was granted to the sister companies, the transferees of the business. 8. It follows from the foregoing that SAS Luxottica France, as successor to SAS Oakley Holding, is entitled to argue that the Grenoble Administrative Court, in the judgment under appeal, wrongly rejected its request for discharge of the additional corporate income tax assessed against it for the financial year ending in 2008 because of the reconsideration of the assumption of responsibility by SNC Oakley Europe for the costs associated with the sale of its business assets in the amount of EUR 15,544,267.” Click here for English translation Click here for other translation CAA de LYON, 2ème chambre, 18_05_2022, 19LY03100, Inédit au recueil Lebon
Israel vs Medingo Ltd, May 2022, District Court, Case No 53528-01-16

Israel vs Medingo Ltd, May 2022, District Court, Case No 53528-01-16

In April 2010 Roche pharmaceutical group acquired the entire share capital of the Israeli company, Medingo Ltd, for USD 160 million. About six months after the acquisition, Medingo was entered into 3 inter-group service agreements: a R&D services agreement, pursuant to which Medingo was to provide R&D services in exchange for cost + 5%. All developments under the agreement would be owned by Roche. a services agreement according to which Medingo was to provided marketing, administration, consultation and support services in exchange for cost + 5%. a manufacturing agreement, under which Medingo was to provide manufacturing and packaging services in exchange for cost + 5. A license agreement was also entered, according to which Roche could now manufacture, use, sell, exploit, continue development and sublicense to related parties the Medingo IP in exchange for 2% of the relevant net revenues. Finally, in 2013, Medingo’s operation in Israel was terminated and its IP sold to Roche for approximately USD 45 million. The tax authorities viewed the transactions as steps in a single arrangement, which – from the outset – had the purpose of transferring all the activities of Medingo to Roche. On that basis an assessment was issued according to which the intangibles had been transferred to Roche in 2010. Based on the acquisition price for the shares, the value was determined to approximately USD 160 millions. An appeal was filed by Medingo claiming that there had been no transfer in 2010. Judgement of the District Court The court decided in favor of Medingo and set aside the 2010 tax assessment – but without passing an opinion in relation to the value of the sale of the intellectual property in 2013. Excerpts “96. The guidelines indicate that in a transaction between related parties, two different issues must be examined using the arm’s length principle: transaction characterization and transaction pricing. The characterization of the transaction must first be examined and it must be examined whether it would also have been made between unrelated parties. If the examination reveals that even unrelated parties would have entered into a transaction in the same situation, then it must be further examined whether the price paid for the assets complies with market conditions. It should be noted that in accordance with the guidelines, the characterization of the transaction should not be interfered with in violation of the agreements, except in exceptional circumstances, in which the agreements are fundamentally unfounded, or in no way allow a price to be determined according to the arm’s length principle. “Tax A tax administration should not disregard part or all of the restructuring or substitute other transactions for it unless the exceptional circumstances described in paragraph 1.142 are met”. out circumstances in which the transaction between the parties as accurately delineated can be disregarded for transfer pricing purposes. Because non-recognition can be contentious and a source of double taxation, every effort should be made to determine the actual nature of the transaction and apply arm’s length pricing to the accurately delineated transaction, and to ensure that non-recognition is not used simply because determining an arm’s length price is difficult. e same transaction can be seen between independent parties in comparable circumstances… non-recognition would not apply… the transaction as accurately delineated may be disregarded, and if appropriate, replaced by an alternative transaction, where the arrangements made in relation to the transaction, viewed in their totality, differ from those which would have been adopted by independent enterprises behaving in a commercially rational manner in comparable circumstances, thereby preventing determination of a price that would be acceptable to both of the parties taking into account their respective perspective and the options realistically available to each of them at the time of entering into the transaction “. 97. Further to this, sections 1.146 – 1.148 of the Guideline, 2022, provide two examples of cases in which the characterization of the transaction must be ignored. The second example deals with a case closer to our case, where a one-time payment is paid for R&D services and their products provided – for 20 years. 98. After examining the characterization of the transaction in our case, I found no defect in it. This is a completely different case from those mentioned in the guidelines, and it has been proven to me that transactions with a similar characterization can be conducted and are also conducted between unrelated parties. Thus, throughout the proceedings, the appellant presented various examples of similar license agreements and R&D agreements signed between unrelated parties: In Phase A, the appellant presented various transactions for comparison (P / 2 (to which the respondent did not even refer), p. 332 of the minutes (and within the appeal Of EY Germany and of Gonen in which additional transactions were presented for comparison, including transactions of similar companies in the relevant market.” “104. I also believe that it makes sense to enter into such agreements, especially in the situation of the appellant at that time. Appellant faced considerable obstacles, and her chances of success were not guaranteed, to say the least….” “105. The inter-group agreements secured the appellant’s future in the near term, and gave her more chances to survive. As the appellant’s experts clarified, small companies find it difficult to survive alone in the medical device market (see for example Section 1 of the Michlin Opinion (hence, a licensing and commercialization agreement is common practice in the field and common with contractors with experience and resources); See also paragraph 41 regarding Broadcom).” “110. In conclusion, as long as the appellant and Roche acted in accordance with the inter-group agreements, which are acceptable in industry and in the circumstances of the case there is logic in concluding them, I did not find any invalidity in the characterization of the agreements (see paragraphs 85 and 87 in the Broadcom case).” “….As stated, I believe that even if there was an intention to transfer the activity, there was no final decision until the date of the announcement. Second, and this is the
Poland vs "X-TM" sp. z o.o., March 2022, Administrative Court, SA/PO 1058/21

Poland vs “X-TM” sp. z o.o., March 2022, Administrative Court, SA/PO 1058/21

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 to the court taxpayers are not obliged to conduct their business in such a way as to pay the highest possible taxes, and gaining benefits from so-called tax optimization not prohibited by law, was allowed in 2013. The Polish anti-avoidance clause has only been in force since 15 July 2016. Furthermore, although it may have been possible to set aside legal effects of the transactions under the previous provision in Article 24b § 1 of the C.C.P., the Constitutional Tribunal in its verdict of 11 May 2004, declared this provision to be inconsistent with the Constitution of the Republic of Poland. Excerpts “In the Court’s view, the authorities’ findings fail to comply with the provisions applied in the case, including in particular Article 15 of the CIT Act. The legal transactions described in the appealed decision indeed constitute an optimisation mechanism. However, the realised transaction scheme is not potentially devoid of economic as well as tax rationales. The actions performed were undoubtedly also undertaken in order to achieve the intended tax result, i.e. optimisation of taxation. It should be strongly emphasised that none of the actions taken were ostensible. All of the applicant’s actions were as real as possible. Noticing the obvious reality of the above transactions, the tax authorities did not even attempt to apply the institution regulated in Article 199a of the CIT Act. The omission of legal effects of the transactions performed would probably have been possible in the former legal order, under Article 24b § 1 of the C.C.P., but this provision is no longer in force. The Constitutional Tribunal in its verdict of 11 May 2004, ref. no. K 4/03 (Journal of Laws of 2004, no. 122, item 1288) declared this provision to be inconsistent with the Constitution of the Republic of Poland. On the other hand, the anti-avoidance clause introduced by the Act of 13 May 2016 amending the Tax Ordinance Act and certain other acts (Journal of Laws 2016, item 846) has been in force only since 15 July 2016. Pursuant to the amended Article 119a § 1 o.p. – an act performed primarily for the purpose of obtaining a tax benefit, contradictory in given circumstances to the object and purpose of the provision of the tax act, does not result in obtaining a tax benefit if the manner of action was artificial (tax avoidance). Issues related to the application of the provisions of this clause in time are regulated by Article 7 of the Amending Act, according to which the provisions of Articles 119a-119f of the Act amended in Article 1 apply to the tax advantage obtained after the date of entry into force of this Act. Thus, the anti-avoidance clause applies to tax benefits obtained after the date of entry into force of the amending law, i.e. from 15 July 2016, which, moreover, was not in dispute in the present case. Considering the above, it should be pointed out that the tax authorities in the case at hand had no authority to use such argumentation as if the anti-avoidance clause applied. In the legal state in force in 2013. (applicable in the present case) the general anti-avoidance clause was not in force. This state of affairs amounts to a prohibition on the tax authorities disregarding the tax consequences of legal transactions carried out primarily for the purpose of obtaining a tax advantage.” Click here for English translation. Click here for other translation Poland case no I SA_Po 1058_21 - Wyrok WSA w Poznaniu z 2022-03-28
India vs Synamedia Limited, February 2022, Income Tax Appellate Tribunal - BANGALORE, Case No ITA No. 3350/Bang/2018

India vs Synamedia Limited, February 2022, Income Tax Appellate Tribunal – BANGALORE, Case No ITA No. 3350/Bang/2018

Synamedia Ltd. provides open end-to-end digital technology services to digital pay television platform operators. The company has expertise in the area of providing conditional access system, interactive systems and other software solutions as well as integration and support services for digital pay TV networks. For FY 2014-15 the company filed a tax return with nil income. The case was selected for a transfer pricing audit. The tax authorities in India accepted the arm’s length pricing determined by Synamedia, but some of the intra-group licence payments for software were considered subject to withholding taxes in India. Hence an assessment was issued. An appeal was filed by the company. Judgement of the Tax Appellate Tribunal The Tribunal decided in favor of Synamedia Ltd. and set aside the assessment. After analyzing the terms of the agreement the Tribunal concluded that the terms of agreement in the present case are similar to those considered by the Indian Supreme Court in the case of Engineering Analysis Centre of Excellence. Excerpt “The terms of the licence in the present case does not grant any proprietory interest on the licencee and there is no parting of any copy right in favour of the licencee. It is non-exclusive non-tranferrable licence merely enabling the use of the copy righted product and does not create any interest in copy right and therefore the payment for such licence would not be in the nature of royalty as defined in DTAA. We therefore hold that the sum in question cannot be brought to tax as royalty.” “Technical and commercial proposal given by the Assessee along with the STB provides technical specifications for the engineering of the relevant systems. That by itself cannot be the basis to conclude that there has been use of any copyright or that technical services have been provided. This is like providing a technical and user manual describing the system and does not imply granting of any copyright rights or transferring technical knowledge. The software is only licensed for use without granting any license.” 1645098057-TP-3350-NDS Limited-GGK-PS
France vs IKEA, February 2022, CAA of Versailles, No 19VE03571

France vs IKEA, February 2022, CAA of Versailles, No 19VE03571

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”, the term “royalties” meaning, according to point 2. of this Article 12, “remuneration of any kind paid for the use of, or the right to use, (…) a trade mark (…)”. As the franchise fees paid by Ikea France to Inter Ikea Systems BV were taxable in the Netherlands, Ikea France was not obligated to pay withholding taxes provided for by the provisions of Article 182 B of the General Tax Code. However, the tax authorities held that the arrangement set up by the IKEA group constituted abuse of law and furthermore that Inter Ikea Systems BV was not the actual beneficiary of the franchise fees paid by Ikea France. On that basis, an assessment for the fiscal years 2010 and 2011 was issued according to which Ikea France was to pay additional withholding taxes and late payment interest in an amount of EUR 95 mill. The court of first instance decided in favor of Ikea and the tax authorities then filed an appeal with the CAA of Versailles. Judgement of the CAA of Versailles The Court of appeal upheld the decision of the court of first instance and decided in favor of IKEA. Excerpt “It follows from the foregoing that the Minister, who does not establish that the franchise agreement concluded between SNC MIF and the company IIS BV corresponds to an artificial arrangement with the sole aim of evading the withholding tax, by seeking the benefit of the literal application of the provisions of the Franco-Dutch tax convention, is not entitled to maintain that the administration could implement the procedure for abuse of tax law provided for in Article L. 64 of the tax procedure book and subject to the withholding tax provided for in Article 182 B of the general tax code the royalties paid by SNC MIF by considering them as having directly benefited the Interogo foundation. On the inapplicability alleged by the Minister of the stipulations of Article 12 of the tax convention without any reference to an abusive arrangement: If the Minister maintains that, independently of the abuse of rights procedure, the provisions of Article 12 of the tax treaty are not applicable, it does not follow from the investigation, for the reasons set out above, that IIS BV is not the actual beneficiary of the 70% franchise fees paid by SAS MIF. It follows from all of the above that the Minister is not entitled to argue that it was wrongly that, by the contested judgment, the Versailles Administrative Court granted SAS MIF the restitution of an amount of EUR 95,912,185 corresponding to the withholding taxes payable by it, in duties, increases and late payment interest, in respect of the financial years ended in 2010 and 2011. Consequently, without there being any need to examine its subsidiary conclusions regarding increases, its request must be rejected.” Click here for English translation Click here for other translation France vs Ikea, CAA de VERSAILLES, 1ère chambre, 08_02_2022, 19VE03571
Austria vs "ACQ-Group", February 2022, Bundesfinanzgericht, Case No RV/7104702/2018

Austria vs “ACQ-Group”, February 2022, Bundesfinanzgericht, Case No RV/7104702/2018

“ACQ-Group” had acquired the shares in foreign subsidiaries and financed the acquisition partially by intra group loans. Furthermore, in the years following the acquisition, goodwill amortisations were deducted for tax purposes. The tax authorities issued an assessment where the interest rate on the loans had been reduced, and where costs related to external financing and amortisations of acquired goodwill had been denied. An appeal was filed by “ACQ”. Decision of the Federal Tax Court Before the judgment was delivered the appeal filed by “ACQ” in regards of the interest rate on the intra group loans was withdrawn. “***Firma*** Services GmbH pays interest of a non-variable 9% p.a. to the affiliated (grandparent) company ***6*** for an intercompany loan (“Intercompany Loan”). As stated in the statement of facts in the enclosure, the high difference between the intercompany loan interest rate and the arm’s length interest rate is a clear violation of the arm’s length principle as defined in the OECD Transfer Pricing Guidelines and the current case law of the Administrative Court. The payments exceeding the arm’s length interest rates constitute a hidden distribution.” The Court partially upheld the appeal and amended the assessment in regards of goodwill amortisations and financing costs. Goodwill amortisation within the meaning of section 9(7) KStG 1988 and the deduction of interest on borrowed capital in the case of acquisitions of shareholdings pursuant to section 11(1)(4) KStG 1988 were introduced with the 2005 Tax Reform Act in order to make Austria more attractive as a business location. § Section 9 (7) KStG 1988 contained a “group barrier” from the beginning in order to prevent arrangements within the group or within the group of companies. Thus, goodwill amortisation is not available if the participation is acquired by a company belonging to the group or by a shareholder exercising a controlling influence. The Budget Accompanying Act 2011 restricted the deductibility of interest on borrowed capital to the extent that debt-financed group acquisitions should no longer lead to a deduction of operating costs. The explanatory notes justified this change in the law by stating that undesirable arrangements in the group, which led to an artificial generation of operating expenses, should be prevented. Click here for English translation Click here for other translation RV-7104702-2018
US vs TBL LICENSING LLC, January 2022, U.S. Tax Court, Case No. 158 T.C. No 1 (Docket No. 21146-15)

US vs TBL LICENSING LLC, January 2022, U.S. Tax Court, Case No. 158 T.C. No 1 (Docket No. 21146-15)

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 “[p]etitioner’s increase in income for the transfer of the trademarks is $1,274,100,000.†Adding that figure to the agreed value of the foreign workforce and customer relationships that petitioner transferred to TBL GmbH and reducing the sum by the agreed trademark basis, we conclude that petitioner’s income for the taxable year in issue should be increased by $1,452,561,000 ($1,274,100,000 +$23,400,000 + $174,400,000 − $19,339,000), as determined in the notice of deficiency. Because petitioner did not assign error to the other two adjustments reflected in the notice of deficiency, it follows that respondent is entitled to judgment as a matter of law. Accordingly, we will grant respondent’s motion for summary judgment and deny petitioner’s corresponding motion.” Click here for translation US vs TBL Licensing LLC Jan 2022 US tax court
Sweden vs Flir Commercial Systems AB, January 2022, Administrative Court of Appeal, Case No 2434–2436-20

Sweden vs Flir Commercial Systems AB, January 2022, Administrative Court of Appeal, Case No 2434–2436-20

In 2012, Flir Commercial Systems AB sold intangible assets from a branch in Belgium and subsequently claimed a tax relief of more than SEK 2 billion in fictitious Belgian tax due to the sale. The Swedish Tax Agency decided not to allow relief for the Belgian “taxâ€, and issued a tax assessment where the relief of approximately SEK 2 billion was denied and a surcharge of approximately SEK 800 million was added. An appeal was filed with the Administrative Court, In March 2020 the Administrative Court concluded that the Swedish Tax Agency was correct in not allowing relief for the fictitious Belgian tax. In the opinion of the Administrative Court, the Double tax agreement prevents Belgium from taxing increases in the value of the assets from the time where the assets were owned in Sweden. Consequently, any fictitious tax cannot be credited in the Swedish taxation of the transfer. The Court also considers that the Swedish Tax Agency was correct in imposing a tax surcharge and that there is no reason to reduce the surcharge. The company’s appeal is therefore rejected. An appeal was then filed with the Administrative Court of Appeal Decision of the Administrative Court of Appeal The Court upheld the decision of the Administrative Court and the assessment issued and the penalty added by the tax authorities. The Administrative Court of Appeal found that when assessing the amount of credit to be given for notional tax on a transfer of business, the tax treaty with the other country must also be taken into account. In the case at hand, assets were transferred to the company’s Belgian branch shortly before the assets were disposed of through the transfer of business. The tax treaty limited Belgium’s taxing rights to the increase in value accrued in Belgium after the allocation and a credit could be given up to an amount equal to that tax. In the case at hand, the company had claimed a notional credit for tax on the increase in value that had taken place in Sweden before the assets were transferred to Belgium, while the transferee company in Belgium was not taxed on the corresponding increase in value when the assets were subsequently disposed of, as the Belgian tax authority considered that the tax treaty prevented such taxation. The Court of Appeal held that there were grounds for back-taxation and the imposition of a tax surcharge on the basis of incorrect information. The information provided by the company was not considered sufficient to trigger the Tax Agency’s special investigation obligation and the tax fine was not considered unreasonable even though it amounted to a very large sum. Click here for English Translation Click here for translation Sv Flir 2434-2436-20
Greece vs "GSS Ltd.", December 2021, Tax Court, Case No 4450/2021

Greece vs “GSS Ltd.”, December 2021, Tax Court, Case No 4450/2021

An assessment was issued for FY 2017, whereby additional income tax was imposed on “GSS Ltd” in the amount of 843.344,38 €, plus a fine of 421.672,19 €, i.e. a total amount of 1.265.016,57 €. Various adjustments had been made and among them interest rates on intra group loans, royalty payments, management fees, and losses related to disposal of shares. Not satisfied with the assessment, an appeal was filed by “GSS Ltd.” Judgement of the Tax Court The court dismissed the appeal of “GSS Ltd.” and upheld the assessment of the tax authorities Excerpts “Because only a few days after the entry of the holdings in its books, it sold them at a price below the nominal value of the companies’ shares, which lacks commercial substance and is not consistent with normal business behaviour. Since it is hereby held that, by means of the specific transactions, the applicant indirectly wrote off its unsecured claims without having previously taken appropriate steps to ensure its right to recover them, in accordance with the provisions of para. 4 of Article 26 of Law 4172/2013 and POL 1056/2015. Because even if the specific actions were suggested by the lending bank Eurobank, the applicant remains an independent entity, responsible for its actions vis-à-vis the Tax Administration. In the absence of that arrangement, that is to say, in the event that the applicant directly recognised a loss from the write-off of bad debts, it would not be tax deductible, since the appropriate steps had not been taken to ensure the right to recover them. Because on the basis of the above, the audit correctly did not recognise the loss on sale of shareholdings in question. The applicant’s claim is therefore rejected as unfounded.” “Since, as is apparent from the Audit Opinion Report on the present appeal to our Office, the audit examined the existence or otherwise of comparable internal data and, in particular, examined in detail all the loan agreements submitted by the applicant, which showed that the interest rates charged to the applicant by the banks could not constitute appropriate internal comparative data for the purpose of substantiating the respective intra-group transactions, since the two individual stages of lending differ as to the nature of the transactions. (a) the existence of contracts (the bank loans were obtained on the basis of lengthy contracts, unlike the loans provided by the applicant for which no documents were drawn up, approved by the Board of Directors or general meetings), (b) the duration of the credit (bank loans specify precisely the time and the repayment instalments, unlike the applicant’s loans which were granted without a specific repayment schedule), (c) the interest rate (bank loans specify precisely the interest rate on the loan and all cases where it changes, unlike the applicant’s loans, (d) the existence of collateral (the bank loans were granted with mortgages on all the company’s real estate, with rental assignment contracts in the case of leasing and with assignment contracts for receivables from foreign customers (agencies), unlike the applicant’s loans which were granted without any collateral), (e) the size of the lending (the loans under comparison do not involve similar funds), (f) security conditions in the event of non-payment (the bank loans specified precisely the measures to be taken in the event of non-payment, unlike the applicant’s loans, for which nothing at all was specified), (g) the creditworthiness of the borrower (the banks lent to the applicant, which had a turnover, profits and real estate, unlike the related companies, most of which had no turnover, high losses and negative equity), (h) the purpose of the loan (83 % of the applicant’s total lending was granted to cover long-term investment projects as opposed to loans to related parties which were granted for cash facilities and working capital). Since, in the event that the applicant’s affiliated companies had made a short-term loan from an entity other than the applicant (unaffiliated), then the interest rate for loans to non-financial undertakings is deemed to be a reasonable interest rate for loans on mutual accounts, as stated in the statistical bulletin of the Bank of Greece for the nearest period of time before the date of the loan (www.bankofgreece.gr/ekdoseis-ereyna/ekdoseis/anazhthsh- ekdosewn?types=9e8736f4-8146-4dbb-8c07-d73d3f49cdf0). Because the work of this audit is considered to be well documented and fully justified. Therefore, the applicant’s claim is rejected as unfounded.” Click here for English translation Click here for other translation Greece 4450-2021
Switzerland vs A AG, September 2021, Administrative Court, Case No SB.2020.00011/12 and SB.2020.00014/15

Switzerland vs A AG, September 2021, Administrative Court, Case No SB.2020.00011/12 and SB.2020.00014/15

A AG, which was founded in 2000 by researchers from the University of Applied Sciences D, has as its object the development and distribution of …, in particular in the areas of ….. It had its registered office in Zurich until the transfer of its registered office to Zug in 2021. By contract dated 16 June 2011, it was taken over by Group E, Country Q, or by an acquisition company founded by it for this purpose, for a share purchase price of EUR …. On the same day, it concluded two contracts with E-Schweiz AG, which was in the process of being founded (entered in the Commercial Register on 7 September 2011), in which it undertook to provide general and administrative services on the one hand and research and development on the other. As of 30 September 2011, A AG sold all ”Intellectual Property Rights” (IPR) and ”Non-Viral Contracts” to E-Company, a company in U with tax domicile on the island of V, for a price of EUR … for the IPR and EUR … for the ”Non-Viral Contracts”. A AG had neither identifiable operating activities nor personnel substance in the financial year from 01.10.2011-30.09.2012 following the shareholding transaction. The transfer of the tangible and intangible business assets and the personnel of A AG to other companies of the E group corresponded to an integration plan that had already been set out in a draft power point presentation of the E group prior to the acquisition of the shares. Following an audit the tax authorities issued an assessment for additional taxable net profit for the tax period 01.01.-30.09.2011 for state and communal taxes and direct federal tax, as well as taxable equity of CHF … for state and communal taxes. The assessed taxable net profit included a hidden profit distribution from the sale of the IPR and customer relationships to the E-Company. The calculations of profits was made as a discretionary estimate. An appeal was filed by A AG with the tax court which was dismissed with respect to the calculations of profits due to the sale of intangible assets at a lower price, but were upheld with respect to the transfer of functions. An appeal was then filed with the administrative court by both A AG and the tax authorities. A AG requested that the assessment of the Tax Office be dismissed with costs and compensation. The Tax Office requested the dismissal of the complaints of the obligated party and the annulment of the decision of the Tax Appeal Court and confirmation of the objection decisions with costs to be borne by the obligated party. Judgement of the Administrative Court The court ruled in favour of the tax authorities and remanded the case to the court of first instance for recalculation. Excerpts “The subject matter of the proceedings are reorganisation measures carried out after the change of shareholders, which were connected with the sale of assets of the obligated party to other group companies and the abandonment of traditional operating activities. The dispute revolves around the question of whether the obligated party provided services to related companies under conditions that do not comply with the principles of tax law regarding the appropriateness of performance and consideration between related parties and whether it therefore provided non-cash benefits or hidden profit distributions that are subject to profit tax.” “According to the correct findings of the Tax Appeals Court, to which reference can be made, the large discrepancy between the values according to the transfer price study of company I and the share purchase price and the result of the PPA was suitable to cast doubt on the correctness of the transfer price study. Even if the objections to the comparability with the PPA were true, the relevance of the PPA (wrongly disputed by the obligated party) could not be verified without the data used in its preparation. The share purchase price was agreed among independent third parties and therefore corresponded to the enterprise value at the time of the acquisition of the shareholding. According to the findings of the lower court, the transfer price study was only subsequently prepared in 2012 and is incomplete in various respects, which was not refuted by the obligated party. The Tax Appeals Court therefore concluded that the requirement had not been fulfilled and that the facts of the case had remained unclear. In particular, there had been uncertainty about the actual value of the intangible rights sold after the investigation had been completed. The Cantonal Tax Office’s assertion that the agreed purchase price for the intangible rights was too low had not been refuted and, based on the comparison with the PPA and the share purchase price, this assertion appeared very likely. The Cantonal Tax Office had therefore provided the main evidence incumbent upon it. Because the cantonal tax office had not been able to carry out its own valuation due to the lack of data, it had rightly proceeded to an estimate. According to the decision of the lower court, the discretionary assessments regarding the profit from the sale of the intangible assets were rightly made.” “Moreover, the burden of proving the obvious incorrectness of the discretionary assessment is placed on the taxpayer, which is not to be equated with a “reversal of the burden of proof” (on the whole Zweifel/Hunziker, Kommentar StHG, Art. 48 N. 44; diesel, Kommentar DBG, Art. 132 N. 37; Zweifel et al., Schweizerisches Steuerverfahrensrecht, § 20 Rz. 22).” “An estimate is “obviously incorrect” if it cannot be objectively justified, in particular if it is recognisably motivated by penalties or fiscal considerations, if it is based on improper bases, methods or aids for estimation or if it cannot otherwise be reasonably reconciled with the circumstances of the individual case as known from the experience of life. Obviously incorrect is therefore an estimate that is based on an abusive use of the estimation discretion, i.e. is arbitrary (Zweifel/Hunziker, Kommentar StHG, Art. 48 N. 59; dieselben, Kommentar DBG, Art. 132 N.
France vs SA SACLA, August 2021, CAA of Lyon, Case No. 17LY04170

France vs SA SACLA, August 2021, CAA of Lyon, Case No. 17LY04170

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 five years granted by Involvex to SA SACLA. The expert report was filed on 8 April 2021. After receiving the expert report SA SACLA asked the court to change the judgment by considering that the value of the transferred trademarks should be set at a sum of between 1.3 and 2.1 million euros and that penalties for deliberate breach should be discharged. Judgement of the Court of Appeal The court dismissed the request filed by SACLA and determined the value of the trademarks – in accordance with the expert report – to be 5,897,610 euros. Excerpt “The value of the trademarks transferred by SACLA, initially declared by that company in the amount of EUR 90,000 excluding tax, was corrected by the tax authorities to EUR 11,288,000 excluding tax, and was then reduced by the judgment under appeal to EUR 8,733,348 excluding tax. It follows from the investigation, in particular from the expert’s report filed on 8 April 2021, that this value, taking into account the exemption from payment of royalties granted by the purchaser of the trademarks in the amount of 2,400,000 euros excluding tax and after taking into account corporate income tax, must be established at the sum of 5,897,610 euros excluding tax. The result is a difference between the agreed price and the value of the trade marks transferred in the amount of EUR 5 807 610 excluding tax, which constitutes an advantage for the purchaser. The applicant, who merely contests the amount of that advantage, does not invoke any interest or consideration of such a nature as to justify such an advantage. In these circumstances, the administration provides the proof that it is responsible for the existence of a reduction in the price of the sale of assets and the existence of an indirect transfer of profits abroad.” Click here for English translation Click here for other translation CAA de LYON, 5ème chambre, 19_08_2021, 17LY04170, Inédit au recueil Lebon -Scala
Israel vs Sephira & Offek Ltd and Israel Daniel Amram, August 2021, Jerusalem District Court, Case No 2995-03-17

Israel vs Sephira & Offek Ltd and Israel Daniel Amram, August 2021, Jerusalem District Court, Case No 2995-03-17

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 of Sephira & Offek Ltd, the trademark was labeled as “goodwill†and amortized. Following an audit the tax authorities determined that the sale of the trademark was an artificial transaction. Furthermore, they found that part of the profit labeled by Sephira & Offek Ltd as R&D income (subject to a lower taxation in Israel) should instead be labeled as ordinary income. On that basis an assessment was issued. Sephira & Offek Ltd and IDA disapproved of the assessment and took the case to Court. Judgement of the Court The court ruled in favor of the tax authorities. The trademark  transaction was artificial, as commercial reasons for the transaction (other than tax optimization) had been provided. The whole arrangement was considered non-legitimate tax planning. The court also agreed that part of the income classified by the company as R&D income (subject to reduced taxes) should instead be taxed as ordinary income. Click here for English translation Click here for other translation Israel vs Sephira & Offek Ltd_2995-03-17
Belgium vs "Uniclick B.V.", June 2021, Court of Appeal, Case No 2016/AR/455

Belgium vs “Uniclick B.V.”, June 2021, Court of Appeal, Case No 2016/AR/455

“Uniclick B.V.” had performed all the important DEMPE functions with regard to intangible assets as well as managing all risks related to development activities without being remunerated for this. Royalty-income related to the activities had instead been received by a foreign group company incorporated in Ireland and with its place of management in Luxembourg. In 2012, the administration sent notices of amendment to the tax return to the respondent for assessment years 2006 and 2010. The tax administration stated that “Uniclick B.V.”, through its director B.T. and employees M.C. and S.M., invented and developed the Uniclic technology in 1996 and continued to exploit it, and that the subsequent transfer of rights to the Uniclic invention to U.B. BV was simulated. The administration added the profits foregone annually by the “Uniclick B.V.”, i.e. the royalties received by F. from third party licensees less the costs borne by F., to “Uniclick B.V’s” taxable base. “Uniclick B.V.” disagreed with this and argued, among other things, that the tax administration had failed in demonstrating that the transfer of the Uniclic invention and the right to patent had been recognised by various third parties and was not fiscally motivated. “Uniclick B.V.” further disputed the existence of tax evasion and raised a number of breaches of procedural rules – including retrospective application of the DEMPE concept introduced in the 2017 Transfer Pricing Guidelines. The tax administration maintained its position and sent the notices of assessment. The assessment was appealed by “Uniclick B.V.” and the court of first instance found the appeal admissible and dismissed the assessment. This decision was then appealed by the tax authorities. Judgement of the Court of Appeal The Court of Appeal concluded that the administration failed in its burden of proof that the transfer prices applied between F. and Uniclick B.V for assessment year 2010 were not in accordance with the arm’s length principle. The administration did not show that Uniclick B.V. granted an abnormal or gratuitous advantage to F. in income year 2009, which should be added to its own profit by virtue of Article 26 WIB92. Since the existence of the abnormal or gratuitous advantage was not proven, it was not necessary to discuss the claim of the tax administration, put forward in secondary order, to determine what an arm’s length remuneration would be in respect of the functions performed, assets owned and risk born by “Uniclick B.V.” Excerpt “The discussion between the parties regarding the applicability of the OECD TPG 2017 is legally relevant notwithstanding the question whether it is decisive in the factual assessment (see factual assessment in section 4.3.3 below). The OECD guidelines are intended to provide insight into how the at arm’s length principle can be applied in practice and contain recommendations for determining transfer pricing policy. The OECD guidelines as such have no direct effect in Belgium but are used as a starting point in the area of transfer pricing. From the conclusion of the Belgian State supporting the filed subsidiary assessment, it is clear that the administration bases the valuation of the abnormal or gratuitous benefit at least partially on the 2017 version of the OECD TPG. However, the 1995, 2010 and 2017 versions of the OECD TPG differ in a number of respects and to varying degrees. These differences range from mere clarifications that do not impact on the content of previous versions to completely newly developed parts, namely recommendations that were not included, even implicitly, in previous versions. One of these completely newly developed parts that have only been included in the 2017 OECD TPG concerns the DEMPE functional analysis method as well as the method of ex post outcomes of hard-to-value intangibles, on which the Belgian State bases the subsidiary assessment at issue at least in part. The subsidiary assessment relates to the 2010 tax year/the 2009 income year in which the economic context and the regulatory framework applicable in 2009 had to be taken into account. The only OECD TPG available at the time were the 1995 OECD TPG. In the light of this, the administration is permitted to base the valuation on the 1995 OECD TPG (which, moreover, as stated above, are merely a non-binding instrument). The administration is also permitted to base the valuation on later versions of the OECD TPG (such as those of 2010), but only to the extent that these contain useful clarifications, without further elaboration, of the 1995 OECD TPG. The 2017 OECD TPG were published after 2009 and to the extent that the recommendations contained therein have evolved significantly since the 1995 OECD TPG, they cannot be applied in the current dispute. In particular, the DEMPE functional analysis method and the method of a posteriori results of intangibles that are difficult to value cannot be usefully applied in the present dispute from a temporal point of view, as these are tools that are only set out in the 2017 OECD TPG. Moreover, this position is also confirmed in Circular 2020/C/35 of 25 February 2020, which summarises and further interprets the 2017 OECD TPG, in which the administration explicitly states in para. 284 that the provisions of the Circular are in principle only applicable to transactions between related companies taking place as of 1 January 2018 (see also EU General Court judgment, 12 May 2021, cases T-816/17 and T-318/18, Luxembourg-lreland-Amazon v. Commission, para. 146- 155).” Click Here for English Translation Click here for other translation Belgium DEMPE Gent June 2021
Portugal vs "B Restructuring LDA", February 2021, CAAD, Case No  255/2020-T

Portugal vs “B Restructuring LDA”, February 2021, CAAD, Case No 255/2020-T

B Restructuring LDA was a distributor within the E group. During FY 2014-2016 a number of manufacturing entities within the group terminated distribution agreements with B Restructuring LDA and subsequently entered into new Distribution Agreements, under similar terms, with another company of the group C. These events were directed by the Group’s parent company, E. The tax authorities was of the opinion, that if these transaction had been carried out in a free market, B would have received compensation for the loss of intangible assets – the customer portfolio and the business and market knowledge (know-how) inherent to the functions performed by B. In other words, these assets had been transferred from B to C. The tax authorities performed a valuation of the intangibles and issued an assessment of additional taxable income resulting from the transaction. E Group disagreed with the assessment as, according to the group, there had been no transaktion between the B and C. Furthermore the group held that there was no transaction or disposal of intangibles, as B could not sell what did not belong to it, namely the client portfolio, which had been, almost in its entirety, raised by the Group, prior to its use by B. Result reached in the arbitration tribunal The Tribunal set aside the assessment of additional income in respect of transfer of intangibles. Excerpts “…The Tax Authorities, anchored in the positions of the OECD, states in the RIT that: “From this perspective, the acceptance by B… of a distribution contract, on which the entirety of its activity depends, containing clauses that (i) harm its individual interest (Clause 11, which provides that the parties waive the right to claim damages in connection with the execution or termination of the contract) […] is a decision that differs from the rationality of pursuing self-interest that would exist in an independent company ” Indeed, the position that independent entities, when transacting with each other, would require consideration for the transfer of assets is understandable. However, it is also true that § 6.13 of the OECD Guidelines underlines that within a Group there are special relationships, with rules specific to the Group, which should not be automatically called into question for failure to respect the arm’s length principle, particularly in transactions involving intangibles. In this context, the RIT is totally silent, and should not be, on the value of the Group’s contribution to B… customers, as based on the evidence, in particular in the logic of application of the excess earnings method (and respective elements contributing to the assets under appraisal). In a transaction between independent parties, the selling party, having previously obtained such a right or intangible asset, certainly through the payment of a consideration, what it would gain is the value arising from its specific contribution, and not the total value of the asset, since a substantial part of it was not developed by it . In the present case, the profit of B… would have to be deducted the value contributed by the group for the portfolio of clients reallocated to C… . If a compensation for the reallocation of B…’s intangibles was accepted, it would also have to be analysed how it would be shared among the Group’s entities that contributed to the generation of the reallocated intangibles. In light of all the foregoing, it can be concluded that the tax acts of assessment of the CIT and the compensatory interest inherent thereto are vitiated by an error in the assumptions and can therefore be annulled on the grounds of substantive defects, by virtue of the AT’s failure to observe the legal criteria of the method for determining the comparable market price (PCM) or other alternative method. Specifically: a. The allegedly comparable price was obtained by the AT from the data of a controlled transaction, and not from a transaction between independent parties – which is not admissible under Article 63 of the IRC Code, Ministerial Order 1446-C/2001 and the OECD Guidelines that enshrine the guidelines to be followed for this purpose; b. The evaluation method used was the discounted cash-flow method, which has as general postulate that the value of an asset (or company) is based on the cash flows that it will release, updated (present value) to the moment when the transaction of that asset (or company) takes place. However, inconsistently, despite invoking that method, the AT did not rely on a projection of cash flows for a multi-year period, basing itself on the profits (and not, as stated, cash flows) of a given year – 2014 (and not, as stated, on a multi-year basis); c. Relevant comparability factors were not taken into account, such as, in the present case, the fact that the “profit” of B… should be deducted the value contributed by the Group for the portfolio of clients reallocated to C…”. Also with regard to the choice of method, in the words of the TCA Sul, in its Judgment of 25 January 2018, rendered in Case No. 06660/13 (available in http://www.dgsi.pt): “Transfer prices, as we have already stated, must be determined in accordance with the arm’s length principle (Pursuant to article 2 of Ordinance no. 1446-C/2001, the arm’s length principle is applicable (i) to controlled transactions between an IRS or IRC taxpayer and a non-resident entity; (ii) to transactions carried out between a non-resident entity and its permanent establishment, including those carried out between a permanent establishment in Portuguese territory and other permanent establishments of the same entity located outside this territory; (iii) controlled transactions carried out between entities resident in Portuguese territory subject to IRS or IRC. And by virtue of Article 58(10) of the CIRC and Article 23 of the above-mentioned Ministerial Order, the arm’s length principle is also applicable to the situations provided for therein. Maybe for this reason, the legislator consecrated an open clause regarding the methods to be adopted to determine the transfer prices (see the wording of paragraph b) of article 4 of Ministerial Order no. 1446-C/2001, of 21st March).
Italy vs Vibac S.p.A., January 2021, Corte di Cassazione, Case No 1232/2021

Italy vs Vibac S.p.A., January 2021, Corte di Cassazione, Case No 1232/2021

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 not excluding that in some cases one of the basic criteria adopted for the transfer of tangible goods (comparison, resale or increased cost) may be applied, points out that it should not be overlooked that a licence agreement depends essentially on the forecasts of the result that may be achieved by the licensee in the territory to which the right of exploitation refers and that it is, therefore, necessary to develop subsidiary valuation methods, always inspired by the principle of the arm’s length price, i.e. the price that would have been agreed upon between independent undertakings. With regard to the determination of the fee concerning the use of intangible assets, the circular notes that it is greatly affected by the specific characteristics of the economic sector to which the intangible right refers and that, in general, it is commensurate with the turnover of the licensee, so that the reference to these indices is a valid initial data for the assessment of the “normal value”. Vibac S.p.A. did not approve of the assessment an brought the case to court. The court of first instance held in favour of the tax authorities. This decision was then appealed to Corte di Cassazione. Judgement of the Court The Italien Corte di Cassazione upheld the decision of the court of first instance and dismissed the appeal of Vibac S.p.A. Excerpts: Indeed, the rationale of the abovementioned domestic tax legislation is to be found in the safeguarding of the principle of free competition, as set out in Article 9 of the OECD Model Convention, which is to be interpreted in the light of the specific features of tax law on tax arbitrage. In fact, the rationale of the domestic tax rules referred to above is to be found in the safeguarding of the principle of free competition, set out in Article 9 of the OECD Model Convention, which provides for the possibility of taxing profits arising from intra-group transactions that have been governed by conditions different from those that would have been agreed between independent companies in comparable transactions carried out on the free market; it is therefore necessary to verify the economic substance of the transaction and to compare it with similar transactions carried out, in comparable circumstances, in free market conditions between independent parties and to assess its compliance with these (Court of Cassation no. 5645 of 2020, id. no. 9615 of 2019; id. 27018 of 2017). Thus, company policy, taken in itself, is not a necessary and sufficient cause of justification for derogating from the normal value rule. Since the normal value of a transaction is a function of the economic characteristics of the transaction, the transaction from which the normal value is to be derived will concern (a) goods and services of the same kind, (b) at the same marketing stage, (c) at the same time and (d) in the same market where the goods or services were acquired. In order to achieve the highest possible degree of comparability, the second part of Article 9 TUIR states that “for the determination of normal value”, reference should be made, “as far as possible, to the price lists or tariffs of the person who supplied the goods or services”. The presence of varied intra-group commercial transactions fully captures the estimative meaning of Article 9, as well as the OECD model. The adoption of the Resale Price Method is advocated, not only by Circular 22.9.1980 (No. 32/9/2267), but also and above all by the 1995 OECD Report. Click here for English translation Click here for other translation Corte di Cassazione 1232-2021
France vs Ferragamo France, November 2020, Conseil d'Etat, Case No 425577

France vs Ferragamo France, November 2020, Conseil d’Etat, Case No 425577

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 Salvatore Ferragamo SPA, nor the amount of this advantage. Judgement of the Conseil d’Etat The Conseil d’Etat overturned the decision of the Administrative Court and remanded the case back to the Administrative Court of Appeal for further considerations. “In ruling that the administration did not establish the existence of an advantage granted to the Italian company on the grounds that the French company’s results for the financial years ending from 2010 to 2015 had been profitable without any change in the company’s transfer pricing policy, whereas it had noted that the exposure of additional charges of wages and rents in comparison with independent companies was intended to increase, in a strategic market in the luxury sector, the value of the Italian brand which did not yet have the same notoriety as its direct competitors, the administrative court of appeal erred in law. Moreover, although it emerged from the documents in the file submitted to the trial judges that the tax authorities had established the existence of a practice falling within the provisions of Article 57 of the General Tax Code, by showing that the remuneration granted by the Italian company was not sufficient to cover the additional expenses which contributed to the value of the Salvatore Ferragamo trade mark incurred by the French subsidiary and by arguing that the latter had been continuously loss-making since at least 1996 until 2009, the court distorted the facts and documents in the file. By dismissing, under these conditions, the existence of an indirect transfer of profits to be reintegrated into its taxable income when the company did not establish, by merely claiming a profitable situation between 2010 and 2015, that it had received a consideration for the advantage in question, the court incorrectly qualified the facts of the case.” Click here for English Translation Click here for other translation Fr vs IT fash
Austria vs S GmbH, November 2020, Verwaltungsgerichtshof, Case No Ra 2019/15/0162-3

Austria vs S GmbH, November 2020, Verwaltungsgerichtshof, Case No Ra 2019/15/0162-3

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 be attributed in their entirety to S GmbH as the beneficial owner of the trade marks, which meant that the licence payments to M GmbH were also not to be recognised for tax purposes. S GmbH had created the trademark rights, which had been valued at a total value of €383.5 million in the course of its spin-off; the decisions regarding the use, creation, advertising and licensing of the trademark rights continued to lie with the decision-makers of the operational company advertising the revisions at the Austrian group location. The Maltese management was present at meetings with advertising agencies in Austria, but its activities did not actually go beyond support and administration. The aim of the chosen structure had been a tax-saving effect, whereby the actual taxation of the licence income in Malta had been 5%. A complaint filed by S GmbH was dismissed by the Bundesfinanzgericht. S GmbH then filed an appeal with the Verwaltungsgerichtshof. Judgement of the Court The Court dismissed the appeal of S GmbH and upheld the decision of the tax authorities Excerpts: “In the appeal case, the BFG found that the trademark rights had been created before the separation of the companies. No new trademarks had been registered during the audit period. The advertising line was determined by a two-year briefing of the group and was based on the requirements of the licensees. The brand managers of M GmbH participated in the process, but the decisions were made by the organs of the appellant, which spent over €56 million in 2008 and almost €68 million in 2009 on advertising and marketing.. In contrast, M GmbH had hardly incurred any advertising expenses, and its salary expenses were also disproportionate to the tasks of a company that was supposed to manage corporate assets of almost €400 million in trademark rights and to act as the (also economic) owner of these assets. The minimal salary expenditure, which amounted to a total of € 91,791.0 in 2008 and € 77,008.10 in 2009 and was distributed among eight persons (most of whom were part-time employees), could only be explained by the fact that all relevant trademark administration, maintenance and management tasks were, as in the past, handled either by group companies (by way of group-internal marketing activities) or by specialists commissioned by the group (trademark lawyer, advertising agency) and that M GmbH only acted in a supporting capacity. If, against this background, the BFG assumes, despite the formal retention of the legal ownership of the trademark rights, that the economic ownership of the trademark rights, which had already been created at that time, was also transferred to the appellant at the time of the spin-off, this cannot be seen as an unlawful act which the Administrative Court should take up. If, in the case at hand, the appellant nevertheless concluded licence agreements with M GmbH, the reason for this cannot have been the acquisition of the right of use to which it was entitled from the outset as the beneficial owner. The BFG was therefore correct in denying that the amounts paid by the appellant under the heading of “licence payments” were business expenses. …” Click here for English translation Click here for other translation VwGH_2019150162_20201127L00

Colombia vs. Taxpayer, November 2020, The Constitutional Court, Sentencia No. C-486/20

A Colombian taxpayer had filed an unconstitutionality complaint against Article 70 (partial) of Law 1819 of 2016, “Whereby a structural tax reform is adopted, mechanisms for the fight against tax evasion and avoidance are strengthened, and other provisions are enacted.” The Constitutional Court ruled that the Colombian GAAR legislation was not unconstitutional. Click here for English translation Click here for other translation (1) Corte Constitucional - Sentencia C-480 del 19 de noviembre de 2020

Ireland vs Perrigo, November 2020, High Court, Case No[2020] IEHC 552 (Juridical Review)

Perrigo has lost is request for overturning a €1.64 billion tax assessment in a judicial review by the Irish High Court. The contention of the Irish Revenue is that a transaction (involving the disposal of intellectual property rights) which has been treated as part of the trade of Perrigo in its corporation tax returns should properly have been treated as a capital transaction. When treated as a capital transaction an effective tax rate of 33% is applied rather than the usual 12.5% rate. The Irish Revenue’s qualification of the transfer in question as an capital transaction results in additional taxes in the amount of €1,636,047,645. The transaction involved the sale to Biogen, in 2013, of Perrigo’s remaining 50% interest in the intellectual property relating to a pharmaceutical product sold under the brand name Tysabri which is used to treat multiple sclerosis and Crohn’s disease. “Perrigo explains that from 1st January, 2000, EPIL [Elan Pharma International Ltd] began to fund the continued development of Tysabri. It sought to find a collaboration partner with the necessary technical capability knowledge and experience in the area of multiple sclerosis research and development. Biogen was chosen as the counterparty as it satisfied both of those requirements. EPIL first disposed of 50% of its interest in the IP relating to Tysabri to Biogen in 2000 and received an upfront payment of US$15 million as reimbursement of research and development expenditure incurred to that date together with milestone payments if certain triggering events in the development process occurred. At the time of this partial disposal, Tysabri had not undergone the full clinical trials process and required “hundreds of millions of dollars of additional research and development investment with absolutely no guarantee of successâ€. Perrigo maintains that all income associated with the 2000 disposal was at the time treated and returned for corporation tax purposes as part of trading income and no issue was raised by the inspector or by the Revenue. Between 2004 and 2006, Tysabri was launched on the United States market, withdrawn from the market and subsequently relaunched. EPIL continued to actively manage the IP asset (representing the remaining 50% interest in the patents and the other IP relating to Tysabri) remaining in its portfolio. This was principally done through the detailed governance arrangements in the Collaboration Agreement with Biogen. It involved (inter alia) trying to establish the efficacy of the drug for the treatment of other diseases (such as Crohn’s disease) and attempting to secure licences for its release in jurisdictions outside the United States.” “Throughout this period of collaboration, EPIL did not manufacture Tysabri. Instead it was manufactured by Biogen. In April, 2013, the remaining 50% interest in the Tysabri IP was sold to Biogen with the consideration paid in the form of an upfront payment together with future contingent payments. The upfront payment received from Biogen in 2013 was included in the trading income in the EPIL tax return filed with Revenue in September, 2014 for the 2013 period. Perrigo complains that it was not until 30th October, 2018, not long before the expiry of the applicable four-year statutory limitation period, that the Revenue issued the audit findings letter in which the contention was made, for the first time, that the disposal of IP did not constitute part of EPIL’s trade.” Perrigo contends that the Revenue is incorrect in characterising the sale of the intellectual property (“the Tysabri IPâ€) as a capital transaction and has appealed the notice of amended assessment to the Tax Appeal Commission (“the TACâ€). In the event that the present application for judicial review fails, it will be for the TAC to determine whether the disposal of the Tysabri IP was or was not a trading transaction. In the proceedings before the court, Perrigo claims that the appeal should never have to proceed before the TAC. Perrigo claims that, irrespective of the nature of the transaction, there was no legal entitlement on the part of the inspector to issue the assessment. Perrigo has instituted these judicial review proceedings challenging the legality of the notice of amended assessment on the grounds that the assessment is (a) in breach of Perrigo’s legitimate expectations; (b) so unfair as to amount to an abuse of power; and (c) that it amounts to an unjust attack on its constitutionally protected property rights. The conclusion of the Irish High Court “Perrigo has failed to establish that there is anything in the course of dealing between the parties which would make it unfair in the present case for the Revenue to exercise its statutory powers under the 1997 Act to issue an amended assessment.” “Perrigo has failed to establish a basis for either the legitimate expectation or the abuse of power/unfairness claims, it seems to me that its argument based on the Constitution must also fail.” “Perrigo has failed to establish any basis to interfere with the assessment issued in respect of the disposal of the Tysabri IP and, accordingly, its claim must be dismissed. Whether the disposal of the Tysabri IP constituted a trading or a capital transaction will now have to be resolved before the Tax Appeals Commissioner, and according to the High Court there are clearly arguments available as to why the disposal of the Tysabri IP should be regarded as a capital transaction. Ireland vs Perrigo 2020_IEHC_552

Denmark vs. Software A/S, September 2020, Tax Court, Case no SKM2020.387.LSR

Software A/S was a fully fledged Danish distributor of software an related services up until 2010 where the company was converted into a commissionaire dealing on behalf of a newly established sales and marketing hub in Switzerland. Following an audit, the Danish tax authorities issued a assessment where additional taxable income from the transfer of intangibles to Switzerland in 2010 had been determined by application of the DCF valuation model. As no transfer pricing documentation had been prepared on the transfer, the assessment was issued on a discretionary basis. Software A/S filed a complaint to the Danish Tax Court. The Tax Court found that the tax authorities did not have the authority to make a discretionary assessment. It was emphasized that the company in its transfer pricing documentation had described the relevant circumstances for the restructuring. Furthermore, the company had analyzed functions and risks and prepared comparability analyzes for transactions before and after the restructuring. However, the Tax Court found that the authorities had proved that during the restructuring, valuable intangible assets had been transferred, which were to be priced in accordance with Danish arm’s length provisions. For this purpose, the Tax Court applied the valuation model prepared by the tax authorities, but where the expected useful life of the assets was limited to only 10 years – and not indefinite as determined by the authorities – resulting in a lower value. Click here for other translation DK vs Software Distributor September 2020
Denmark vs. Adecco A/S, June 2020, Supreme Court, Case No SKM2020.303.HR

Denmark vs. Adecco A/S, June 2020, Supreme Court, Case No SKM2020.303.HR

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 were in line with what would have been agreed if the transactions had been concluded between independent parties and thus compliant  with the requirement in section 2 of the Tax Assessment Act (- the arm’s length principle). In particular, Adecco A/S claimed that the company had lifted its burden of proof that the basic conditions for deductions pursuant to section 6 (a) of the State Tax Act were met, and the royalty payments thus deductible to the extent claimed. According to section 6 (a) of the State Tax Act expenses incurred during the year to acquire, secure and maintain income are deductible for tax purposes. There must be a direct and immediate link between the expenditure incurred and the acquisition of income. The company hereby stated that it was not disputed that the costs were actually incurred and that it was evident that the royalty payment was in the nature of operating costs, since the company received significant economic value for the payments. The High Court ruled in favor of the Danish tax authorities and concluded as follows: “Despite the fact that, as mentioned above, there is evidence to suggest that H1 A/S’s payment of royalties for the use of the H1 A/S trademark is a deductible operating expense, the national court finds, in particular, that H1 A/S operates in a national Danish market, where price is by far the most important competitive parameter, that the company has for a very long period largely only deficit, that it is an agreement on payment to the company’s ultimate parent company – which must be assumed to have its own purpose of being represented on the Danish market – and that royalty payments must be regarded as a standard condition determined by G1 SA independent of the market in which the Danish company is working, as well as the information on the marketing costs incurred in the Danish company and in the Swiss company compared with the failure to respond to the relevant provocations that H1 A/S has not lifted the burden of proof that the payments of royalties to the group-affiliated company G1 SA, constitutes a deductible operating expense, cf. section 6 (a) of the State Tax Act. 4.5 and par. 4.6, the national court finds that the company’s royalty payment cannot otherwise be regarded as a deductible operating expense.” Adecco appealed the decision to the Supreme Court. The Supreme Court overturned the decision of the High Court and ruled in favor of Adecco. The Supreme Court held that the royalty payments had the nature of deductible operating costs. The Supreme Court also found that Adecco A/S’s transfer pricing documentation for the income years in question was not insufficient to such an extent that it could be considered equal to lack of documentation. The company’s income could therefore not be determined on a discretionary basis by the tax authorities. Finally, the Supreme Court did not consider that a royalty rate of 2% was not at arm’s length, or that Adecco A/S’s marketing in Denmark of the Adecco brand provided a basis for deducting in the royalty payment a compensation for a marketing of the global brand. Click here for translation DK Adecco HR-dom 250620

Sweden vs Flir Commercial Systems AB, March 2020, Stockholm Administrative Court, Case No 28256-18

In 2012, Flir Commercial Systems AB sold intangible assets from a branch in Belgium and subsequently claimed a tax relief of more than SEK 2 billion in fictitious Belgian tax due to the sale. The Swedish Tax Agency decided not to allow relief for the Belgian “tax”, and issued a tax assessment where the relief of approximately SEK 2 billion was denied and a surcharge of approximately SEK 800 million was added. The Administrative Court concluded that the Swedish Tax Agency was correct in not allowing relief for the fictitious Belgian tax. A double taxation agreement applies between Sweden and Belgium. In the opinion of the Administrative Court, the agreement prevents Belgium from taxing the assets. Consequently, any fictitious tax cannot be deducted. The Administrative Court also considers that the Swedish Tax Agency was correct in imposing a tax surcharge and that there is no reason to reduce the surcharge. The company’s appeal is therefore rejected. Click here for translation FÖRVALTNINGSRÄTTEN I STOCKHOLM MÃ¥l nr 28256-18, 28261-18 och 22183-19
India vs Toyota Kirloskar Auto Parts Private Limited, March 2020, Income Tax Appellate Tribunal - BANGALORE, Case No IT(TP) No.1915/Bang/2017 &  3377/Bang/2018

India vs Toyota Kirloskar Auto Parts Private Limited, March 2020, Income Tax Appellate Tribunal – BANGALORE, Case No IT(TP) No.1915/Bang/2017 & 3377/Bang/2018

Toyota Kirloskar Auto Parts Private Limited manufactures auto parts and sold them to Toyota Kirloskar Motors Limited, another Indian corporation in the Toyota Group. In FY 2013-14 Toyota Kirloskar Auto Parts Private Limited paid a 5% royalty to the Japanese parent Toyota Motor Corporation for use of know-how. The royalty rate had been determined by application of the TNMM method. The Indian tax authorities did not agree with the choice of method and argued that the most appropriate method was the Profit Split Method (PSM). Judgement of the Tax Appellate Tribunal The Tribunal decided in favor of Toyota Kirloskar Auto Parts and set aside the assessment. Excerpt “17. It is clear from the above OECD guidelines that in ‘order to determine the profits to be split, the crux is to understand the functional profile of the entities under consideration. Although the comparability analysis is at the “heart of the application of the arm’s length principle”, likewise, a functional analysis has always been a cornerstone of the comparability analysis. In the present case the Assessee leverages on the use of technology from the AE and does not contribute any unique intangibles to the transaction. It may be true that the Assessee aggregated payment of royalty with the transaction of manufacturing as it was closely IT(TP)A Nos.1915/Bang/2017 & 3377/Bang/2018 linked and adopted TNMM but that does not mean that the transactions are so interrelated that they cannot be evaluated separately for applying PSM. Further, the Assessee does not make any unique contribution to the transaction, hence PSM in this case cannot be applied. 18. Therefore, we are of the view that TNMM is the Most Appropriate Method in the case of assessee. The decision of the Tribunal in the earlier AY 2008-09 has also been upheld by the Hon’ble High Court of Karnataka in ITA No.104/2015, judgment dated 16.7.2018, which was an appeal of the revenue against the order of Tribunal for AY 2008-09. The Tribunal has upheld TNMM as MAM from AY 2007-08 to 2011-12. In those AYs the dispute was whether TNMM or CUP was the MAM. It is for the first time in AY 2013-14 that the revenue has sought to apply PSM as MAM. In the given facts and circumstances, we are of the view that TNM Method is the Most Appropriate Method and the AO is directed to apply the said method in determining the ALP, after affording opportunity of being heard to the assessee. The grounds of appeal of the assessee are treated as allowed. 19. The facts in AY 2014-15 are identical and the reasoning given in AY 2013-14 will equally apply to the AY 2014-15 also and the TPO is directed to compute the ALP for AY 2014-15 by applying TNMM as the MAM , after affording due opportunity to the assessee. 20 The other issues with regard to the objections regarding the manner in which ALP was determined by applying PSM as the MAM does not require any adjudication because of the conclusion that TNMM is the MAM.” Click here for other translation 1584520273-3377-18-1915-17-Toyota Kirloskar

Denmark vs Pharma Distributor A A/S, March 2020, National Court, Case No SKM2020.105.OLR

Results in a Danish company engaged in distribution of pharmaceuticals were significantly below the arm’s length range of net profit according to the benchmark study, but by disregarding annual goodwill amortization of DKK 57.1 million, the results were within the arm’s length range. The goodwill being amortized in Pharma Distributor A A/S had been determined under a prior acquisition of the company, and later – due to a merger with the acquiring danish company – booked in Pharma Distributor A A/S. The main question in the case was whether Pharma Distributor A A/S were entitled to disregard the goodwill amortization in the comparability analysis. The national tax court had ruled in favor of the company, but the national court reached the opposite result. Thus, the National Court found that the goodwill in question had to be regarded as an operating asset, and therefore the depreciation had to be regarded as operating expenses when calculating the net profit (EBIT margin). In 2017 the Danish tax tribunal found in favor of Pharma Distributor A A/S However, The Danish National Court found that the controlled transactions had not been priced in accordance with the arm’s length principle in section 2 (2) of the Tax Assessment Act. 1, and that the tax authorities was therefore basically justified in assessing the income of Pharma Distributor A A/S. But there was no basis for adjustment for the income year 2010, where the EBIT margin of the company (including goodwill amortization) was within the interquartile range of the benchmark. The National Court further found that Pharma Distributor A A/S had not demonstrated that the companies whose results were included in the benchmark possessed goodwill that was simply not capitalized and which corresponded approximately to the value of the goodwill in Pharma Distributor A A/S. Therefore, the National Court did not find that adjusting for goodwill amortization in the comparability analysis, would make the comparison more correct. Pharma Distributor A A/S also claimed that special commercial conditions (increased price competition, restructuring , etc.) and not incorrect pricing had led to lower earnings. The Court found that such conditions had not been demonstrated by the company. On this basis, the National Court found that the tax authorities was entitled to make the assessment of additional income in FY 2006-2009, but not for FY 2010. The court found that, when adjusting the taxable income, an individual estimate must be made for each year, based on what income the defendants could be assumed to have obtained if they had acted in in accordance with the arm’s length principle. The court referred the case for re-assessment of the taxable income for FY 2006-2009. Click here for translation SKM2020-105-olrn
Poland vs "Brewery S.A.", March 2020, Supreme Administrative Court, Case No II FSK 1550/19

Poland vs “Brewery S.A.”, March 2020, Supreme Administrative Court, Case No II FSK 1550/19

Brewery S.A. had transferred its trademarks to a subsidiary in Cyprus and in subsequent years paid royalties/licences for the use of the trademarks. The tax authorities had disregarded deductions of the royalty/licence payments for tax purposes, and the resulting assessment of additional taxable income was later upheld by the District Administrative Court. Judgement of the Supreme Administrative Court In its judgment, the court stated that it is beyond the scope of the legal possibilities of tax authorities to assess legal actions and to derive – contrary to their content – negative tax consequences for the taxpayer, if such authorisation does not directly result from a tax provision. The court referred to the position contained in the NSA’s judgment of 16 December 2005, in the light of which, the tax authorities have no grounds under tax law for questioning effectively concluded agreements, even if their purpose is to reduce the tax burden. Seeking to pay the lowest possible taxes is not prohibited by law; it is, as it were, a natural right of every taxpayer. It is up to the tax authorities and then the administrative court to assess how effectively (in accordance with the law) these aspirations are realised by a particular entity . In conclusion, the NSA stated that in the light of the above remarks and the factual circumstances of that case, it is reasonable to conclude that, from the perspective of the content of Article 15(1) of the TAX Act, only the assessment of the transaction between the appellant company and the Cypriot company, connected with determining whether the expenditure incurred on account of the concluded sub-license agreement fulfils the prerequisites resulting from that provision, and in particular whether there is a causal link between the incurred expenditure and the obtained (objectively obtainable) revenue or the preservation or protection of a source of revenue, is of significance. The court gave a positive answer to this question. Since the transaction of selling copyright to trademarks was legally effective, it means that the ownership of these rights was transferred to another entity, even if it is a company controlled by a domestic company. Therefore, if the exclusive holder of the rights to use certain property rights is another entity than the applicant company, and in order to maintain the current domestic production, it was necessary to use the right to these trademarks, even in the form of a sub-licence (the acquisition of which was also not questioned) and production and sale of goods with these trademarks was carried out, it is difficult not to see the connection of the incurred expense with the source of revenue, which is economic activity, and the fact that the expense was incurred in order to obtain revenue. The Court stated that the tax authorities did not make use in that case of the possibility provided in the legal state of 2011 by the provision of Article 11 of the tax act. This regulation, concerning the possibility of correcting the prices applied between related parties, in fact introduced an exception to the principle of determining income taking into account the prices applied between counterparties. Its purpose was and is to prevent the erosion of the tax base through the harmful transfer of profits between related parties. Click here for English Translation Click here for other translation Poland vs P SA SAC II FSK 1550-19
Japan vs. "Metal Plating Corp", February 2020, Tokyo District Court, Case No 535 of Heisei 27 (2008)

Japan vs. “Metal Plating Corp”, February 2020, Tokyo District Court, Case No 535 of Heisei 27 (2008)

“Metal Plating Corp” is engaged in manufacturing and selling plating chemicals and had entered into a series of controlled transactions with foreign group companies granting licenses to use intangibles (know-how related to technology and sales) – and provided technical support services by sending over technical experts. The company had used a CUP method to price these transactions based on “internal comparables”. The tax authorities found that the amount of the consideration paid to “Metal Plating Corp” for the licenses and services had not been at arm’s length and issued an assessment where the residual profit split method was applied to determine the taxable profit for the fiscal years FY 2007-2012. “Metal Plating Corp” on its side held that it was inappropriate to use a residual profit split method and that there were errors in the calculations performed by the tax authorities. Judgement of the Court The Court dismissed the appeal of “Metal Plating Corp” and affirmed the assessment made by the Japanese tax authority. On the company’s use of the CUP method the Court concluded that there were significant differences between the controlled transactions and the selected “comparable” transactions in terms of licences, services and the circumstances under which the transactions were took place. Therefore the CUP method was not the most appropriate method to price the controlled transactions. The Court recognised that “Metal Plating Corp” had intangible assets created by its research and development activities. The Court also recognised that the subsidiaries had created intangible assets by penetrating regional markets and cultivating and maintaining customer relationships. The Court found the transactions should be aggregated and that the price should be determined for the full packaged deal – not separately for each transaction. Click here for English Translation Click here for other translation JAP TOKYO 089550_hanrei
France vs SA Sacla, February 2020, CAA de Lyon, Case No. 17LY04170

France vs SA Sacla, February 2020, CAA de Lyon, Case No. 17LY04170

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 to SA SACLA. Click here for translation CAA_de_LYON_5ème_chambre_13_02_2020_17LY04170_Inédit_au_recueil_Lebon

Altera asking the US Supreme Court for a judicial review of the 2019 Decision from the U.S. Court of Appeals concerning the validity of IRS regs. on CCAs

Altera has asked the US Supreme Court for a judicial review of the Decision from the U.S. Court of Appeals for the Ninth Circuit over the validity of Internal Revenue Service regulations  that requires related companies to share the cost of stock-based employee compensation when shifting their intangible assets abroad applying US Cost Sharing regulations. In the decision a divided panel in the Court of Appeal upheld the regulation as “permissible†and therefore entitled to deference under Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). In the Petition Altera presents three questions: 1. Whether the Treasury Department’s regulation is arbitrary and capricious and thus invalid under the Administrative Procedure Act, 5 U.S.C. 551 et seq. 2. Whether, under SEC v. Chenery Corp., 332 U.S. 194 (1947), the regulation may be upheld on a rationale the agency never advanced during rulemaking. 3. Whether a procedurally defective regulation may be upheld under Chevron on the ground that the agency has offered a “permissible†interpretation of the statute in litigation. Under the third bullit Altera argues that the Chevron doctrin was applied erroneously by the Court of Appeals. The Chevron doctrin states that an agency is allowed a “permissible” interpretation where statutes are not sufficiently clear. Excerps from the 1984 Chevron case: "In these cases the Administrator's interpretation represents a reasonable accommodation of manifestly competing interests and is entitled to deference: the regulatory scheme is technical and complex, the agency considered the matter in a detailed and reasoned fashion, and the decision involves reconciling conflicting policies. Congress intended to accommodate both interests, but did not do so itself on the level of specificity presented by these cases. Perhaps that body consciously desired the Administrator to strike the balance at this level, thinking that those with great expertise and charged with responsibility for administering the provision would be in a better position to do so; perhaps it simply did not consider the question at this level; and perhaps Congress was unable to forge a coalition on either side of the question, and those on each side decided to take their chances with the scheme devised by the agency. For judicial purposes, it matters not which of these things occurred. Judges are not experts in the field, and are not part of either political branch of the Government. Courts must, in some cases, reconcile competing political interests, but not on the basis of the judges' personal policy preferences. In contrast, an agency to which Congress has delegated policymaking responsibilities may, within the limits of that delegation, properly rely upon the incumbent administration's views of wise policy to inform its judgments. While agencies are not directly accountable to the people, the Chief Executive is, and it is entirely appropriate for this political branch of the Government to make such policy choices-resolving the competing interests which Congress itself either inadvertently did not resolve, or intentionally left to agency charged with the administration of the statute in light of everyday realities. When a challenge to an agency construction of a statutory provision, fairly conceptualized, really centers on the wisdom of the agency's policy, rather than whether it is a reasonable choice within a gap left open by Congress, the challenge must fail. In such a case, federal judges - who have no constitu­ency - have a duty to respect legitimate policy choices made by those who do. The responsibilities for assessing the wisdom of such policy choices and resolving the struggle between competing views of the public interest are not judicial ones: "Our Constitution vests such responsibilities in the political branches." TVA v. Hill, 437 U. S. 153, 195 (1978). We hold that the EPA's definition of the term "source" is a permissible construction of the statute which seeks to accommodate progress in reducing air pollution with economic growth. "The Regulations which the Adminstrator has adopted provide what the agency could allowably view as ... [an] effective reconciliation of these twofold ends" United States v. Shimer, 367 U. S., at 383." Altera ends the partition with the following statement: “The Ninth Circuit permitted a startling departure from accepted rules of administrative law, and its expansion of Chevron validates the concerns many Justices have raised about that doctrine. The Tax Court rejected the agency’s position in an opinion that was striking for its “uncommon unanimity and severity of censure,†yet the court of appeals simply “assume[d] away†the regulation’s problems, “send[ing] a signal that executive agencies can bypass proper notice-and- comment procedures as long as they come up with a clever post-hoc rationalization by the time their rules are litigated.†App., infra, 160a, 165a, 167a (Smith,  J., dissenting from denial of rehearing). It is time for this Court to step in.” Altera Supreme Court Petition

Denmark vs Engine branch, January 2020, Tax Tribunal, Case No SKM2020.30.LSR

The main activity in a Danish branch of a German group was development, licensing and services related to engines that were being produced by external licensees. Under a restructuring of the group, it was decided that royalty income for a particular engine type previously received by the Danish branch should be transferred to the German company. The Danish branch received a compensation corresponding to the net earnings for a two-year notice period. The tax administration increased the taxable income of the branch claiming that the branch had made valuable contributions to the development of the type of engine in question and thereby obtained co-ownership. The Tax Tribunal found that valuable intangible assets had been transferred, The decision was based on prior contractual arrangements and conduct of the parties.  Click here for other translation SKM 2020-30

Denmark vs Adecco A/S, Oct 2019, High Court, Case No SKM2019.537.OLR

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 2 of the Tax Assessment Act that during the period 2006 to 2009, H1 A/S had to pay royalty to G1 SA for the right to use trademark, “know-how intangibles†and “ international network intangibles â€. An independent third party, in accordance with OECD Guidelines 6.14, would not have agreed on payment of royalties in a situation where there is a clear discrepancy between the payment and the value of licensee’s business. During the period 2006 to 2009, H1 A/S did not make a profit from the use of the licensed intangible assets. Furthermore, an independent third party would not have accepted an increase in the royalty rate in 2006, where the circumstances and market conditions in Denmark meant that higher profits could not be generated. H1 A/S has also incurred considerable sales and marketing costs at its own expense and risk. Sales and marketing costs may be considered extraordinary because the costs are considered to be disproportionate to expected future earnings. This assessment takes into account the licensing agreement, which states in Article 8.2 that the termination period is only 3 months, and Article 8.6, which states that H1 A/S will not receive compensation for goodwill built up during the contract period if the contract is terminated. H1 A/S has built and maintained the brand as well as built up “brand value” on the Danish market. The company has contributed to value of intangible assets that they do not own. In SKAT’s opinion, an independent third party would not incur such expenses without some form of compensation or reduction in the royalty payment, cf. OECD Guidelines 6.36 – 6.38. If H1 A/S was not associated with the trademark owners, H1 A/S would, in SKAT’s opinion, have considered other alternatives such as terminating, renegotiating or entering into more profitable licensing agreements, cf. OECD Guidelines 1.34-1.35. A renegotiation is precisely a possibility in this situation, as Article 8.2 of the license agreement states that the agreement for both parties can be terminated at three months’ notice. The control of the group has resulted in H1 A/S maintaining unfavorable agreements, not negotiating better terms and not seeking better alternatives. In addition, SKAT finds that the continuing losses realized by the company are also due to the Group’s interest in being represented on the Danish market. In order for the Group to service the global customers that are essential to the Group’s strategy, it is important to be represented in Denmark in order to be able to offer contracts in all the countries where the customer has branches. Such a safeguard of the Group’s interest would require an independent third party to be paid, and the company must therefore also be remunerated accordingly, especially when the proportion of global customers in Denmark is significantly lower than in the other Nordic countries.“ 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 were in line with what would have been agreed if the transactions had been concluded between independent parties and thus compliant  with the requirement in section 2 of the Tax Assessment Act (- the arm’s length principle) . In particular, Adecco A/S claimed that the company had lifted its burden of proof that the basic conditions for deductions pursuant to section 6 (a) of the State Tax Act were met, and the royalty payments thus deductible to the extent claimed. According to section 6 (a) of the State Tax Act expenses incurred during the year to acquire, secure and maintain income are deductible for tax purposes. There must be a direct and immediate link between the expenditure incurred and the acquisition of income. The company hereby stated that it was not disputed that the costs were actually incurred and that it was evident that the royalty payment was in the nature of operating costs, since the company received significant economic value for the payments. The High Court ruled in favor of the Danish tax authorities and concluded as follows: “Despite the fact that, as mentioned above, there is evidence to suggest that H1 A/S’s payment of royalties for the use of the H1 A/S trademark is a deductible operating expense, the national court finds, in particular, that H1 A/S operates in a national Danish market, where price is by far the most important competitive parameter, that the company has for a very long period largely only deficit, that it is an agreement on payment to the company’s ultimate parent company – which must be assumed to have its own purpose of being represented on the Danish market – and that royalty payments must be regarded as a standard condition determined by G1 SA independent of the market in which the Danish company is working, as well as the information on the marketing costs incurred in the Danish company and in the Swiss company compared with the failure to respond to

Israel vs Broadcom, Aug 2019, Israeli Supreme Court, Case No 2454/19

In 2012 Broadcom Corporation acquired all the shares of Broadlight Inc, another US corporation which owned a subsidiary in Israel, for around $200 million. Three months later, the subsidiary in Israel sold its IP to a group company for $59.5m and then an agreement was entered according to which the subsidiary going forward would supply R&D, marketing and support services to the other group companies for a cost plus fee. Based on these facts the Israeli tax authorities issued an assessment equivalent to $168.5m. The tax authorities found that the full value of the company in Israel had been transferred. The tax assessment was brought to court where Broadcom claimed that the tax authorities had re-characterised the transaction and that the onus of proof was on the tax authorities to justify the value of $168.5m. The District Court held that all the values in the Israeli subsidiary had been transferred and ruled in favor of the tax authorities. This ruling was upheld by the Supreme Court. Click here for translation Israel vs BC 2454-19

US vs Amazon, August 2019, US Court of Appeal Ninth Circut, Case No. 17-72922

In the course of restructuring its European businesses in a way that would shift a substantial amount of income from U.S.-based entities to the European subsidiaries, appellee Amazon.com, Inc. entered into a cost sharing arrangement in which a holding company for the European subsidiaries made a “buy-in†payment for Amazon’s assets that met the regulatory definition of an “intangible.†See 26 U.S.C. § 482. Tax regulations required that the buy-in payment reflect the fair market value of Amazon’s pre-existing intangibles. After the Commissioner of Internal Revenue concluded that the buy-in payment had not been determined at arm’s length in accordance with the transfer pricing regulations, the Internal Revenue Service performed its own calculation, and Amazon filed a petition in the Tax Court challenging that valuation. At issue is the correct method for valuing the preexisting intangibles under the then-applicable transfer pricing regulations. The Commissioner sought to include all intangible assets of value, including “residual-business assets†such as Amazon’s culture of innovcation, the value of workforce in place, going concern value, goodwill, and growth options. The panel concluded that the definition of “intangible†does not include residual-business assets, and that the definition is limited to independently transferrable assets. The Court of Appeal concluded “We therefore agree with the tax court that the former regulatory definition of an “intangible†does not include residualbusiness assets.” The Court thus affirmed the prior decision of the tax court US vs Amazon August 2019

Uruguay vs Philips Uruguay S.A., July 2019, Tribunal de lo Contencioso Administrativo, Case No 456/2019

In 2013, Philips Uruguay S.A. agreed to sell of its business division related to the marketing of audio and video products to another entity within the group, Woox Innovations Sucursal Uruguay. The related parties had agreed on a price of USD 2,546,409. Philips Uruguay, had not include the transaction in its transfer pricing documentation as – according to the company – the transfer pricing regime in Uruguay was only applicable to transactions involving different jurisdictions (transactions with foreign entities) – unless the domestic transactions were between local entities taxed under different local tax regimes. The tax administration disagreed that purely domestic transactions were not subject for to transfer pricing rules in Uruguay. They also disagreed with the arm’s length nature of the agreed price of USD 2.546.409 and instead estimated an arm’s length value of USD 5,063,294. Consequently, an assessment was issued resulting in an additional tax of USD 630.000. Philips Uruguay disagreed with the assessment and brought the case to court. Judgement of the Court The court agreed that transfer pricing rules in Uruguay are also applicable to purely domestic transactions. However, the tax assessment was annulled by the court, as the price agreed between the parties was considered to have been at arm’s length. Click here for English translation Click here for other translation Uruguay vs Philips July 2019 Sent_TCA_456_2019
Malaysia vs Shell Timur Sdn Bhd, June 2019, High Court, Case No BA-25-81-12/2018

Malaysia vs Shell Timur Sdn Bhd, June 2019, High Court, Case No BA-25-81-12/2018

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 clear that in matters concerning the raising of assessments of tax under section 91(1) or 91(3) of the ITA, challenges by the tax payer are best left to be dealt by the SCIT, unless of course if there are any exceptional circumstances. (27) In this case, I do not find exceptional circumstance that would warrant leave to be granted for judicial review. Which would then make this application an abuse of process. Wherefore, the I dismissed the application for leave.” Alasan_Penghakiman_Shell_Timur_Sdn_Bhd_v_KPHDN

Netherlands vs Crop Tax Advisors, June 2019, Court of the Northern Netherlands, Case No 200.192.332/01

The question at issue was whether a tax adviser at Crop BV had acted in accordance with the requirements of a reasonably competent and reasonably acting adviser when advising on the so-called royalty routing and its implementation and when giving advice on trading. Click here for translation NL royalty routing1

Mexico vs “Drink Distributor S.A.”, April 2019, TRIBUNAL FEDERAL DE JUSTICIA ADMINISTRATIVA, Case No 15378/16-17-09-2/1484/18-S2-08-04

“Drinks Distributor S.A.” was involved in purchase, sale and distribution of alcoholic beverages in Mexico. “Drinks Distributor s.a” had entered into a non-exclusive trademark license agreement with a related party for the sale of its product. Following a restructuring process, the related party moved to Switzerland. Following an audit the Mexican tax administration, determined that deductions for marketing and advertising costs related to brands and trademarks used under the licensing agreement, were not “strictly indispensable” and therefore not deductible, cf. requirement established by the Income Tax Law in Mexico. Drinks Distributor S.A on its side held that the marketing and advertising costs were strictly indispensable and that the tax deductions should be accepted. The dispute ended up in the Federal Court of Administrative Justice. Judgement: The Court determined what should be understood as “strictly indispensable“. To establish this concept the purposes of the specific company and the specific costs must first be determined – in particular that the costs are directly related to the activity of the enterprise the costs are necessary to achieve the aims of its activity or the development of this activity; in the absence of the costs, the commercial activity of the taxpayer will be hindered. “ADVERTISING AND PUBLICITY EXPENSES. THE DEDUCTION IS INAPPROPRIATE, AS THEY ARE NOT STRICTLY INDISPENSABLE FOR THE COMPANY SELLING PRODUCTS UNDER TRADEMARKS WHOSE USE AND EXPLOITATION WERE GRANTED TO IT BY MEANS OF A NON-EXCLUSIVE LICENSE AGREEMENT. Article 31, section I of the Income Tax Law provides that the deductions must comply with various requirements, including that they are strictly indispensable for the purposes of the taxpayer’s activity; the latter being understood to mean that said expenses are directly related to the activity of the company, that they are necessary to achieve the purposes of its activity or the development thereof and that if they do not occur they could affect its activities or hinder its normal operation or development. Therefore, in order to determine whether such expenditure satisfies that requirement, account must be taken of the aims of the undertaking and the specific expenditure itself. Therefore, if a company has as its object the sale of a certain product, and to this end has entered into a non-exclusive license agreement for the use and exploitation of intangibles, which grants it the use and exploitation of a brand name to sell this product; The latter is prevented from deducting advertising and publicity expenses, since, as it does not own the trademark it uses to sell its product, the aforementioned expenses – understood as the acts through which something is made known in order to attract followers or buyers through the means used to disseminate or spread the news of things or facts – are not strictly indispensable for the development of its activity, as they increase the value of the trademark for the benefit of a third party; That is to say, the owner of the trade mark, since they are not aimed at the article, but at positioning the trade mark on the market, in order to give it notoriety, fame and recognition among the consumer public.” Click here for English Translation Click here for other translation Mexico 2019

Denmark vs H Group, April 2019, Tax Tribunal, Case No. SKM2019.207.LSR

Intangibles had been transferred from a Danish subsidiary to a US parent under a written agreement. According to the agreement the Danish subsidiary – which had developed and used it’s own intangibles – would now have to pay royalties for the use of trademarks, know-how and patents owned by the US parent. The tax authorities had issued an assesment on the grounds that the majority of the Danish company’s intangibles had been transferred to the US parent. In the assesment the value of the intangibles had been calculated based on the price paid when the US group acquired the shares in the Danish company. H Group argued that the transferred intangibles no longer carried any value and that the Danish company now used intangibles owned by the US group. The Tax Tribunal found that tax authorities had been entitled to make an assessment as the transaction had not been described in the Transfer pricing documentation. However, the Tribunal considered that the valuation based on the price paid when the US group acquired the shares in the Danish company was too uncertain and instead applied a relief-from-royalty method.  Click here for translation Denmark vs H Group April 2019

Norway vs Normet Norway AS, March 2019, Borgarting Lagmannsrett, Case No 2017-202539

In January 2013 the Swiss company Normet International Ltd acquired all the shares in the Norwegian company Dynamic Rock Support AS (now Normet Norway AS) for a price of NOK 78 million. In February 2013 all intangibles in Dynamic Rock Support AS was transfered to Normet International Ltd for a total sum of NOK 3.666.140. The Norwegian tax authorities issued an assessment where the arm’s length value of the intangibles was set at NOK 58.2 million. The Court of Appeal upheld the tax assessment issued by the tax authorities and rejected the appeal. Click here for translation Norway vs Normet 190319

Norway vs Cytec, March 2019, Borgarting Lagmannsrett, Case No 2017-90184

The question in the case was whether Cytec Norway KS (now Allnex Norway A/S) had paid an arm’s length price for an intra-group transfer of intangible assets in 2010. Cytec Norway KS had set the price for the accquired intangibles at NOK 210 million and calculated tax depreciations on that basis. The Norwegian tax authorities found that no intangibles had actually been transferred. The tax Appeals Committee determined that intangibles had been transferred but only at a total value of NOK 45 million. The Court of appeal upheld the dicision of the Tax Appeals Committee, where the price for tax purposes was estimated at NOK 44.9 million. Click here for translation Norway vs Cytec 19 March 2019, Borgarting Lagmannsrett Case No 2017-90184

Luxembourg vs Lux SARL, December 2018, Administrative Court, Case No 40455

In a case on hidden distribution of profits, the Luxembourg tax authorities stated the following on the issue of valuation methods for intangible assets (a patent): “…the evaluation of an intellectual property right is a rather complex subject; that evaluation reports from “independent” experts in this field are often rather subjective; whereas, therefore, reference should be made to a neutral and recognized body for the evaluation of patents, in this case WIPO, which proposes three different methods of valuation, including (a) the cost method, (b) the revenue method, as well as (c) the market method; that the first method of evaluation is to be dismissed from the outset in view of the absence of research and development expenses reported by the Claimant; that the second method is based on the future revenues of the patent invention; therefore, there must be a large enough amount of data to predict future revenues over the life of the patent, which is not the case here, as the tax dispute has only the royalties collected for the years 2013 and 2014; that, finally, the market method consists in the search for a similar patent whose price is known because it has already been the subject of a transaction; whereas, however, this method raises two major problems, on the one hand, the collection of data on patents already having a price because they have been the subject of a transaction, and, on the other hand, the uniqueness and the rarity of each patent that has at least a small similarity; that in view of this finding, a precise and fair evaluation proving impossible, the present instance sets the operating value of the patent of invention on January 1 , 2014 to 1.000.000 euros under § 217 AO…“ Click here for translation Lux 10 Dec 2018 Adm Court 40455
Austria vs "Sports Data GmbH", November 2018, Bundesfinanzgericht, Case No RV/2100386/2017

Austria vs “Sports Data GmbH”, November 2018, Bundesfinanzgericht, Case No RV/2100386/2017

A GmbH (“Sport Data GmbH”) was founded in 2006 as a wholly-owned subsidiary of A Holding AG, which had been founded shortly before and had its registered office in Switzerland. A AG, Switzerland was also founded as a sister company of A GmbH. A AG is A GmbH´s only customer. The business of A GmbH is the development and support of software for A AG, the maintenance of hardware, the training of employees and the forwarding of information. A AG, Switzerland sells the information provided by A GmbH. For these services A GmbH receives a remuneration from A AG determined as actual costs plus a profit surcharge of 5 %. The tax authorities noted that A AG did not initially have any active business activities. Against this background, the tax office had doubts about the arm’s length nature of the transfer prices. The tax authorities concluded, there were also no “simple services” by A GmbH for which, according to international accounting principles (services of a routine nature), procedures with profit mark-ups in the range of 5% to 15% could be considered. A high quality service should not be compensated by a 5% mark-up, especially if the service is performed using self-created intangible assets. In such cases, the profit split method should instead be applied. An assessment of estimated additional profits was issued. Judgement of the Court The court decided that the remuneration should be based on the cost plus method, but that the margin should be changed from 5 % to 10 % due to the advanced functions performed by A GmbH. Excerpts: “The contacts with the international sports organisers such as the IFA and the customers (companies) are again (only) with A AG, Switzerland. This picture also shows the overall profit situation of the group of companies in comparison: In the first year in dispute, the 5% mark-up applied by the Bf. amounted to 276,214.58 euros, while the share of the company’s profit applied by the tax office (in the context of the BVE) was “only” 195,120 euros. In the following year, the ratio changed in such a way that the surcharge of the complainant amounted to approximately 150,000 euros, while the part assessed by the tax office amounted to approximately 270,000 euros, and in the third year, with the same accounting of the complainant, even approximately 840,000 euros, and in the following years much more. While the performance of the complainant thus remained relatively constant (in the first year longer periods were affected due to a different business year), A AG, Switzerland was able to increase its business results enormously through efficient marketing on the basis of the good functioning of the EDP and/or the training of the employees working worldwide. Even if the business idea and the IT implementation of the same originated with the complainant, the economic success of the group of companies is not least due to the marketing activities of A AG, Switzerland, under the motto “even the best product must first find a buyer”. In this situation, the appropriateness can only be checked using the standard cost+ method.” “As far as a profit mark-up of 5% is charged for this routine activity, a higher profit mark-up must be applied for the services of the complainant in comparison. Determining the amount of the appropriate mark-up within the range of 5 – 15% is naturally associated with uncertainties. One indication in the case of a complaint can be the mark-up rates for IT programming of between 4.78% and 13.95% determined in the transfer pricing study by PwC. Another indication is the assessment of the complainant herself, who had to concede at the hearing that the 5% mark-up may be too low. In a detailed discussion, she was unable to offer any substantive arguments against a 10% mark-up rate. Considering that the defendant’s activities after the development and sale of the software “A Live System”, which is not in dispute here, consist of very different services, a mixed mark-up rate of 10% seems appropriate:” Click here for English translation Click here for other translation BFG 22112018, RV-2100386-2017
Austria vs "Key account - X GmbH", April 2018, Verwaltungsgerichtshof, Case No Ra 2017/15/0041

Austria vs “Key account – X GmbH”, April 2018, Verwaltungsgerichtshof, Case No Ra 2017/15/0041

At issue were the tax consequences from (alleged) “key account expenses” paid by “Key Account – X GmbH” to a related party, X FL. X GmbH provided marketing services for an unrelated German manufacturer of machine tools Y. The marketing contract between X GmbH and Y was the basis for the intensive cooperation between Y and X GmbH in the years in dispute. In connection with the intensification of the business relationship with Y, X GmbH took measures regarding a cross-border restructuring. The owners of the group had X FL Lichtenstein established as of March 1998. The business purpose of X FL was “conception and consultancy in the areas of advertising, marketing and public relations”. By invoice dated 1 September 1998, X GmbH informed X FL of the following: “For the provision of (A) as a key account we charge you a one-off goodwill in the amount of ATS 8,000,000.” On 3 September 1998 A, as managing director of X GmbH, and M, as member of the board of directors of X FL, signed the “Cooperation Agreement (Y)”. In this contract, X GmbH as “principal” transferred the advertising contract received from Y to X FL as “contractor” with regard to certain activities listed in detail, which were subsequently summarised under the term “key accounting”. In return, it was agreed that X GmbH would reimburse X FL for the ordinary expenses incurred in connection with the fulfilment of the order and pay 25% of the total order volume (payments by Y to X GmbH). In the period from 1998 to 30 September 2011, X GmbH recorded “key account expenses” in the amount of approximately EUR 82 million as profit-reducing. The tax authorities, examined these transactions between X GmbH and X FL and came to the conclusion that the payments made by X GmbH to X FL under the name of “key account expenses” were not matched by an equivalent service. The prerequisite of a concrete and detailed description of services, which was necessary for the recognition of such payments, was lacking. The “key account” sale transaction of September 1998 was not to be recognised for lack of arm’s length and could not form the basis for the tax recognition of the later current payments. The chosen legal structure constituted abuse within the meaning of section 22 of the BAO. The reductions in assets at X GmbH were hidden profit distributions. An assessment regarding corporate income tax 2005 to 2008 was issued. X GmbH appealed against the decision. The appeal was allowed by the Federal Tax Court where a ruling in favour of X Gmbh was issued. This ruling was then appealed by the tax authorities to the Administrative court of appeal. Judgement of the Court The Court allowed the appeal and decided in favour of the tax authorities. Excerpts: ” Business expenses are those expenses or expenditures that are caused by the business (§ 4 para. 4 EStG 1988). The taxable profit of a corporation may not be reduced by transactions that are not caused by the business activity of the corporation but by the corporate relationship. For the question of whether a measure is caused by the company, it is decisive whether it would also have been taken by persons who are strangers to each other (cf. VwGH 11.2.2016, 2012/13/0061, mwN). An arm’s length comparison requires that the services rendered and remunerated are recorded and presented in detail in a concrete and detailed manner. The description of the services must be concrete to such an extent that it is possible to estimate the exact market value of the service and subsequently determine whether a third party would have been willing to provide the consideration that was provided by the related party. A particularly precise description of the service is required in particular if the subject matter of the contract consists of the provision of services that are difficult to grasp (e.g. “efforts”, consultations, mediation of contacts, transfer of know-how) (cf. VwGH 28.1.2003, 99/14/0100, VwSlg. 7786F; 15.9.2016, 2013/15/0274, mwN). In the appeal case, the Federal Supreme Finance Court therefore had to examine which services X FL had provided in detail and make (concrete and detailed) findings in this regard (cf. VwGH 26.2.2004, 99/15/0053). Such concrete and detailed findings are not to be found in the contested decision. The Federal Finance Court only referred in general to “key account” services. The contested decision does not specify which services were involved in detail. Insofar as the contested decision refers to the decision of the Federal Supreme Finance Court in the freezing proceedings (decision of 18 November 2015 in the continued proceedings pursuant to VwGH 30.6. 2015, 2012/15/0165), there is indeed a description of the content of the contract between X FL and X GmbH (acquisition of customers, agreement of the terms of the contract, cultivation and maintenance of existing customer contacts through regular visits by the respective management, preparation of advertising concepts, briefing with the customers and their representatives as well as monitoring of the advertising campaigns; selection and appointment of any subcontractors, agreement of the terms of the contract, preparation of the advertising concept, preparation of the marketing mix, conception of the marketing plan, selection of advertising media and their use). However, it is not clear which of these services were actually provided in the individual years in dispute. There is also no description of services that could have been used to determine the market value of the services. Insofar as it was also stated in that decision that in the private expert opinion of an expert for marketing, both the key account activities of X FL in relation to Y and the activities of X GmbH were described and evaluated in detail, it was stated in the contested ruling on this private expert opinion that it contained many generalities and had little reference to the specific case; the expert opinion also did not refer to the actual historical processes and the documented contractual situation or negated them. … The reference to
Tokyo District Court, judgment of November 24 2017

Tokyo District Court, judgment of November 24 2017

In this case a Japanese company had entered into a series of controlled transactions with foreing group companies granting services and licences to use intangibles – know-how related to manufacturing and sales, training, and provided support by sending over technical experts. The company had used a CUP method to price these transactions based on select “internal comparables”. Tax authorities disagreed with the company and found that the residual profit split method should be applied to price the transactions. The court found the transactions should be aggregated and that the price should be determined for the full packaged deal – not separately for each transaction. The foreign related-party transactions were compared – as a whole – to the comparable transactions selected by the company and the court found that the product lines, how to use them and frequency of dispatching employees to support the foreing group company were not comparable. This could have resulted in differences the value of the intangibles and services provided. The court also found that the circumstances had been different in terms of the countries or areas where products were manufactured or sold and whether or not the license was exclusive or not. On use of the CUP method the court concluded that there were significant differences between the controlled transactions and the selected “comparable” transactions in terms of licences, services and circumstances in which the transactions were took place. Therefore the CUP method was not the best method to price the controlled transactions. The court instead supported the application of the RPSM and ruled in favour of the tax authority. The taxpayer later appealed the decision to the Tokyo High Court.

Japan vs C Uyemura & Co, Ltd, November 2017, Tokyo District Court, Case No. 267-141 (Order No. 13090)

C Uyemura & Co, Ltd. is engaged in the business of manufacturing and selling plating chemicals and had entered into a series of controlled transactions with foreign group companies granting licenses to use intangibles (know-how related to technology and sales) – and provided technical support services by sending over technical experts. The company had used a CUP method to price these transactions based on “internal comparables”. The tax authorities found that the amount of the consideration paid to C Uyemura & Co, Ltd for the licenses and services had not been at arm’s length and issued an assessment where the residual profit split method was applied to determine the taxable profit for the fiscal years 2000 – 2004. C Uyemura & Co, Ltd disapproved of the assessment. The company held that it was inappropriate to use a residual profit split method and that there were errors in the calculations performed by the tax authorities. Judgement of the Court The Court dismissed the appeal of C Uyemura & Co, Ltd. and affirmed the assessment made by the Japanese tax authority. On company’s use of the CUP method the Court concluded that there were significant differences between the controlled transactions and the selected “comparable” transactions in terms of licences, services and circumstances in which the transactions were took place. Therefore the CUP method was not the best method to price the controlled transactions. The Court recognised that C Uyemura & Co, Ltd had intangible assets created by its research and development activities. The Court also recognised that the Taiwanese, Malaysian and Singaporean subsidiaries had created intangible assets by penetrating regional markets and cultivating and maintaining customer relationships. The Court found the transactions should be aggregated and that the price should be determined for the full packaged deal – not separately for each transaction. Click here for English translation Tokyo 24 November 13090

Israel vs Hewlett-Packard, July 2017, Settled in International Arbitration

Hewlett-Packard pays NIS 1.6 billion ($450 million) in tax on its 2006 acquisition of the intellectual property of Israel company Mercury Interactive, in addition to the NIS 1 billion already paid to the Israel Tax Authority. The acquisition at issue took place in two stages. First the shares in Mercury Interactive were acquired by Hewlett-Packard for $4.5 billion in 2006. Then in 2009 Mercury Interactive’s intellectual property was transferred to Hewlett-Packard for a substantially lower price of $963 million. The Tax Authority held that the sales of the intellectual property should be taxed at the full value of $4.5 billion The case was settled in international arbitration, which ended with an additional tax payment of NIS 1.6 billion by Hewlett-Packard.
France vs. Havas, July 2017, CE, No 400644

France vs. Havas, July 2017, CE, No 400644

The French Court considers that in the event of a transfer of shares, the goodwill recognized at the acquisition of the shares shall no longer be included in the balance sheet of the parent company. Click here for translation France vs Havas 12 July 2017, Conseil d'Etat, No 400644
Israel vs. Gteko Ltd (Microsoft), June 2017, District Court

Israel vs. Gteko Ltd (Microsoft), June 2017, District Court

In November 2006 Microsoft Corp. purchased 100% of the shares of Gteko Ltd. (IT Support technology), for USD 90 million. The purchase was made with the intention of integrating Gteko’s technology into Microsoft’s own products. Following this purchase of Gteko Ltd., the employees were transferred to the local Microsoft subsidiary and a few months later another agreement was entered transferring Gteko’s intellectual property/intangibles to Microsoft. This transfer was priced at USD 26 million based on the purchase price allocation (PPA). The tax authorities of Israel found that the price of 26 mio USD used in the transaction was not at arm’s length. It was further argued, that the transaction was not only a transfer of some intangibles but rather a transfer of all assets owned by Gteko as a going concern to Microsoft Corp. The arm’s length price for the transfer was set at USD 80 million. The District Court agreed with the assessment and held that “value does not disappear or evaporate” and that Gteko had not succeeded in arguing why the total values in Gteko should not be equal to the $90 million share price paid. Israel-vs-Gteko-Microsoft-June-2017-District-Court-English-translation-of-ITAs-announcement
US vs. Amazon, March 2017, US Tax Court, Case No. 148 T.C. No 8

US vs. Amazon, March 2017, US Tax Court, Case No. 148 T.C. No 8

Amazon is an online retailer that sells products through Amazon.com and related websites. Amazon also sells third-party products for which it receives a commissions. In a series of transactions  in 2005 and 2006, Amazon US transferred intangibles to Amazon Europe, a newly established European HQ placed in Luxembourg. A Cost Sharing Arrangement (“CSAâ€), whereby Amazon US and Amazon Europe agreed to share costs of further research, development, and marketing in proportion to the benefits A License Agreement, whereby Amazon US granted Amazon Europe the right to Amazon US’s Technology IP An Assignment Agreement, whereby Amazon US granted Amazon Europe the right to Amazon US’s Marketing IP and Customer Lists. For these transfers Amazon Europe was required to make an upfront buy-in payment and annual payments according to the cost sharing arrangement for ongoing developments of the intangibles. In the valuation, Amazon had considered the intangibles to have a lifetime of 6 to 20 years. On that basis, the buy-in payment for pre-existing intangibles had been set to $254.5 million. The IRS disagreed with the valuation and calculated a buy-in payment of $3.5 billion, by applying a discounted cash-flow methodology to the expected cash flows from the European business. The IRS took the position, that the intangibles transferred to Amazon Europe had an indefinite useful life and had to be valued as integrated components of an ongoing business rather than separate assets. The case brought before the US Tax Court HAD two issues had to be decided: Amazon Europe’s buy-in payment with respect to the intangibles transferred; and The pool of cost, on which Amazon Europe ongoing cost sharing payments were to be calculated. The Courts decision on Amazon Europe’s buy-in payment IRS’s position of “indefinite useful life” in the valuation of the intangibles and the buy in payment was rejected by the court, and the comparable uncontrolled transaction (“CUTâ€) method applied by Amazon – after appropriate upward adjustments – was found to be the best method. The Courts decision on Cost Share Payments The Court found that Amazon’s method for allocating intangible development costs, after adjustments, was reasonable. US CSA regulations pre- and post 2009  US CSA regs in effect for 2005-2006 refer to the definition of intangibles set forth in section 1.482-4(b), Income Tax Regs. Here intangibles are defined to include five enumerated categories of assets, each of which has “substantial value independent of the services of any individual.†These include patents, inventions, copyrights, know-how, trademarks, trade names, and 20 other specified intangibles. The definition of intangibles in the pre 2009 CSA regs did not include value of workforce in place, going concern value, goodwill, and growth options, corporate resources or opportunities. In 2009 new CSA regs were introduced in the US where the concept of “platform contribution transaction†(PCT) applies. According to the new regs. there are no limit on the type of intangibles that must be compensated under a cost sharing arrangement. But these new US CSA regulations did not apply to the years 2005 – 2006 in the Amazon case. See also the US vs. Veritas case from 2009. 2019 UPDATE The 2017 decision of the Tax Court has later been appealed by the Commissioner of Internal Revenue US-vs-Amazon-March-2017-US-Tax-Court-2
Denmark vs. Corp, March 2017, Tax Tribunal, SKM2017.187

Denmark vs. Corp, March 2017, Tax Tribunal, SKM2017.187

The Danish Tax administration had made an estimated assessment due to a insufficient TP documentation. In the assessment goodwill amortizations were included when comparing the operating income of the company to that of independent parties in a database survey. The Tax Tribunal found that the tax administration was not entitled to make an estimated assessment under Article 3B (3) of the current Tax Control Act. 8 (now paragraph 9) and section 5 3, where the TP documentation provided a sufficient basis for assessing whether prices and terms were in accordance with the arm’s length principle. According to the Tax Tribunal goodwill amortizations should not be included when comparing the operating income of the company to the operating income of independent parties in a database survey. Hence the assessment was reduced to DKK 0. The case has been appealed to the Danish National Court by the tax authorities. Click here for translation SKM2017-187-LSR
US vs. Medtronic Inc. June 2016, US Tax Court

US vs. Medtronic Inc. June 2016, US Tax Court

The IRS argued that Medtronic Inc failed to accurately account for the value of trade secrets and other intangibles owned by Medtronic Inc and used by Medtronic’s Puerto Rico manufacturing subsidiary in 2005 and 2006 when determening the royalty payments from the subsidiary. In 2016 the United States Tax Court found in favor of Medtronic, sustaining the use of the CUT method to analyze royalty payments. The Court also found that adjustments to the CUT were required. These included additional adjustments not initially applied by Medtronic Inc for know-how, profit potential and scope of product. The decision from the United States Tax Court has been appealed by the IRS in 2017. US-Memo-2016-112-Medtronic-v.-Commissioner
US vs. Guidant Corporation. February 2016

US vs. Guidant Corporation. February 2016

The U.S. Tax Court held in favor of the Commissioner of Internal Revenue, stating that neither Internal Revenue Code §482 nor the regulations thereunder require the Respondent to always determine the separate taxable income of each controlled taxpayer in a consolidated group contemporaneously with the making of the resulting adjustments. The Tax Court further held that §482 and the regulations thereunder allow the Respondent to aggregate one or more related transactions instead of making specific adjustments with respect to each type of transaction. US-vs.-Guidant-Corporation-and-Subsidiares-v.-Commissioner-of-Internal-Revenue
Germany vs. License GmbH, January 2016, Supreme Tax Court, Case No I R 22/14

Germany vs. License GmbH, January 2016, Supreme Tax Court, Case No I R 22/14

The Supreme Tax Court has held that a parent company cannot be deemed to have earned income from allowing its Polish subsidiary to register locally in the group name. A German business was active in a field of patented technology associated with its own firm name, “Bâ€. It allowed its Polish subsidiaries to register in that name, “B Sp.z.o.o.â€, but made an appropriate charge for the use of the technology. It also did not authorise the Polish companies to use its logo, but left it up to them to design their own. The tax office maintained that the group name was a valuable intangible and demanded an income adjustment to reflect its use by foreign subsidiaries. However, the Supreme Tax Court has now confirmed its previous case law in holding that the mere use of the group name in the company registration of a subsidiary – including the right to trade under that name – does not give rise to a royalty entitlement of the parent. Such entitlement only arises in connection with other associated rights, such as the use of a logo or technology, in which case, the benefit from the use of intangibles should be seen as a package. However, this did not arise in the case at issue, as the rights to the logo had not been assigned and the rights to the technology had been charged for separately. Se also the publication [Verwaltungsanweisung] from the German Bundesministerium der Finanzen (BMF) 2017-04-07-namensnutzung-im-konzern and the prior German ruling on the issue I R 12/99. The prior ruling of the Local Tax Court is found in case No 4 k 1053 11 e. Click here for translation Germany-vs-Corp-January-2016-BUNDESFINANZHOF-I-R-22-14

Luxembourg vs LuxCo TM, December 2015, Administrative Court, Case No 33611

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 Lux vs Luxco 10 dec 2015 33611
Canada vs. Skechers USA Canada Inc. March 2015, Federal Court of Appeal

Canada vs. Skechers USA Canada Inc. March 2015, Federal Court of Appeal

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 the goods for customs purposes. As a result, Skechers Canada must add the amounts of these payments made to Skechers USA to the customs value of imported footwear supplied by its parent. In its conclusion, the Court found that the conclusion reached by CITT “falls within the range of possible, acceptable outcomes, defensible in respect of the facts and the law.†Canada-Sketcher
India vs LG Electronics India Pvt Ltd, December 2014, ITA

India vs LG Electronics India Pvt Ltd, December 2014, ITA

LG India is a wholly owned subsidiary of LG Korea, a multinational manufacturer of electronic products and electrical appliances. LG Korea and LG India entered into a technical assistance and royalty agreement in 2001 where LG India, as a licensed manufacturer, would pay a 1% royalty to LG Korea for the use of various rights for the manufacture and sale of products in India. The agreement also gave LG India a royalty-free use of the LG brand name and trademarks. The tax tribunal in 2013 held that the advertising, marketing and promotion (AMP) expenditure in excess of the arm’s length range helps to promote the brand of the foreign associated enterprise and that the Indian associated enterprise should necessarily be compensated by the foreign one. In reaching the above conclusion, the special bench applied the “bright line” test used by a US Court in DHL Corp v Commissioner. The 2014 Appeal Case Lg_Electronics_India_Pvt._Ltd.,_..._vs_Assessee_on_8_December,_2014 The Prior 2013 Judgement from the ITA LG_Electronics_AMP_Expenditure_Bright_Line
Poland vs "H-trademark S.A.", February 2012, Administrative Court, Case No I SA/Po 827/11

Poland vs “H-trademark S.A.”, February 2012, Administrative Court, Case No I SA/Po 827/11

“H-trademark S.A.” applied for a ruling on the tax rules governing a business restructuring where trademarks were transferred to another group company and licensed back – whether Polish arm’s length provisions would apply to the transaction. The company was of the opinion that Polish arm’s length provision (article 11) would not apply, since the arrangement was covered by special Polish provisions related to financial leasing (article 17b-g). Judgement of the Court The Court found that the Polish arm’s length provisions applied to the transaction. Excerpts “In the present case, the legal problem boils down to the correct identification of the nature of the norms arising from Article 11 of the A.p.d.o.p. and its relationship with the provisions on leasing raised by the applicant (Articles 17b – 17g of the A.p.d.o.p.). Indeed, the applicant takes the view that the leasing provisions themselves introduce derogations from market conditions and that, consequently, it is not possible to examine certain activities governed by the leasing provisions on the basis of the criteria provided for in Article 11 of the A.p.d.o.p.” “Therefore, it should be stated that the norm of Article 11 of the A.l.t.d.o.p. constitutes lex specialis in relation to the norms concerning taxation of leasing agreements (Article 17a et seq. of the A.l.d.o.p.). It may therefore also be applied in the case concerning taxation of such agreements. Thus, the Court does not share the view of the Appellant Company that it is the provisions concerning the leasing agreement that constitute lex specialis in relation to Article 11 of the discussed Act. It is also of no significance for the position of the Court that the agreement presented in the description of the future event is not a commonly occurring agreement, and therefore, as the appellant claims, it will not be possible to make determinations on the basis of Article 11 of the A.l.t.d.o.p. This is because the very demonstration that the price would have been different if certain connections on the basis of the aforementioned provision had not occurred is already an element of establishing the facts and conducting tax proceedings in a specific case. Meanwhile, the subject of the present proceedings, was the answer to the question whether the aforementioned provision is excluded in the case of taxation of leasing agreements. In addition, it should be noted that, contrary to the assertions in the application, it was not in the description of the future event, but in the position presented by the party that it stated that: “(…) the initial value of the rights to be used will be determined on the basis of a valuation prepared by an independent entity and will therefore correspond to their market value”.” Click here for English translation Click here for other translation I SA_Po 827_11 - Wyrok WSA w Poznaniu z 2012-02-16
Sweden vs Ferring AB, June 2011, Swedish Court, Case no 2627-09

Sweden vs Ferring AB, June 2011, Swedish Court, Case no 2627-09

In connection with a restructuring, Ferring Sweden (a Scandinavian pharmaceutical) had transferred intangible assets to a group company in Switzerland. Among the assets transferred was an exclusive worldwide license to manufacture and sell a drug and a number of ongoing R&D projects. The question in the case was whether the price agreed between the Group companies was consistent with the arm’s length principle. The Ferring’s position was that the price was consistent with the arm’s length principle, while the Swedish Tax Agency believed that an arm’s-length price was significantly higher. In support of its pricing, the company had submitted a valuation made by the audit company A, where the value of Ferring after the transfer (the residual company) was compared with the value of the company if it had continued to operate as a full-fledged company (the original company). These values ​​were determined through a present value calculation of the future cash flows in each unit. The difference in value was considered to correspond to the value of the intangible assets transferred. The Swedish Tax Agency had made its own assessment of a market-based remuneration for the license only to manufacture and sell the drug. In this valuation, the present value of the future cash flows was calculated according to what the sale of the drug could be expected to generate, ie the income that the Swedish company would lose after the transfer of the license. The value obtained exceeded the price that the Group companies had agreed on for all intangible assets. The Swedish Tax Agency had also made a calculation regarding the ongoing R&D projects. In this calculation, the present value of the estimated costs of R&D projects was compared with the present value of the future revenues that these projects could be expected to lead to. In support of the assessment, the Swedish Tax Agency also relied on a valuation made by the audit firm B, which was made on behalf of the Swedish Tax Agency. Like the audit firm A, the accounting firm B calculated the value of the transferred assets by comparing the value of the parent company with the value of the residual company. However, Audit Company B came to a significantly higher value in its valuation than Audit Company A did. The Court of Appeal considered that clearly overwhelming reasons indicated that the audit firm B’s valuation provided a reasonable arm’s length value. This conclusion was reinforced by the Swedish Tax Agency’s evaluation of the license to manufacture and sell the drug, by the Swedish Tax Agency’s calculation of R&D projects, and by an evaluation of the outcome of the respective auditing companies’ values ​​by using multiples. The Court of Appeal also took into account the size of the amounts that the Swedish company invested in R&D in the years prior to the transfer. The Court found that in the absence of proportionality and in the absence of explanations, the relationship between the value of intangible assets and the sums invested in developing them may give an indication that the price is not market-based. The Court of Appeal also held that the information contained in the case was insufficient to explain the seemingly unreasonable relationship between what had been invested in R&D up until the transfer and the price that was then determined at the transfer of assets, which included the R&D projects. All in all, the District Court considered that the Swedish Tax Agency had sufficiently proved that the market price of the assets transferred between the Group companies exceeded the agreed price, at least with the increase decided by the Swedish Tax Agency. According to the court, the Swedish Tax Agency had therefore had grounds for taxing Ferring in the manner that had taken place. Click here for translation 2627-09
India vs. Maruti Suzuki India Ltd.

India vs. Maruti Suzuki India Ltd.

Maruti Suzuki India manufactures and sells cars and spare parts. A license agreement had been entered with the group parent for use of licensed information and trademark for the manufacture and sale of the products. Hence, Maruti Suzuki paid royalties to the parent for trademark and technology. The tax administration made an adjustment where the royalty paid for use of the trademark was disallowed and where a reimbursement with mark-up for non-routine advertising, marketing and promotion of the brand name was imputed. The High Court, referred the case back to the tax administration with observations. If there is an agreement between the group parent and the taxpayer which carries an obligation on the taxpayer to use the trademark owned by the group parent. Such agreement should be accompanied either by an appropriate payment by the group parent or by a discount provided to the taxpayer. Appropriate payment should be made on account of benefit derived by the group parent in the form of marketing intangibles obtained from such mandatory use of the trademark. However, if the agreement between the group parent and Maruti Suzuki for the use of the trademark is discretionary, no payment is required to the foreign entity. Maruti_Suzuki_India_Ltd_vs_Additional_Commissioner_Of_..._on_1_July,_2010
US vs. Veritas Software Corporation, December 2009

US vs. Veritas Software Corporation, December 2009

The issue in the VERITAS case involved the calculation of the buy-in payment under VERITAS’ cost sharing arrangement with its Irish affiliate. VERITAS US assigned all of its existing European sales agreements to VERITAS Ireland. Similarly,VERITAS Ireland was given the rights to use the covered intangibles and to use VERITAS US’s trademarks, trade names and service marks in Europe, the Middle East and Africa, and in Asia-Pacific and Japan. In return, VERITAS Ireland agreed to pay royalties to VERITAS US in exchange for the rights granted. The royalty payment included a prepayment amount (i.e. lump-sum payment) along with running royalties that were subject to revision to maintain an arm’s length rate. Thereafter, VERITAS Ireland began co-developing, manufacturing and selling VERITAS products in the Europe, the Middle East and Africa markets as well as in the Asia-Pacific and Japan markets. These improvements, along with the establishment of new management, allowed VERITAS’ 2004 annual revenues to be five times higher than its 1999 revenues from Europe, the Middle East and Africa, and Asia-Pacific and Japan. the IRS’s economic expert employed the income method to calculate the buy-in payment (for pre-existing intangibles that were to be used by the parties to develop future technology under the cost sharing arrangement). These calculations were based on the assumption that the transfer of pre-existing intangibles by VERITAS US was “akin to a sale†and should be evaluated as such. To value the transfer, the IRS expert aggregated the intangibles so that, in effect, he treated the transfer as a sale of VERITAS US’s business, rather than a sale of each separate intangible asset. The aggregation of  the intangibles was necessary, in the view of the IRS expert, because the assets collectively (the package of intangibles) possessed synergies and, as a result, the package of intangibles was more valuable than each individual intangible asset standing alone. The Court rejected the IRS’s method on the following premises: The IRS did not differentiate between the value of  subsequently developed intangibles and pre-existing intangibles, thus including intangibles beyond what  is required for the buy-in payment; The IRS included intangibles such as access to VERITAS US’s marketing and R&D teams, which are not among the intangibles recognized by the US transfer pricing rules; and The IRS incorrectly assigned a perpetual useful life for transferred intangibles that have a useful life of four years. US veritas
Norway vs. Cytec, September 2007, High Court, Case no 2007/1440

Norway vs. Cytec, September 2007, High Court, Case no 2007/1440

This case is about business restructuring and transfer of intangibles – customer list, technology, trademarks and goodwill. Cytec Norge was originally a full-fledged manufacturer that was changed into a toll manufacturer. The customer portfolio, technology, trademarks and goodwill were transferred to the related entity, Cytec Netherlands, free of charge. The court found that Cytec Norge AS had held intangibles of considerable value prior to the business restructuring in 1999, and that the Norwegian entity should have received an arm’s-length remuneration for the transfer of these rights to the related Dutch entity. The court ruled that the Norwegian tax authorities’ calculation of such remuneration and the increased income was correct. An appeal to the Supreme Court was dismissed in 2008. Click here for translation Norway Cytec-dom
Netherlands vs Shoe Corp, June 2007, District Court, Case nr. 05/1352, VSN June 2, 2007

Netherlands vs Shoe Corp, June 2007, District Court, Case nr. 05/1352, VSN June 2, 2007

This case is about a IP sale-and-license-back arrangement. The taxpayer acquired the shares in BV Z (holding). BV Z owns the shares in BV A and BV B (the three BVs form a fiscal unity under the CITA). BV A produces and sells shoes. In 1993, under a self-proclaimed protection clause, BV A sells the trademark of the shoes to BV C, which is also part of the fiscal unity. The protection clause was supposedly intended to protect the trademark in case of default of BV A. Taxpayer had created BV C prior to the sale of the trademark. In 1994, the taxpayer entered into a licensing agreement with BV C: the taxpayer pays NLG 2 to BV C per pair of shoes sold. Next, BV C is then moved to the Netherlands Antilles, which results in the end of the fiscal unity as of January 1, 1994. The roundtrip arrangement, the sale of an intangible and the subsequent payment of licensing fees, is now complete. In 1999 the royalty for use of the trademark was increased from fl. 2 per pair of shoes to fl. 2.50 per pair, resulting in annual royalty payments of fl. 300.000 from A BV to B BV. The Court disallowed tax deductions for the royalty payments. The payments were not proven to be at arm’s length. B BV had no employees to manage the trademarks. There were no business reasons for the transactions, only a tax motive. Hence the sale-and-license back arrangement was disregarded for tax purposes. Also, the licensing agreement were not found to produce effective protection of the brand and was therefore also considered part of a tax planning plan. Taxpayers often seek to maximise differences in tax rates through selling intangibles to a low- tax country and subsequently paying royalties to this country for the use of these intangibles, thereby decreasing the tax-base in the high-tax country. The arm’s length principle requires taxpayers to have valid business purposes for such transactions and requires them to make sure that the royalties are justified – why would an independent company pay royalties to a foreign company for an intangible it previously owned?’ To adress such situations a decree was issued in the Netherlands on August 11, 2004. The decree provided additional rules for transfers of intangibles when the value is uncertain at the time of the transaction (HTVI). It refers to situations in which an intangible is being transferred to a foreign group company and where this company furthermore licenses the intangible back to the transferor and/or related Dutch companies of this company. In these situations a price adjustment clause is deemed to have been entered. The deemed price adjustment clause prevents a sale at a very low price with a consequent high royalty fee to drain the Dutch tax base. Through the price adjustment clause the Dutch tax authorities are guaranteed a fair price for the sale of the intangible. Click here for translation Netherlands-vs-Corp-Maj-2007-IP-sale-and-license-back
US vs GlaxoSmithKline Holdings, September 2006, IR-2006-142

US vs GlaxoSmithKline Holdings, September 2006, IR-2006-142

In September 2006 the Internal Revenue Service announced that it has successfully resolved a transfer pricing dispute with Glaxo SmithKline. Under the settlement agreement, GSK will pay the Internal Revenue Service approximately $3.4 billion, and will abandon its claim seeking a refund of $1.8 billion in overpaid income taxes, as part of an agreement to resolve the parties’ long-running  transfer pricing dispute for the tax years 1989 through 2005. See also the GlaxoSmithKlein decision from july 2001 The IRS announcement US glaxosmithkline_no_5750-04_2006-irs__settlement
Netherlands vs "X B.V.", August 1998, Supreme Court, Case No 32997, ECLI:NL:HR:1998:AA2288

Netherlands vs “X B.V.”, August 1998, Supreme Court, Case No 32997, ECLI:NL:HR:1998:AA2288

In a situation where a new intangible asset has been developed and is transferred to an affiliate at a time when its success is not yet sufficiently apparent, for example, because the intangible asset has not yet generated revenues and there are significant uncertainties in estimating future revenues, the valuation at the time of the transaction is highly uncertain and the inclusion of a price adjustment clause makes sense. Click here for English translation Click here for other translation ECLI_NL_HR_1998_AA2288
The Netherlands vs X BV, February 2004, Appellate Court of Amsterdam V-N 2004/39.9.

The Netherlands vs X BV, February 2004, Appellate Court of Amsterdam V-N 2004/39.9.

X BV, is member of the English XX-group. One of X’s parents is XX Ltd., based in the United Kingdom. In 1992, X BV acquired licensing rights relating to the trade name J from J Ltd. Their value was determined to be GBP 19.2 million. According to the agreement, X BV paid GBP 19 million for the ten-year economic ownership of the licensing rights. J Ltd. sold the legal ownership to W BV for GBP 200,000 in which X BV owned all shares. In 1996, X BV sells the ten-year economic ownership to W BV for GBP 2 million. To support the GBP 19 million price for the economic ownership, a valuation report is drawn up in 1992. The valuation is based on “projected royalty streams†which showed increasing royalty streams over the ten-year period 1992-2002. The tax authorities disagrees with the price of GBP 19 mio. and argue that the total value of the brand was GBP 43 mio. bases on a continued royalty stream. According to the authorities, GBP 19 million was attributable to the economic ownership and GBP 24 million should be attributed to the legal ownership. In court X BV provided an opinion on the value of the legal and economic ownership of the brand in 1992. In the report it is concluded that the projected income streams did not take into account the Product Life Cycle of the brand. The report states, that to support the brand and to keep the income streams at a high level, investments in the brand will have to be made. No such expenses had been planned and it was very unlikely that there would have been significant income streams after the ten-year period. The Court find there was no evidence that X BV had planned to invest in further support the brand. Hence, at the time of the purchase – the parties did not expect the brand to produce royalty streams after the ten year period. The Court also emphasises that as the royalty stream was in fact in decline in 1994. Click here for translation ECLI-NL-GHAMS-2004-AO4879
US vs. DHL. April 2002, U.S. Court of Appeals

US vs. DHL. April 2002, U.S. Court of Appeals

When DHL sold the “DHL†trademark to DHL International, the IRS disagreed with DHL’s evaluation of the arms-length price of the intellectual property and used its authority under Section 482 to reallocate income and impose penalties. DHL appealed the IRS ruling and the tax court upheld the IRS allocation to DHL. In this decision the U.S. Court of Appeals for the Ninth Circuit affirmed the tax court’s application of Section 482 to the sale of the trademark and the $100 million valuation for the intangible asset, but reversed the tax court’s rejection of a $50 million value of the foreign trademark rights, as asserted by DHL. US-vs.-DHL.TCM_.WPD-2 And US-vs.-DHL.TCM_.WPD
US vs Eli Lilly & Co, October 1998, United States Court of Appeals

US vs Eli Lilly & Co, October 1998, United States Court of Appeals

In this case a pharmaceutical company in the US, Eli Lilly & Co, transferred valuable pharmaceutical patents and manufacturing know-how to its subsidiary in Puerto Rico. The IRS argued that the transaction should be disregarded (substance over form) and claimed that all of the income from the transferred intangibles should be allocated to the U.S. parent. The Judgment from the Tax Court: “Respondent’s argument, that petitioner, having originally developed the patents and know-how, is forever required to report the income from those intangibles, is without merit. Respondent ignores the fact that petitioner, as developer and owner of the intangible property, was free to and did transfer the property to the Puerto Ricanaffiliate in 1966.†The Court of Appeals altered the judgement from the Tax Court. According to the Court of Appeals, the parent company had received an arm’s length consideration for the transfer of intangibles in the form of stock in the subsidiary. Hence, the Court disallowed the allocation of the intangibles’ income to the U.S. parent. US vs Eli Lilly

US vs NESTLE HOLDINGS INC, July 1998, Court of Appeal, 2nd Circuit, Docket Nos 96-4158 and 96-4192

In this case, experts had utilized the relief-from-royalty method in the valuation of trademarks. On this method the Court noted: “In our view, the relief-from-royalty method necessarily undervalues trademarks. The fair market value of a trademark is the price a willing purchaser would have paid a willing seller to buy the mark…The relief-from-royalty model does not accurately estimate the value to a purchaser of a trademark. Royalty models are generally employed to estimate an infringer’s profit from its misuse of a patent or trademark… Resort to a royalty model may seem appropriate in such cases because it estimates fairly the cost of using a trademark… However, use of a royalty model in the case of a sale is not appropriate because it is the fair market value of a trademark, not the cost of its use, that is at issue. A relief-from-royalty model fails to capture the value of all of the rights of ownership, such as the power to determine when and where a mark may be used, or moving a mark into or out of product lines. It does not even capture the economic benefit in excess of royalty payments that a licensee generally derives from using a mark. Ownership of a mark is more valuable than a license because ownership carries with it the power and incentive both to put the mark to its most valued use and to increase its value. A licensee cannot put the mark to uses beyond the temporal or other limitations of a license and has no reason to take steps to increase the value of a mark where the increased value will be realized by the owner. The Commissioner’s view, therefore, fundamentally misunderstands the nature of trademarks and the reasons why the law provides for exclusive rights of ownership in a mark. Given the shortcomings of the relief-from-royalty methodology, the Tax Court erred when it adopted the Commissioner’s trademark valuations. The Tax Court is instructed to examine alternate methods of determining the fair market value of the trademarks in question.” NESTLE HOLDINGS INC v CIR July 31 1998 2nd Circuit Docket Nos 96-4158 and 96-4192
US vs. Medieval Attractions, 1996 October,

US vs. Medieval Attractions, 1996 October,

The United States Tax Court sustained the IRS determination that there were no arm’s-length business reasons why payments would have been made for the intangible property in question and therefore refused to allow those expenses to be included in the Section 482 calculation of net taxable income. US-MedievalAttractions_decision_10091996