“IP-owner Corp” had subsidiaries which used its intangibles in their distribution and manufacturing activities. The subsidiaries did not paid royalty.
The tax authorities considered that they should have paid for use of the intangibles and added an arm’s length royalty to the taxable income of “IP-owner Corp”.
An appeal was filed with the Seoul Appeals Commission.
Decision
The Appeals Commission dismisse the appeal and upheld the tax assessment issued by the authorities.
Excerpt in English
“1) Issue 1
a) A trademark holder has the exclusive and unrestricted right to use a trademark, and therefore, unless the trademark is economically worthless, the use of another’s registered trademark is considered to be an economic benefit in itself. It is economically reasonable for a trademark holder to receive consideration for allowing the use of its trademark, and it is an abnormal trade practice that lacks reasonableness to allow the use of a trademark without consideration.
b) The applicant corporation is 20○○.○. After applying and registering the trademark, it has been registered as the sole trademark holder of the trademark in question. However, although it was necessary to collect royalties for the use of the trademark, the applicant corporation refused to collect royalties without economic rationality, which is subject to adjustment of normal price taxation under Article 4(1) of the International Taxation Adjustment Act or denial of calculation of wrongful acts under Article 52(1) of the Corporate Tax Act.
c) Accordingly, we find no error in the original decision of the HMRC to deny the applicant a corporate tax credit.
2) Regarding Issue 2
a) The applicant company argues that the technical fees at issue should not be disallowed to the applicant company.
b) The manufacturing technology of ○○○○, which the Applicant has developed for a long period of time by establishing a research and development team, constitutes non-public technical information, and the head of the research and development team and then the factory manager of the Chinese subsidiary stated that the research and development team’s findings played an important role for the Chinese subsidiary. The internally drafted contract stipulates the provision of drawings, etc. as technical information, and the amount of royalties to be received from the PRC corporation was considered to be about 3 to 4 per cent of the PRC corporation’s sales.
c)The fact that the applicant transferred technical information and technical know-how related to the ○○○○ product to the PRC corporation and did not receive royalties in return is subject to taxation adjustment under Article 4(1) of the Law on International Taxation Adjustment, and the arm’s length price was reasonably calculated in light of the substance and practice of the transaction.
d) Accordingly, we find no error in the original decision of the tax authorities to deny the claim for corporate tax credit to the applicant.”
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