AB bioMérieux had entered into a trademark and know-how licensing agreement, followed by a reduction of its activities and a transfer of strategic personnel to its French parent company.
The tax authorities concluded that the entire arrangement constituted a transfer of value (intangible assets) and issued a notice of additional taxable income resulting from the transfer.
AB bioMérieux filed an appeal which ended up in the Administrative Court of Appeal.
Judgment
The court upheld the assessment of the tax authorities. It found that AB bioMérieux became the formal legal owner of the intangible assets, while the value (intangible assets related to the ongoing business) was transferred to the French parent company.
Excerpt in English
“Initially, based on the wording of the licence agreement and the legal opinions issued by the professors………………………………………………, the Administrative Court of Appeal cannot find sufficient reasons to consider that the agreement in itself is something other than a licence agreement under civil law. Thus, the licence agreement as such alone does not constitute grounds for departing from the parties’ characterisation of the agreement itself as a licence agreement.
However, when assessing which transaction has been undertaken between the parties, all of the parties’ dealings must be taken into account (cf. paragraph 1.52 et seq. of the OECD Guidelines). Similarly, there may be reasons to disregard the parties‘ designation of the transaction in the case where a transaction is indeed the same in form and content, but where the parties’ other dealings in relation to the transaction, viewed as a whole, differ from those that would have applied between independent traders acting in a commercial and rational manner (paragraph 1.65 of the Guidelines). In addition to the written licence agreement, the actual circumstances and the parties‘ intention as well as the economic significance of the parties’ combined conduct must therefore also be taken into account.
The Administrative Court of Appeal considers, as does the Administrative Court, that it cannot be considered consistent with the arm’s length principle to isolate the licence from the parties’ other dealings during the period from the share acquisition in June 2008 to the licence in July 2010.
The Administrative Court of Appeal further agrees with the Administrative Court’s assessment that the actual circumstances are best described as a restructuring. Prior to the share acquisition in 2008, the company was a fully fledged company, which meant that the company itself developed, manufactured, marketed and sold its products. In addition to the exclusive licence that the company granted to …………. under the licence agreement, the company gradually ceased its activities relating to research and development, manufacturing, marketing, sales and distribution of ……………….. during 2008-2010, while …………. was given the opportunity to conduct the same activities. Following the expiry of the licence agreement, the company retains only the ownership of the know-how and trade marks relating to………….. The licence agreement clearly regulates the assignment of the intellectual property rights between the parties for a fixed period. Furthermore, it is clear that, even taking into account that no unit or branch of activity has been transferred from the company to the parent company, the restructuring in its entirety means that the company has relinquished the functions linked to the …………… and …………….. products in favour of the parent company. It is also apparent from the documents in the cases that two persons who have been the bearers of the know-how that the licence agreement is intended to regulate have terminated their employment in the company in order to work for a certain period of time in the parent company for the purpose of incorporating know-how relating to …………….. The Administrative Court of Appeal further finds that the financial risk associated with functions and activities linked to has essentially been transferred to the parent company. According to what has emerged, it is …………… that ties up capital, carries out investments for research and development and bears all operational risks, e.g. linked to production, damages, etc. This assessment is also well in line with points 9.188-9.189 of the guidelines. The gradual winding down of the company’s operations and the start-up of the same operations together with the licence agreement has thus entailed a transfer of value in that assets, functions and risks linked to ——— have been transferred to ……………….. (cf. ongoing concern, paragraph 9.93 of the OECD Guidelines). The entire reorganisation and the resulting transfer of value should therefore be regarded as one transaction.
In the opinion of the Court of Appeal, the transaction that should form the basis for the continued assessment is thus the transfer of research and development, manufacturing, marketing, sales and distribution of Etest, as well as the licensing of know-how and trademarks linked to …………… for a period of ten years.”
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