Tag: Brand name

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 Accor (Hotels), June 2022, CAA de Versailles, Case No. 20VE02607

The French Accor hotel group was the subject of an tax audit related to FY 2010, during which the tax authorities found that Accor had not invoiced a fee for the use of its trademarks by its Brazilian subsidiary, Hotelaria Accor Brasil, in an amount of 8,839,047. The amount not invoiced was considered a deemed distribution of profits and the tax authorities applied a withholding tax rate of 25% to the amount which resulted in withholding taxes in an amount of EUR 2.815.153. An appeal was filed by Accor with the Administrative Court. In a judgment of 7 July 2020, the Administrative Court partially discharged Accor from the withholding tax up to the amount of the application of the conventional reduced rate of 15% (related to dividends), and rejected the remainder of the claim. The Administrative Court considered that income deemed to be distributed did not fall within the definition of dividends under article 10 of the tax treaty with Brazil and could not, in principle, benefit from the reduced rate. However in comments of an administrative instruction from 1972 (BOI 14-B-17-73, reproduced in BOI-INT-CVB-BRA, 12 August 2015) relating to the Franco-Brazilian tax treaty, it was stated, that the definition of dividends used by the agreement covers “on the French side, all products considered as distributed income within the meaning of the CGI”. The Administrative Court noted that such a definition would necessarily include distributed income within the meaning of the provisions of Article 109 of the CGI”. The tax authorities appealed against this judgment. Judgement of the Administrative Court of Appeal The Court allowed the appeal of the tax authorities and set aside the judgment in which the Administrative Court had partially discharged Accor from the withholding tax to which it was subject in respect of the year 2010. “Under the terms of Article 10 of the tax treaty concluded between the French Republic and the Federative Republic of Brazil on 10 September 1971: “1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State. / 2. However, dividends may be taxed in the State in which the company paying the dividends has its tax domicile and according to the laws of that State, but the tax so charged shall not exceed 15 per cent of the gross amount of the dividends / (…) 5. (a) The term “dividend” as used in this Article means income from shares, “jouissance” shares or “jouissance” warrants, mining shares, founders’ shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate units which is assimilated to income from shares by the taxation law of the State of which the company making the distribution is resident. (…) “. It follows from these stipulations that the dividends mentioned in Article 10 of the Franco-Brazilian Convention must be defined as the income distributed by a company to its members by virtue of a decision taken by the general meeting of its shareholders or unit holders under the conditions provided for by the law of 24 July 1966, as amended, on commercial companies, which does not include income deemed to be distributed within the meaning of Article 109(1) of the French General Tax Code. Neither these stipulations, nor any other clause of the Franco-Brazilian agreement, prevent the taxation in France of income considered as distributed to Hotelaria Accor Brasil by Accor, according to French tax law, at the common law rate set, at the date of the taxation in dispute, at 25% of this income by Article 187 of the General Tax Code.” “The Accor company claims, on the basis of Article L. 80 A of the Book of Tax Procedures, of the instruction of 8 December 1972 referenced BOI n° 14-B-17-72 relating to the tax treaty concluded between France and Brazil on 10 September 1971, which provides that: “According to paragraph 5 of Article 10, the term dividends means income from shares, jouissance shares or warrants, mining shares, founders’ shares or other profit shares with the exception of debt claims and, in general, income assimilated to income from shares by the tax legislation of the State of which the distributing company is resident. / This definition covers, on the French side, all income considered as distributed income within the meaning of the Code général des Impôts (art. 10, paragraph 5b). “However, this interpretation was brought back by an instruction referenced 4 J-2-91 of July 2, 1991, published in the Bulletin officiel des impôts n° 133 of July 11, 1991, relating to the impact of international treaties on the withholding tax applicable to income distributed outside France, according to which: “the advantages which benefit [the partners and the persons having close links with the partners] and which are considered as distributed income in domestic law retain this character in treaty law when the applicable treaty refers to dividends and gives a definition similar to that of the OECD model. On the other hand, when they benefit persons other than the partners, these benefits are subject to the treaty provisions relating to “undesignated” income, i.e. income that does not fall into any of the categories expressly defined by the applicable treaty”. Annex 1 to this instruction specifically states, with regard to Brazil, that income paid to a beneficiary who is not a shareholder of the distributing company is subject to withholding tax at the ordinary law rate of 25%. These statements must be regarded as having reported, on this particular point, the administrative interpretation contained in paragraph 2351 of the instruction of 8 December 1972. In this respect, it is irrelevant that the instruction of 8 December 1972 was fully reproduced and published by the BOFIP on 12 September 2012 under the reference BOI-INT-CVB-BRA, after the tax year in question. It follows that Accor cannot claim the benefit of the reduced conventional tax rate.” Click here for English translation Click here for other translation ...

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 ...

Luxembourg vs Lux SA, December 2016, Administrative Tribunal Case No 36954

By a trademark license agreement dated August 22, 2008, a group company in Luxembourg granted another group company a non-exclusive right to use and exploit the brands registered in the territory of the Grand Duchy of Luxembourg, Benelux and the European Community for an initial period of ten years, renewable tacitly each time for a period of one year and this against a license fee paid and calculated annually corresponding to 3% of this turnover. By letters of 30 January 2015, the Tax Office informed the company that they intended to refuse to deduct the royalties paid to the company for the years 2010, 2011 and 2010. Click here for translation Lux vs taxpayer 21 dec 2016 36954 ...

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 ...

Indonesia vs Panasonic Indonesia, May 2013, Tax Court, Put.45162/2013

In the case of Panasonic Indonesia the tax authorities had disallowed deductions for services and royalties paid for by the local company to the Panasonic Corporation Japan. The tax authorities held that Panasonic Indonesia did not received the purported services and that the company should not pay royalty due to its status as a contracting manufacturer. Judgement of the Tax Court The Court decided predominantly in favour of the tax authorities. The court found that Panasonic Indonesia had been unable to prove that actual ‘services’ had been received for an amount equal to 3% of net sales of all product manufactured and 1% of net sales for technical assistance and brand fees. Furthermore it was notet that Panasonic Indonesia reported consistent losses. Click here for translation putusan_put.45162_pp_m.xv_15_2013_20210530 ...

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 ...