Since 2012, the French company SASU Alchimedics has been owned by Sinomed Holding Ltd, the holding company of a group of the same name set up by a Chinese resident domiciled in the British Virgin Islands. SASU Alchimedics was engaged in the manufacture and marketing of products using electro-grafting technology for biomedical applications and the licensing and assignment of patents in the field of electro-grafting technologies. SASU Alchimedics was subject to an audit for the financial years 2014 and 2015, as a result of which the tax authorities increased its income for the financial years ended 31 December 2013, 2014 and 2015 by the price of services not invoiced to Sinomed Holding Ltd. In addition, the non-invoicing of these services was considered to be a transfer of profits abroad within the meaning of Article 57 of the French General Tax Code and the amounts were therefore also subject to withholding tax. The tax authorities considered that SASU Alchimedics had committed an abnormal act of management by not re-invoicing to its parent company the services provided in connection with the “development and defence of patents”. The price of the services reintegrated as an indirect transfer of profits was determined by applying to the amount of the expenses recorded a cost plus 5%, considered to be a normal margin. These amounts were used as the basis for calculating the withholding tax, which is the only issue in this case. SASU Alchimedics appealed against the assessment and, by judgment of 2 December 2002, the Administrative Court rejected its application for a refund of the withholding tax. An appeal was then lodged with the Administrative Court of Appeal. Judgement of the Court The Administratibe Court of Appeal set aside the decision of the Administrative Court and decided in favor of SASU Alchimedics. Excerpts in English “… 6. In order to justify the existence of an advantage to the company, constituting an indirect transfer of profits, granted to Sinomed Holding Ltd, the tax authorities note that SASU Alchimedics is the owner of patents attached to a business acquired in 2007, and of an exclusive licence on patents and other intangible rights acquired, the same year, from the French Atomic Energy Commission (CEA) and that it entered into an agreement, on 1 June 2007, with Sinomed Holding Ltd, which will become its parent company, and Beijing Sun Technologie Inc, a company incorporated under Chinese law, owned by Sinomed Holding Ltd, which will become its sister company, a patent licence and sub-licence agreement granting them a perpetual licence for the techniques developed by Sinomed Holding Ltd in return for a one-off payment of 9,530,000 euros. The French tax authorities argued that it was not normal for SASU Alchimedics, following the technology transfer agreement of 1 April 2007, to bear the cost of registering and maintaining the patents and licences alone, without any “financial guarantee in the event of successful marketing of the related products, particularly on the European and American markets”, whereas Sinomed Holding Ltd, which now controls the strategy of the companies it owns, stands to benefit from any future successes and is in a position to prevent it from transferring its assets to a third party. It deduced that by not re-invoicing its parent company, Sinomed Holding Ltd, for services provided in relation to “the development and defence of patents”, despite the fact that it had always been in a loss-making position, SASU Alchimedics had granted an undue advantage to its parent company, constituting an abnormal management practice and an indirect transfer of profits abroad. 7. However, the tax authorities do not dispute that, as SASU Alchimedics points out on appeal, the costs of maintaining and protecting the patents, which were expensed, were its responsibility under the terms of the contract entered into in 2007, which it does not claim was no longer in force. Nor does it dispute that the research expenses invoiced by Beyond and Université Paris-Diderot, and the overheads deducted as expenses, were incurred in the interests of SASU Alchimedics. The fact that this company has a chronic deficit does not, in itself, justify the increase in operating income, nor does the fact that an asset is insufficiently profitable constitute, in itself, an abnormal act of management. The tax authorities have failed to identify the “patent valuation and defence” service that they claim to have identified for the benefit of Sinomed Holding Ltd and the exact nature of the advantage that they intend to impose, and have failed to demonstrate under what obligation SASU Alchimedics should have re-invoiced this company for these expenses. The fact that SASU Alchimedics does not have control over its strategy is not, in itself, a decisive argument proving the reality of services provided for the benefit of Sinomed Holding Ltd. Moreover, the contract concluded with this company and with the company that was to become its sister company was signed in 2007 at a time when it is not alleged that SASU Alchimedics was dependent on Sinomed Holding Ltd, and the investigation shows that SASU Alchimedics did in fact benefit from the patent concessions and sub-concessions, which were remunerated in the form of a single payment in 2007. Lastly, although the French tax authorities invoke the prospect of marketing in Europe and the United States the products already developed by the Sinomed group, and in particular by the Chinese company Sino Medical, under the contract concluded in 2007, during the period in dispute there was nothing to require SASU Alchimedics to have signed a contract with its parent company to have the latter bear the costs of maintaining, registering and defending the patents and licences of which it remained the owner and which are not yet used on its continents, where they were not registered. 8. In these circumstances, the French tax authorities have not established the existence of an advantage granted by SASU Alchimedics to Sinomed Holding Ltd and, consequently, of a practice falling within the scope of Article 57 of the French General Tax Code ...

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. Litwińczuk, 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 ...

“Fertilizer Licence SA” (“A”) transferred its trademarks to “B” in 2013, previously financed the transfer through a cash contribution, and then, following the transfer, paid royalties to “A” in exchange for the ability to use the assets. According to the tax authorities, a situation where an entity transfers its assets to another entity, finances the transfer and then pays for access to use those assets does not reflect the conditions that unrelated parties would establish. An unrelated party, in order to obtain such licence fees from another unrelated party, would first have to incur the costs of manufacturing or acquiring the trademarks and to finance these costs itself without the involvement of the licensee. An independent entity which has finances the creation or purchase of an intangible asset, should not incur further costs for the use of that asset. Furthermore, in determining the licence fee to “B” for the use of trademarks, “A” relied on formal legal ownership, granting “B” a share in the revenues generated by “A” despite the fact that “B” did not take any part in the creation of these revenues. As a result, almost all the profits of “A” were transferred as royalties to company “B”. According to the authority, such an approach is inconsistent with the arm’s length principle. The remuneration of “B” (the legal owner of trademarks) did not take into account the functions performed by entities in creating the value of trademarks nor the risks and assets involved in the creation. The authority concluded that “B” was not entitled to share in the profit of “A”, because “B” was only the legal owner of internally created trademarks in the group and performed no significant DEMPE functions, had not used significant assets nor borne significant risks. This role of “B” entitled only to reimbursement of the costs incurred for the registration and legal protection of trademarks added a arm’s length margin for this type of services. As a result of the findings, the authority of first instance concluded that “A” had overstated tax deductible costs in connection with the disclosure of trademark licence fees as costs. “A” had reported income lower than it would have expected if the above-mentioned relationships had not existed. In the opinion of the authority of the second instance, an independent entity would not have entered, on the terms and conditions set by the company and its affiliates, into transactions leading to the divestment of ownership of valuable assets necessary for its operations, additionally financing their acquisition by another company, taking up shares in return with a nominal value significantly lower than the value of the lost assets (subsequently not receiving any dividends therefrom), and additionally being forced to incur additional costs as a result of the need to pay licence fees for the use of the trademarks held earlier. An appeal was filed by “A”. Judgement of the Court Excerpts “What is important in the case, however, is the conclusion of the authorities that in fact the legal relationship justifying the incurrence of expenses recognised as tax deductible costs is a contract for the provision of services consisting only in the administration of trademarks. The Court notes, however, that this conclusion is in conflict with the position of the authorities, which did not question the validity of the legal transactions resulting in the transfer of the rights to the trade marks to company ‘B’ and thus to another entity. As the applicant rightly submits, it cannot be disregarded in this case that the applicant was not the owner of the trade marks but acquired the right to use them on the basis of a licence agreement, for which it should pay remuneration to company ‘B’ (page […] of the application). In principle, the authorities did not present any arguments showing which interpretation rules they applied to reach the conclusion that this manner of applying the abovementioned provisions is legally possible and justified in the present case. It should be pointed out here that Article 11(1) in fine speaks of the determination of income and tax due without – ‘[…] taking into account the conditions resulting from the link …’, but does not permit the substitution of one legal transaction (a licence agreement) for another (an agreement for the provision of administration services) and the derivation of legal effects from the latter in terms of determining the amount of the tax liability. As the applicant rightly argued, such a possibility exists from 1 January 2019, since Article 11c(4) uses the expression- “[…] without taking into account the controlled transaction, and where it is justified, it determines the income (loss) of the taxpayer from the transaction relevant to the controlled transaction”. This is the so-called recharacterisation, i.e. reclassification of transactions, which was actually done by the tax authorities in this case. The company’s claims that the transfer of the trade mark into a separate entity was motivated by a desire to increase the company’s recognition and creditworthiness, which was a normal practice for business entities at the time, are unconvincing. On that point, it should be noted that, operating under the GKO with the same name, the applicant’s recognition and the name under which it operated were already sufficiently well established. As regards the increase in the creditworthiness or market power of the users of the trade mark, the applicant’s contentions on this point too are empty. Moreover, even if it were to be accepted, at least in the context of the activities of ‘A’, that the creditworthiness of ‘A’ had been increased, the advantage which the applicant derives from such an operation would appear to be of little significance. In fact, it obtained this benefit to a significant extent from the formation of relations with “A”, as a result of which the value of its income taxable income, and thus its tax liability in 2015, was significantly reduced. The benefits, mainly tax ones, are also indirectly pointed out by the applicant herself, indicating, inter alia, that there were no grounds ...

Following a business restructuring, rights in a trademark developed and used by O.B SA was transferred to a related party “A”. The newly established company A had no employees and all functions in the company was performed by O.B. SA. Anyhow, going forward O.B SA would now pay a license fee to A for using the trademark. The payments from O.B SA were the only source of income for “A” (apart from interest). According to the O.B. group placement of the trademark into a separate entity was motivated by a desire to increase recognition and creditworthiness of the group, which was a normal practice for business entities at the time. In 2014 and 2015 O.B. SA deducted license fees paid to A of PLN 6 647 596.19 and PLN 7 206 578.24. The tax authorities opened an audited of O.B. SA and determined that the license fees paid to A were excessive. To establish an arm’s length remuneration of A the tax authorities applied the TNMM method with ROTC as PLI. The market range of costs to profits for similar activities was between 2.78% and 19.55%. For the estimation of income attributable to “A”, the upper quartile, i.e. 19.55 %, was used. The arm’s length remuneration of A in 2014 and 2015 was determined to be PLN 158,888.53 and PLN 111,609.73. On that basis the tax authorities concluded that O.B. SA had overstated its costs in 2014 and 2015 by a total amount of PLN 13 583 676.17 and an assessment of additional taxable income was issued. A complaint was filed by O.B. SA. Judgement of the Court The Court dismissed the complaint of OB SA and upheld the decision of the tax authorities Excerpts “….the dependence of “A” on the applicant cannot be in any doubt. Nor can it be disputed that the abovementioned dependence – the relationship between ‘A’ and the applicant as described above – influenced the terms agreed between the parties to the licence agreement. Invoices issued by “A” to the company for this purpose amounted to multi-million amounts, and all this took place in conditions in which “A” did not employ any workers, and performed only uncomplicated administrative activities related to monitoring of possible use of the trademark by other, unauthorised entities. All this took place in conditions in which licence fees were, in principle, the main and only source of revenue for “A” (apart from interest), while the trade mark itself in fact originated from the applicant. It was also to it that the mark eventually came in 2017, after the incorporation of “A”. The company’s claims that the hive-off of the trade mark into a separate entity was motivated by a desire to increase the company’s recognition and creditworthiness, which was a normal practice for business entities at the time, are unconvincing. On that point, it should be noted that, operating under the GKO with the same name, the applicant’s recognition and the name under which it operated were already sufficiently well established. As regards the increase in the creditworthiness or market power of the users of the trade mark, the applicant’s contentions on this point too are empty. Moreover, even if it were to be accepted, at least in the context of the activities of ‘A’, that the creditworthiness of ‘A’ had been increased, the advantage which the applicant derives from such an operation would appear to be of little significance. In fact, it obtained this benefit to a significant extent from the formation of relations with “A”, as a result of which the value of its income taxable income, and thus its tax liability in 2015, was significantly reduced. The benefits, mainly tax ones, are also indirectly pointed out by the applicant herself, indicating, inter alia, that there were no grounds for the authorities to question the tax optimisations, prior to 15 July 2016. This only confirms the position of the authority in the discussed scope.” “The authority carefully selected appropriate comparative material, relying on reliable data concerning a similar category of entrepreneurs. Contrary to the applicant’s submissions, the authority analysed the terms and conditions of the cooperation between the applicant and ‘A’ when it embarked on the analysis of the appropriate estimation method in the circumstances of the case. In doing so, it took into account both the specific subject-matter of the cooperation and the overall context of the cooperation between the two entities. As for the method itself, the authority correctly found that “A” carried out simple administrative activities, and therefore took into account the general costs of management performed by this entity. In this respect it should be noted that the Head of the Customs and Tax Office accepted the maximum calculated indicator of transaction margin amounting to 19.55%. The applied method, which should be emphasised, is an estimation method, which allows only for obtaining approximate values by means of it. Moreover, it is based on comparative data obtained independently of the circumstances of the case, therefore it is not possible to adjust the results obtained on the basis of its principles by the costs of depreciation, as suggested by the applicant, alleging, inter alia, that § 18(1) of the Regulation was infringed by the authority. Moreover, the costs of depreciation of the trade mark by ‘A’ related strictly to its business and therefore did not affect its relations with the applicant. The company also unjustifiably alleges that the authority breached Article 23(3) of the Regulation by failing to take account of the economic reasons for the restructuring of its business in the context of the GKO’s general principles of operation. For, as already noted above, there is no rational basis for accepting the legitimacy of carrying out such restructuring, both in 2015 and thereafter. And the fact of the return of the trademark right to the Applicant only supports this kind of conclusion. Nor can there be any doubt as to the availability to the applicant, in 2015, of an adequate range of data relating to aspects ...

Then a restructuring takes place. Legal ownership of the trademarks, trade names and other intangibles represented by the brand is transferred by Company A to a newly set up affiliate, Company Z in Country Z in exchange for a lump sum payment. After the restructuring, Company A is remunerated on a cost plus basis for the services it performs for Company Z and the rest of the group. The remuneration of the affiliated contract manufacturers and distributors remains the same. The remaining profits after remuneration of the contract manufacturers, distributors, and Company A head office services are paid to Company Z. The accurate delineation of the transactions before and after the restructuring determines that: Company Z is managed by a local trust company. It does not have people (employees or directors) who have the capability to perform, and who in fact do not perform control functions in relation to the risks associated with the ownership or the strategic development of the trademarks, trade names or other intangibles represented by the brand. It also does not have the financial capacity to assume these risks. High ranking officials from Company A’s head office fly to Country Z once a year to formally validate the strategic decisions necessary to operate the company. These decisions are prepared by Company A’s head office in Country A before the meetings take place in Country Z. The MNE considers that these activities are service activities performed by Company A’s head office for Z. These strategic decision-making activities are remunerated at cost plus in the same way as the central services are remunerated (e.g. human resource management, legal, tax). The development, maintenance and execution of the worldwide marketing strategy are still performed by the same employees of Company A’s head office and remunerated on a cost plus basis ...

Business restructurings sometimes involve the transfer of the legal ownership of intangibles or rights in intangibles that were previously owned by one or more local operation(s) to a central location situated in another tax jurisdiction (e.g. a foreign associated enterprise that operates as a principal or as a so-called “IP company”). In some cases the transferor continues to use the intangible transferred, but does so in another legal capacity (e.g. as a licensee of the transferee, or through a contract that includes limited rights to the intangible such as a contract manufacturing arrangement using patents that were transferred; or a limited risk distribution arrangement using a trademark that was transferred). In accordance with the guidance in Chapter VI, it is important to remember that the legal ownership of an intangible by itself does not confer any right ultimately to retain returns derived by the MNE group from exploiting that intangible (see 6.42). Instead, the compensation required to be paid to associated enterprises performing or controlling functions related to the development, enhancement, maintenance, protection, or exploitation of intangibles may comprise any share of the total return anticipated to be derived from the intangibles (see 6.54). Therefore, the change in legal ownership of an intangible in a business restructuring may not affect which party is entitled to returns from that intangible ...

Under a development CCA, each participant has an entitlement to rights in the developed intangible(s) or tangible asset(s). In relation to intangibles, such rights often take the form of separate rights to exploit the intangible in a specific geographic location or for a particular application. The separate rights obtained may constitute actual legal ownership; alternatively, it may be that only one of the participants is the legal owner of the property but the other participants have certain rights to use or exploit the property. In cases where a participant has such rights in any property developed by the CCA, there is no need for a royalty payment or other further consideration for the use of the developed property consistent with the interest to which the participant is entitled under the CCA (however, the contributions of a participant may need to be adjusted if they are not proportionate to their expected benefits; see Section C.5) ...

Some benefits of the CCA activity can be determined in advance, whereas others will be uncertain. Some types of CCA activities will produce current benefits, while others have a longer time frame or may not be successful. Nevertheless, in a CCA there is always an expected benefit that each participant seeks from its contribution, including the attendant rights to have the CCA properly administered. Each participant’s interest in the results of the CCA activity should be established from the outset, even where the interest is inter-linked with that of other participants, e.g. because legal ownership of developed intangibles or tangible assets may be vested in only one of them but all of them have certain rights to use or exploit the intangibles or tangible assets as provided in the contractual arrangements (for example, perpetual, royalty-free licences for the territory in which the individual participant operates) ...

“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 disregarded the deductions of the royalty/licence payments, and issued an assessment of additional taxable income. An appeal was filed by “Brewery S.A.” Judgement of the District Administrative Court The court dismissed the appeal of “Brewery S.A.” and upheld the assessment issued by the tax authorities. “It should be emphasised that the tax authorities have not questioned the already well-established view that sub-licence fees are, in principle, deductible costs. They did not question either their incurrence by the company or their amount. However, in the specific circumstances, they pointed out that these fees were not purposeful and have no connection to revenue. On the other hand, if, in a specific case, an analysis of the entity’s conduct in the light of the principles of logic and life experience leads to the conclusion of an obvious and complete lack of sense of the actions taken, aiming, in principle, not at the desire to actually achieve a given revenue, but to artificially, solely for tax purposes, generate costs, one may speak of the lack of a cause and effect relationship referred to in Article 15(1) of the CIT Act. This is because then the taxpayer’s purpose is different – instead of generating revenue, he or she seeks only to avoid paying tax” Click here for English Translation Click here for other translation ...

Then a restructuring takes place. Legal ownership of the trademarks, trade names and other intangibles represented by the brand is transferred by Company A to a newly set up affiliate, Company Z in Country Z in exchange for a lump sum payment. After the restructuring, Company A is remunerated on a cost plus basis for the services it performs for Company Z and the rest of the group. The remuneration of the affiliated contract manufacturers and distributors remains the same. The remaining profits after remuneration of the contract manufacturers, distributors, and Company A head office services are paid to Company Z. The accurate delineation of the transactions before and after the restructuring determines that: Company Z is managed by a local trust company. It does not have people (employees or directors) who have the capability to perform, and who in fact do not perform control functions in relation to the risks associated with the ownership or the strategic development of the trademarks, trade names or other intangibles represented by the brand. It also does not have the financial capacity to assume these risks. High ranking officials from Company A’s head office fly to Country Z once a year to formally validate the strategic decisions necessary to operate the company. These decisions are prepared by Company A’s head office in Country A before the meetings take place in Country Z. The MNE considers that these activities are service activities performed by Company A’s head office for Z. These strategic decision-making activities are remunerated at cost plus in the same way as the central services are remunerated (e.g. human resource management, legal, tax). The development, maintenance and execution of the worldwide marketing strategy are still performed by the same employees of Company A’s head office and remunerated on a cost plus basis ...

Business restructurings sometimes involve the transfer of the legal ownership of intangibles or rights in intangibles that were previously owned by one or more local operation(s) to a central location situated in another tax jurisdiction (e.g. a foreign associated enterprise that operates as a principal or as a so-called “IP company”). In some cases the transferor continues to use the intangible transferred, but does so in another legal capacity (e.g. as a licensee of the transferee, or through a contract that includes limited rights to the intangible such as a contract manufacturing arrangement using patents that were transferred; or a limited risk distribution arrangement using a trademark that was transferred). In accordance with the guidance in Chapter VI, it is important to remember that the legal ownership of an intangible by itself does not confer any right ultimately to retain returns derived by the MNE group from exploiting that intangible (see 6.42). Instead, the compensation required to be paid to associated enterprises performing or controlling functions related to the development, enhancement, maintenance, protection, or exploitation of intangibles may comprise any share of the total return anticipated to be derived from the intangibles (see 6.54). Therefore, the change in legal ownership of an intangible in a business restructuring may not affect which party is entitled to returns from that intangible ...

Under a development CCA, each participant has an entitlement to rights in the developed intangible(s) or tangible asset(s). In relation to intangibles, such rights often take the form of separate rights to exploit the intangible in a specific geographic location or for a particular application. The separate rights obtained may constitute actual legal ownership; alternatively, it may be that only one of the participants is the legal owner of the property but the other participants have certain rights to use or exploit the property. In cases where a participant has such rights in any property developed by the CCA, there is no need for a royalty payment or other further consideration for the use of the developed property consistent with the interest to which the participant is entitled under the CCA (however, the contributions of a participant may need to be adjusted if they are not proportionate to their expected benefits; see Section C.5) ...

Some benefits of the CCA activity can be determined in advance, whereas others will be uncertain. Some types of CCA activities will produce current benefits, while others have a longer time frame or may not be successful. Nevertheless, in a CCA there is always an expected benefit that each participant seeks from its contribution, including the attendant rights to have the CCA properly administered. Each participant’s interest in the results of the CCA activity should be established from the outset, even where the interest is inter-linked with that of other participants, e.g. because legal ownership of developed intangibles or tangible assets may be vested in only one of them but all of them have certain rights to use or exploit the intangibles or tangible assets as provided in the contractual arrangements (for example, perpetual, royalty-free licences for the territory in which the individual participant operates) ...