Tag: Use of trademark

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 ...

TPG2022 Chapter VI paragraph 6.81

Questions often arise regarding the arm’s length compensation for the use of group names, trade names and similar intangibles. Resolution of such questions should be based on the principles of this Section B and on the commercial and legal factors involved. As a general rule, no payment should be recognised for transfer pricing purposes for simple recognition of group membership or the use of the group name merely to reflect the fact of group membership. See paragraph 7.12 ...

TPG2017 Chapter VI paragraph 6.81

Questions often arise regarding the arm’s length compensation for the use of group names, trade names and similar intangibles. Resolution of such questions should be based on the principles of this Section B and on the commercial and legal factors involved. As a general rule, no payment should be recognised for transfer pricing purposes for simple recognition of group membership or the use of the group name merely to reflect the fact of group membership. See paragraph 7.12 ...

Indonesia vs Sharp Semiconductor Indonesia, December 2013, Tax Court, Put.49339/2013

In the case of Sharp Semiconductor Indonesia the tax authorities had disallowed deductions for royalties paid by the local company to the Japanese Sharp Corporation. Judgement of the Tax Court The court decided predominantly in favour of the tax authorities. According to the court Sharp Semiconductor Indonesia had not been able to prove the existence of know-how, the existence of training provided, the value of intangible property owned by Sharp Corporation. Moreover, Sharp Semiconductor Indonesia only sells its product to related parties and royalty fees are first relevant once the product is sold to independent parties. Finally Sharp Semiconductor Indonesia was not able to prove the economic benefit it had received from the trademark “Sharpâ€. Click here for translation putusan_put.49339_pp_m.xii_15_2013_20210530 ...

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 ...

TPG1979 Chapter III Paragraph 137

Because of the considerations set out above, it is necessary, in seeking to arrive at the arm’s length price for the right to use a trademark or trade name, to approach this matter rather differently in some respects from the way in which the problem would be approached in the case of a patent royalty or other similar intangible. However, as with transfers of technology, the essential question here is what benefit is transferred. In answering this question, it is necessary to assess all the obligations implied by the licensing agreement and the likely costs to be incurred or saved by both parties. The costs incurred by the licensee under the licence contract will affect the amount of any trademark royalty which he is required to pay. In arriving at the arm’s length price, it may be possible to use the comparable uncontrolled price method if a trademark or trademarks with similar effects are licensed to unrelated enterprises, though as with patent royalties there may be little useful evidence available for this kind of comparison (moreover the impact and the value of a trademark in one market will not necessarily be the same as in another): it will not be very useful to refer to the costs of developing the trademark as a foundation for this calculation since these will not normally be relevant, whereas it may well be relevant to have regard to the costs of maintaining the value of the trademark, including the costs of advertising and quality control; some help may be found, if adequate evidence is available, by comparing the volume of sales and the prices chargeable and profits realised for trademarked goods with those for similar goods which do not carry the trademark ...

TPG1979 Chapter III Paragraph 135

Between associated enterprises more complicated contracts and wide-ranging arrangements are common. There may be different forms of cross-licensing agreements and affiliates may agree on joining a licence pool. ” Package deals ” seem to be widely used by MNEs. The arrangement in a multinational enterprise may be that all members are entitled to use, normally for a consideration, the trademarks, trade names, patents and other intangible property developed by any member of the group ...

TPG1979 Chapter III Paragraph 134

Technical assistance provided by the licensor would be one example where trademark licensing is closely linked to other transactions between the same parties. In other cases, the owner of the trade mark may sell finished or semi-finished products to the licensee. Also, a manufacturing enterprise may be allowed to use a patent for the pro duction and a trademark for the marketing of certain goods. All embracing licensing contracts and similar arrangements are quite often found in practice ...

TPG1979 Chapter III Paragraph 133

What is provided by the owner of a trademark is not limited to measures to ensure the legal validity of the mark which is licensed, and to taking care that it is properly used and protecting it against infringements by other parties. The licensing of a trademark is nearly always coupled with efforts by the licensor to keep the image of the product up-to-date and with a strict control of the quality of the product or its components or of the processing, manufacturing and storage conditions of the products to be sold under the trademark licensed. If a licensor wants to secure that the products made and sold or the services rendered under the licensed trademark meet his quality standards, this will lead almost automatically to a certain degree of technical guidance. On the other hand, the licensee would often be expected to co-operate in promoting the trademark for the common benefit and to take account of trends in consumer attitudes. Because co-operation between licensee and licensor is a feature of trademark licensing, it will therefore affect the nature and amount of payments made under the relevant contracts ...

TPG1979 Chapter III Paragraph 132

Various kinds of licence contracts are concluded in practice. There are two main categories: first, the licensee could be a dealer who is allowed to use the trademark in selling products manufactured by the licensor and owner of the trademark; secondly, the owner of a trademark could license a trademark to an enterprise which will use the sign for goods that it produces itself or buys from other sources. The terms and conditions of licence agreements may vary to a considerable extent ...

TPG1979 Chapter III Paragraph 131

It seems to be generally recognised nowadays that a trade mark may be sold or otherwise transferred by one person to another. It is also admitted, in principle, that the owner of a trademark may allow another person to use his trademark under certain conditions. Trademark licensing has become a common practice, particularly in international trade ...

TPG1979 Chapter III Paragraph 130

A trade name (often the name of an enterprise) may have the same force of penetration as a trademark and may indeed be registered in some specific form as a trademark. The names of certain multinational enterprises in pharmaceutical or electronic industries, for example, have an excellent sales promotion value, and they may be used for the marketing of a variety of goods or services. The names of well-known persons, designers, sportsmen, actors, people working in show business, etc., may also be used as trade names and trademarks, and they have often been very successful marketing instruments ...

TPG1979 Chapter III Paragraph 129

Trademarks may be acquired for goods, either for specific products or for a line of products. They would mostly be used at the consumer market level, but may be encountered at other market levels. Trademarks may also be acquired for services. The ownership of a trademark would normally be vested in one person, for example, a legally independent company. A trademark is registered and protected in a given country, but the same signs could be registered as trade marks in other countries, or internationally ...

TPG1979 Chapter III Paragraph 128

Trademarks may fulfil various functions : A trademark traditionally points to the origin of a product or of a service indicating that the relevant goods or services come from the proprietor of the mark by virtue of his manufacture or provision of them, or his selection, certification, dealing with or offering them for sale. A trademark is, normally, considered by the consumer as a guarantee of the quality of a specific product or service. Nowadays, consumers seem to be much more concerned with this guarantee of quality than with the origin of goods or ser vices. It is, therefore, recognised in modern trademark law that it is not a necessary element of a trademark to indicate the origin of a product or service. Trademarks may have an important advertising value for the goods or services concerned. In modern trade, a business is frequently built up around a trademark and the goodwill of an enterprise may be inherent in the trademark itself. Trade marks may confer a considerable value and ” force of penetration ” on certain products or services and may become a commercial vehicle of great effectiveness. The force of penetration of a specific trademark may be such that it transfers to other goods, whether produced by the same enterprise or not, the goodwill of the original trademarked goods. A similar situation may arise with services ...

TPG1979 Chapter III Paragraph 127

A trademark is the protection (usually capable of indefinite renewal) under the law of the country concerned of a unique name, symbol or picture so that it can be used only with the owner’s permission for the relevant products or services. It may help in the commercial exploitation of a patented product but it may also serve as a kind of hallmark conferring a valuable market status on the goods or services denoted even though they enjoy no patent protection (either because patent rights have expired or because they have never existed). The value of the trademark in a particular country depends upon the nature of the legal right created under that country’s law, upon the extent and success of the promotional expenditure incurred in order to implant the goods or services in the minds of potential customers (the image of the trademark in that country, upon who incurred that expenditure – the owner or a licensee – and upon the value of the market to which it will provide access ...

TPG1979 Chapter III Paragraph 126

There are fundamental differences between trademarks and patents. The essential difference is that trademarks are marketing instruments whereas patents are basically concerned with the right to produce goods. A patent gives an exclusive right to use a given invention for a necessarily limited period of time. Trademarks confer on their owners the right to use them as distinctive signs to identify specific products or services of a particular manufacturer or dealer and, as a corollary, to prohibit their use by other parties for similar purposes. However, they do not necessarily create an economic monopoly, because competitors are not prevented from selling the same or similar products so long as they use different distinctive signs. A trademark may continue indefinitely; its protection will disappear only under special circumstances (voluntary renunciation, no renewal in due time, cancellation or annulment following a judicial decision, etc.). Patents are usually the result of risky and costly research and development and the developer will try to recover his costs through sales or licence agreements. The legal creation of a trademark is not an expensive matter though it will very often be an expensive business to give it a value and to ensure that that value is maintained or increased – intensive and costly advertising campaigns will ordinarily be necessary and so will expenditure, which may well be considerable, on the control of the quality of the trademarked product. The expenditure may have to be _incurred not only by the owner of the trademark but also by the licensee. On the other hand, in some cases, patents, because of their outstanding quality may also have a very strong marketing effect similar to that of a pure trademark and payments for the right to use such patents may have to be looked at in much the same light as payments for the right to use a trademark ...

TPG1979 Chapter III Paragraph 125

Transfer pricing problems concerning trademarks and trade names are discussed in the following paragraphs. Many of the considerations below would also be relevant in looking at transfer prices for similar items like models and designs. Franchising operations are not treated here ...