|
|
| Richard Schmidtke |
Alexander Linn |
On April 7 2017, the Federal Ministry of Finance (BMF)
published guidance on the application of section 1 of the
Foreign Tax Act (AStG) in the context of the use of a brand
name and the use of trademark rights and other intangible
assets.
Background
On January 21 2016, the Federal Tax Court (BFH) decided
(case I R 22/14) that where related parties of a multinational
group are allowed to use a brand name free of charge, this may
not create a business relationship on which a transfer pricing
adjustment according to section 1 of the AStG is possible. With
reference to the principles of older case law (BFH case I R
12/99), the court concluded that a permission to use the
group's name as part of the own company name does not trigger
taxable license fees.
Applicable regulations
Section 1 of the AStG allows an income adjustment in
cross-border business relations of related parties to the
extent intra-group transactions do not follow the arm's-length
principle.
Administrative guidance
The BMF agrees with the BFH that the mere use of names
within a group without the use of trademark rights and other
intangible assets is in principle not subject to any
consideration, so that in cross-border cases no income
adjustment according to section 1 of the AStG will occur.
However, the BMF caveats this to cases where the use of names
does not create a benefit for which two independent parties
would agree on a remuneration. In addition to that, the BMF
argues that a cross-border use of names is often associated
with the use of trademark rights and other intangible assets,
so that the remuneration is linked to such advantages.
An indication for a business transaction which is subject to
a remuneration exists where the owner of the name or trade mark
has the possibility to exclude a third party from using the
name or trademark, e.g. if the trade mark is registered in the
respective country.
When determining the amount of the remuneration, it has to
be considered if the user expects to receive an actual economic
benefit from the use of an intangible value (e.g. use of a
company name or a trade mark) irrespective of whether this
benefit actually was obtained (ex-ante consideration).
For example, entities only engaged in distribution activities
would not receive a benefit from the use of the name or trade
mark if the value of these intangibles is embedded in the
purchase price of the goods. Contrary to that, production and
service entities would receive a benefit from the use of names
or trademarks when these are used in the own value-generating
activities. As a general rule, the amount payable as a license
fee is determined by the hypothetic arm's-length principle.
Observations
According to representatives of the German tax
administrations, one purpose of the new guidance is to ensure
that inbound cases are treated similar as outbound cases. There
is the perception that foreign multinationals charge
significant trademark fees to German subsidiaries, but German
multinationals do not do the same with their foreign
subsidiaries. German subsidiaries should therefore be prepared
to document as part of their transfer pricing documentation the
advantages received and may have to consider the application of
the hypothetical arm's-length test as the appropriate transfer
pricing method for trade mark fees.
Richard Schmidtke (rschmidtke@deloitte.de)
and Alexander Linn (allinn@deloitte.de)
Deloitte
Tel: +49 89 29036 8690 and +49 89 29036 8558
Website: www.deloitte.de