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The A – Brand Value contribution to a brand by the licensee – background information

The A – Brand Value contribution to a brand by the licensee – background information. Markus Volkmann Federal Central Tax Office / Federal Audit Department OECD Transfer Pricing Case Studies Workshop San Jose , 31 March – 4 April 2014 . Problem. Well known brand

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The A – Brand Value contribution to a brand by the licensee – background information

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  1. The A – BrandValue contribution to a brand by the licensee – background information Markus Volkmann Federal Central Tax Office / FederalAudit Department OECD Transfer Pricing Case Studies Workshop San Jose, 31 March – 4 April 2014

  2. Problem • Well known brand • More than 100 years old • Value contribution of a licensee • R&D and marketing activities • Does it effect in the royalty rate?

  3. Background • A – Group: • British parent company: A plc. • Sector: high technology field (engines for aircrafts) • Trademark licence agreement: 1% of turnover • Turnover from non affiliated companies • German subsidiary: A Germany • Licensee • Other Licensee is an American subsidiary

  4. Background: Sector • Limited market situation • Three suppliers for these products, one of them is the A – Group • Some specialized manufacturers (air craft manufacturer) • Some customers (airlines) • High quality and safety standards

  5. Background: Trademark • Registered brand “A” • known all over the world • General use: The “A” of …. • “A” is associated with • High technological position • Achieving high quality standards • Reliability and efficiency of the products

  6. Background: A Germany • Founded in 1990 • Business: • Responsible for the small and regional product group • Fully fledged (research & development, distribution, after sales) • Marketing activities (special maintenance agreements with airlines to get the profitable maintenance service)

  7. Background: A Germany • Technology Transfer and Cost Sharing Agreement • A plc. / A U.S. / A Germany • Available technology in the A - Group • the range of responsibilities and functions grows • Transfer of products developed before 1990 from UK • Responsibility for product-related strategic decisions

  8. Background: License fee • Documentation provided by A Germany • ALP of the license rate • Royalty Stat: • Range: 0.75% - 1.5% - 3% • three “comparables” • Other industry sectors • Literature: • Range: 1% - 5%

  9. German Transfer Pricing Audit • Significant value contribution to the brand by A Germany • Responsibilities, risks and functions • A lower license rate would be at arm’s length. • A rate has not yet been discussed. • A Germany: Significant value of the brand was created by A plc. • No reduction!

  10. Questions What do you think about the auditor’s proposal? Which royalty rate could be at arm’s length?

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