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appropriate comparables. First, respondent suggests that no
royalties were charged for the agents’ use because it would have
been subject to tax withholding in the agents’ countries.
Although respondent’s suggestion appears to be a matter of
speculation, the record does reflect that within the DHL
worldwide network, the approach was to net out fees and to avoid
charges between related and unrelated entities involved in the
network. Finally, respondent points out that petitioners’
argument that DHL obtains other reciprocal benefits ignores the
fact that DHLI received the same benefits from DHL.
Respondent’s experts surveyed a wide range of businesses and
found a broad range of royalties for trademark use from a low of
.7 to a high of 15 percent. Respondent’s experts settled on .75-
and 1-percent rates, although the average and median rates would
have been much higher. This gravitation to a lower percentage
reflects both experts’ recognition that a fair royalty would be a
relatively low percentage in the setting of these cases.23
23 We found some interesting paradoxes in comparing the
parties and their experts with those in another case involving
trademarks and arm’s-length royalty issues. Nestle Holdings,
Inc. v. Commissioner, T.C. Memo. 1995-441. In that case, the
taxpayer was arguing for higher royalty rates, and the
Commissioner was arguing for lower royalty rates. The parties
and, to some extent, the experts’ reports in Nestle made very
similar arguments to those made by the parties in these cases,
except the arguments were made by the opposite parties. For
example, the taxpayer argued against zero royalties. These
paradoxes have no probative value in the cases now before the
Court but only serve to further illustrate the “malleability” of
the parties and their experts.
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