- 139 -
The applicable standard for determining an arm’s-length
royalty is the amount that would have been paid by an unrelated
party for the same intangible property or its use under the same
circumstances. Sec. 1.482-2(d)(2)(ii), Income Tax Regs. Under
that same regulation, the best indicator would be transfers by
the same transferor to unrelated parties involving the same or
similar intangible property under the same or similar
circumstances. If a sufficiently similar transaction involving
an unrelated party is not available, the arm’s-length amount is
determined under the facts and circumstances test of section
1.482-2(d)(2)(iii), Income Tax Regs.
Petitioners offered examples of independent agents who were
a part of the DHL network. Those agents were allowed to use the
DHL name without payment or with a nominal payment (if local law
required some payment) regarding the use of the DHL name.
Respondent contends that the arrangement with the agents is not
comparable because DHLI did not charge the agents a royalty in
order to avoid the agents’ countries’ withholding tax. Whether
respondent’s contentions are correct or not, petitioners have not
shown that the circumstances with DHLI and certain agents were
sufficiently similar transactions and whether the agents were
sufficiently “unrelated” parties so as to be used as the
preemptive means of setting an arm’s-length standard. All
petitioners have done is show that no royalties were charged
within the DHL network. That does not mean that no royalty
Page: Previous 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 NextLast modified: May 25, 2011