- 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 royaltyPage: Previous 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 Next
Last modified: May 25, 2011