- 167 -
As to the royalty, the imbalance/transfer fee, and the
“network fee/joint venture” allocations, petitioners argue that
their reporting positions were reasonable and well founded.
Respondent disagrees and contends that the corporate entities
were manipulated by the shareholders. We agree with petitioners
with respect to the imbalance, transfer fees, and network fee
adjustments. Obviously, because we have decided that no network
fee adjustment is appropriate, it will not be subject to the
penalty. With respect to the imbalance and transfer items in the
years before the Court, petitioners used what we have found was
an arm’s-length approach in computing the amounts paid for those
items. For the years 1990, 1991, and 1992, the only difference
between the reporting position and respondent’s trial position is
the 2-percent differential in the markup, which represented a
relatively small difference.
With respect to the royalty reporting position, we have a
different perspective. We have found that in an arm’s-length
transaction, DHLI (the licensee) would have paid a royalty for
the use of the DHL trademark. The fact that no royalty was paid
to DHL was attributable to the lack of arm’s-length conditions
when the 1974 MOA was created and went into effect. That
royalty-free arrangement was perpetuated until the foreign
investors became a collective majority in the international
portion of the DHL network, and DHL transferred its ownership in
the trademark to another entity. Up until the time the foreign
Page: Previous 153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 170 171 172 NextLast modified: May 25, 2011