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As part of the report, Coopers advised JAL that if common control
of DHL, DHLI, and MNV existed, the Internal Revenue Service (IRS)
might seek to impute a royalty for DHLI’s use of the DHL
trademark. Also, because of concerns about DHL’s weak
capitalization and lack of profits, Coopers recommended the
infusion of equity capital into DHL while safeguarding it from
transfer pricing problems. Coopers stated that no royalty should
be charged DHL for continued use of the DHL trademark and that
such a royalty would make it more difficult for DHL to achieve
profitability. Coopers also noted that a 2-percent royalty might
be imputed to DHL for its royalty-free license to DHLI.
The foreign investors also wanted to ensure that DHL would
continue to be a cooperating and effective component of the DHL
network. They were also concerned about the possibility that DHL
could experience financial difficulties or could be acquired by a
competitor, and in that regard they wanted to control the DHL
trademark, which they considered to be a valuable strategic
asset. The DHL network was the main focus of the foreign
investors.
During May 1989, in accord with its advisers’
recommendation, JAL decided not to acquire more than a 20-percent
equity interest in DHL to minimize JAL’s exposure to risks,
including those that could occur with respect to U.S. taxation.
The buyers’ and sellers’ representatives were aware of and
discussed concerns that DHL could be exposed to liability, tax
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