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allocations from the network fee allocation, causing some
duplicate income allocation.
In proposing the network fee adjustment, Huff based his
conclusion on available information, and he did not think it
necessary to analyze DHL’s profitability on international
outbound and domestic shipments.
OPINION
I. Background
The nucleus about which the controverted issues revolve is a
transaction among the shareholders of petitioners and related
foreign DHL corporations and foreign investors. Those investors
collectively became the majority shareholders in the related
foreign DHL entities. That transaction involved the sale of more
than 50 percent of the portion of the DHL network outside the
United States. Respondent determined that section 482 should be
employed to allocate income among petitioners and the related
foreign corporations. Those allocations involve the sale and use
of trademark and the exchange and performance of services with
the potential for arm’s-length pricing issues. In particular,
respondent determined that, between controlled entities, the DHL
trademark was sold for less than its fair market value, that DHL,
as owner of the trademark, failed to charge royalties for DHLI’s
use of same, that the controlled corporations did not charge or
charged less than an arm’s-length amount for services between
them, and that part of DHLI’s income was allocable to DHL.
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