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costs for the services rendered to HHK and HS.32 Accordingly, we
use a different approach in measuring arm’s-length consideration
for HIC’s services.
The BVS report contains the conclusion that a royalty
consisting of 33 percent of adjusted management fees be paid by
HHK and HS to HIC, plus a profit split of 50 or 65 percent
(depending on the year) of their operating income remaining after
expenses and the above royalties are deducted. The royalty
allocation was for trade names and marks, profit on reservations,
and overhead. BVS intended the profit split to cover the
financial guaranties and differences in assets, with HIC being
the owner of the intangibles and the financial capital.
A major impetus for BVS’ allocations appears to be the
opinion that HIC bore the majority of the consolidated expenses
of the Hyatt International group and that HHK and HS received
most of the revenue. BVS’ choice of percentages appears to be
based on the above-stated premise. In particular, the BVS report
contains the statement:
The reallocation process yields a much more balanced
distribution of operating income and adjusted operating
income. * * * It is only after the profit-sharing and
32 Although petitioners have argued that the one-time
overhead charge in 1983, as a result of challenged deductions, is
the appropriate amount, they have provided us with no factual
predicate for accepting this argument. Obviously, respondent’s
determinations reflect disagreement about the sufficiency of the
one-time charge.
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