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This approach was used because it was thought that a hotel’s
geographical distance from Hyatt Domestic’s U.S. sales offices
would affect the benefits; i.e., the greater the distance, the
less the benefit. Respondent, however, concluded that the
possibility for tax avoidance was lurking in these circumstances
under which many hotels were being charged less than an equally
apportioned share of the chain service allocation. The use of
total rooms per hotel adjusted for the distance of a hotel from
the U.S. sales offices, to some extent, appears to reasonably
account for the circumstances.
Beginning February 1, 1980, cross-billing and reimbursement
were discontinued under the assumption that the benefits
exchanged were equal, although both organizations continued to
share chain services. Both Hyatt Domestic and the Hyatt
International group invested in establishing chain services and
made a business decision to share those services. To the extent
that they exchanged services of equal value, we hold that no
allocation between HIC and Hyatt Domestic is warranted. To the
extent that respondent’s determinations included allocations of
income between Hyatt Domestic and HIC for chain services it was
an abuse of discretion. We note that any income allocation
between HIC and Hyatt Domestic would have been made under the 1.5
percent royalty adjustment.
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