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granted in perpetuity in exchange for a $10,000 flat fee payable
for each new hotel. The terms of the licensing agreement do not
include a consideration of time factors, such as the amount of
time the hotel was to be operated. The license transferred was
for exclusive use outside the United States. The Hyatt
International group was required to pay for the registration of
the trade names and marks in the countries of its operation, a
factor that may be considered. See sec. 1.482-2(d)(2)(iii),
Income Tax Regs.
Petitioners dispute the appropriateness of the use of
comparables based on franchise rates principally because the
Hyatt International group operated under management agreements,
not franchise agreements. Although a franchise analogy does not
present a completely suitable comparison with the existing
relationship between the Hyatt International group and the hotel
owners, a franchise analogy does more accurately fit the
relationship between HIC and its hotel management subsidiaries.
A franchise relationship normally includes a license to use the
franchisor’s name and marks. That type of license was provided
by Hyatt Domestic to HIC, which in turn provided it to HIC’s
subsidiaries. Franchise rates, however, normally include much
more than the rights or licenses transferred by Hyatt Domestic;
e.g., providing business systems and expertise and providing
reservations, marketing, and technical services. Thus, we must
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