Taxpayers that are members of corporate groups and engage in trademark license transactions with related parties must take into account the risk of finding themselves in dispute with revenue authorities over that issue. Courts are, unfortunately, not helpful here.

For example, in case I SA/Go 55/23, the Provincial Administrative Court (PAC) in Gorzów Wielkopolski dismissed in whole a taxpayer’s petition for judicial review in the matter of corporate income tax. The taxpayer is a company predominantly engaged in retail sales of motor fuel at petrol stations. It entered into trademark licenses with related parties where the royalty was agreed at 2.17% of net sales revenue generated using the trademarks.

The company had a transfer pricing analysis showing that royalty rates applied in commerce are in the range from 0.5% to 5% of net sales revenue or at 25% of net profit, depending on the industry.

The tax authorities challenged the comparability analysis, including mainly its choice of comparable entities. The authorities used their own analysis based on the same data to determine that the arm’s length royalty rate is 0.75% of net revenue.

The matter reached PAC which held that a comparability analysis where a controlled transaction is set against transactions between independent parties must include a review of terms of the controlled transaction and an examination intended to determine if these terms are such as would be agreed between independent parties or between the controlled entity and an independent party in comparable circumstances.

According to the authorities, a mere fact that the business classification of activities (PKD codes) or the subject-matter of the license contract are the same is not sufficient to find the given entity comparable. Such a single similarity may not, in the opinion of the authorities, be treated as a conclusive comparability factor without an in-depth comparability analysis. The analysis should strive to find data that are as comparable to the analysed facts as possible in terms of transaction circumstances, granted that the data will not always be perfect.

If this issue pertains to your business and you are interested in our assistance, please contact us.

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