1. The A – Brand Value contribution to a brand by the licensee – background information Markus Volkmann Federal Central Tax Office / Federal Audit Department OECD Transfer Pricing Case Studies Workshop San Jose, 31 March – 4 April 2014

2. Problem Well known brand More than 100 years old Value contribution of a licensee R&D and marketing activities Does it effect in the royalty rate?

3. Background A – Group: –British parent company: A plc. –Sector: high technology field (engines for aircrafts) –Trademark licence agreement: 1% of turnover Turnover from non affiliated companies –German subsidiary: A Germany Licensee Other Licensee is an American subsidiary

4. Background: Sector Limited market situation –Three suppliers for these products, one of them is the A – Group –Some specialized manufacturers (air craft manufacturer) –Some customers (airlines) High quality and safety standards

5. Background: Trademark Registered brand “A” –known all over the world –General use: The “A” of …. “A” is associated with –High technological position –Achieving high quality standards –Reliability and efficiency of the products

6. Background: A Germany Founded in 1990 Business: –Responsible for the small and regional product group –Fully fledged (research & development, distribution, after sales) –Marketing activities (special maintenance agreements with airlines to get the profitable maintenance service)

7. Background: A Germany Technology Transfer and Cost Sharing Agreement –A plc. / A U.S. / A Germany –Available technology in the A - Group the range of responsibilities and functions grows –Transfer of products developed before 1990 from UK –Responsibility for product-related strategic decisions

8. Background: License fee Documentation provided by A Germany –ALP of the license rate Royalty Stat: –Range: 0.75% - 1.5% - 3% – three “comparables” –Other industry sectors Literature: –Range: 1% - 5%

9. German Transfer Pricing Audit Significant value contribution to the brand by A Germany –Responsibilities, risks and functions A lower license rate would be at arm’s length. –A rate has not yet been discussed. A Germany: Significant value of the brand was created by A plc. –No reduction!

10. Questions What do you think about the auditor’s proposal? Which royalty rate could be at arm’s length?