1. The A – Brand Value contribution to a brand by the licensee – solution proposal 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 Value contribution of a licensee Does it effect in the royalty rate?

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

4. CUP – an appropriate method Strong comparability standards –Not be met for intangibles Special feature: adding a value to the brand name –Neither database nor the literature offers a solution for this. Usually licensees do not contribute to the brand name

5. How to create a successful brand Brands are created by communication of the brand content –Strategy and implementation are imperative for the success Communication alone can’t create a brand. –Responsibility for the brand-relevant content

6. More information Branding analysis –Who is responsible for the brand content? –How is the effect of the brand on sales? –Is there a value for the group? Information for the company available? –If the value is explained, the question of the amount remains.

7. Market segment Where is the trademark used? –Customer oriented (“B to C”): Apple, Coke –Business oriented (“B to B”): “A” brand B to B: –Brand has lesser impact on business decisions –Very specialized industry sector

8. Products of A Germany “A brand stands for high quality and safety standards.” –Guarantees for this with its finished products –For the products of the A-Group proportioanately

9. Proposed Solution A royalty for using the brand is at arm’s length. But, the Licensee provides a significant contribution and should therefore pay a lower royalty. Royalty of 1% may be an initial fee. Lower the fee in the coming years to a lower (basic) level.

10. Thank you for your notes and suggestions. Thank you for your attention. Markus Volkmann Federal Central Tax Office, Bonn + 49 (0) 172 2436049 Markus.Volkmann@bzst.bund.de