The A – Brand

Value contribution to a brand by the licensee – solution proposal

Markus VolkmannFederal Central Tax Office / Federal Audit Department

OECD Transfer Pricing Case Studies WorkshopSan Jose, 31 March – 4 April 2014

Problem

• Well known brand

• Value contribution of a licensee

• Does it effect in the royalty rate?

Question

What do you think about the auditor’s proposal?

Which royalty rate could be at arm’s length?

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

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

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.

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

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

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.

Thank you for your notes and suggestions.

Thank you for your attention.

Markus VolkmannFederal Central Tax Office, Bonn

+ 49 (0) 172 2436049Markus.Volkmann@bzst.bund.de