Quotation Prasanna, Sayee. 2018. Enhanced Requirements in the Comparability Analysis for Royalties. Transfer Pricing International (TPI). 5 266-271.




The U.S. Court of Appeals remanded the long-drawn litigation proceedings in the case of Medtronic, Inc versus Commissioner back to the U.S. Tax Court, directing the court to justify its opinion from June 2016. The cited opinion accepted the use of the comparable uncontrolled transaction method (CUT) applied by the taxpayer with certain adjustments, against the use of the comparable profits method (CPM) proposed by the U.S. Internal Revenue Service (IRS). In its decision, the U.S. Court of Appeals has vacated the Tax Court’s opinion on grounds of deficiency in demonstrating the comparability of the licensing transaction in question. This article deals with the analysis of the licensing structure adopted by Medtronic, divergent opinions of the parties and the judiciary at various levels, particularly on the nature of the functional profile of the licensee, the content of the comparability analysis and the choice of methods determining the arm’s length nature of intangible transactions. It is found that the comparability analysis could have been more robust, although it is acknowledged that the analysis can never be expected to be perfect. The implications of this decision could mark a turning point to the series of losses suffered by the IRS in U.S. Tax Courts and might have a contagion effect on the upcoming court proceedings in the cases of Coca Cola, Amazon and Facebook that have similar licensing structures.


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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal Transfer Pricing International (TPI)
Language English
Title Enhanced Requirements in the Comparability Analysis for Royalties
Volume 5
Year 2018
Page from 266
Page to 271
Reviewed? Y
URL https://www.lindeonline.at/#id:art-tpi-2018-05-266a
DOI n.a.
Open Access N


Prasanna, Sayee (Former researcher)
Research areas (ÖSTAT Classification 'Statistik Austria')
5349 Business taxation (Details)
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