The license for trademarks should also be settled arm’s length

Transactions involving intangible assets are among related-party transactions causing the greatest difficulties for taxpayers when meeting their transfer pricing obligations. Taxpayers often find it challenging to prepare the valuation of intangible assets itself. They also need to remember that in the case of transfer pricing it is also necessary to adopt market assumptions for transactions involving intangible assets.

Among intragroup transactions, the most popular type of transactions related to intangible assets are trademark license transactions. There are situations when trademarks are made available without remuneration and in exceptional situations such free exploitation of the trademark between related entities may be justified. However, under the basic transfer pricing assumption, the terms of a transaction between related entities should reflect the assumptions of a transaction made on the market by third parties – in the context of granting a trademark license, it should involve the payment for such a benefit.

In practical terms, it turns out that establishing the terms of transactions concerning intangible assets, including trademarks, and confirming their arm’s length nature by the taxpayer can be problematic. This is because due to the complexity and ambiguity of the subject, they trigger an above-average risk of being challenged by the tax authorities compared to other types of transactions. This is confirmed, among others, by the Judgment of the District Administrative Court in Lublin of 15 June 2022 (file no. I SA/Lu 190/22).

Pursuant to the judgment, a manufacturing company belonging to an international group incurred costs related to using the group’s trademark placed on its products. Since 1998, the company has been using a trademark license for which it paid a fee of 1% of the turnover to the licensor. In 2015, the company made a new agreement with a related entity whereby the fee was actually increased to 3% of the turnover, but the scope of license use was extended to the global level.

The company complied with its transfer pricing obligations and held benchmarking analyzes prepared in 2016 and 2019 – these confirmed, in the company’s opinion, the arm’s length nature of the remuneration in the transaction. The company’s benchmarking analyzes were prepared using the comparable uncontrolled price method and based on comparable license agreements identified in an external database.

Effects of the inspection

During the inspection, the authorities challenged the arm’s-length nature of the company’s settlements for the acquisition of a trademark license. The results of the benchmarking analysis held by the company were undermined. Key objections to the benchmarking involve:

  • incorrect sample selection (failure to take into account contracts related to the company’s industry),
  • incorrectly adopted geographic criterion (comparable contracts identified concerned the American market, while the company’s operations in the period under review covered mainly the Polish market),
  • incorrect contract selection (contracts not in force in the controlled period or with a different scope of licensing were deemed comparable).

In addition, the authorities established that the change in the territorial scope of the license did not significantly affect the expansion of the company’s sales markets. Therefore, the three-fold increase in the license fee cannot be considered economically justified. In fact, according to the authorities, the company’s main benefit was the right to act in commercial contacts as a member of the group, not to feature the trademark on its products.

The authorities adjusted the benchmarking analysis and established the level of the license fee at 0.75% of the company’s turnover. This served as the basis for additionally assessed CIT liability in the amount of PLN 1.4 million (!).

The company appealed against the decision to the Head of the Customs and Tax Office who upheld the decision. The company then appealed to the District Administrative Court which, after having examined the case, stated the appeal was not to be considered. The court agreed with the tax authority regarding the objections to the benchmarking analysis and confirmed the legitimacy of the additional estimation of the Company’s income and CIT liability made by the authorities. The court emphasized that as a result of the relationships and the application of non-arm’s length conditions of the transaction, the company reported income lower than it would have achieved if the relationships did not exist.  


The judgment confirms that benchmarking analyzes are a key part of taxpayers’ obligations in the field of transfer pricing. In fact, they are the only basis for the taxpayer to confirm the arm’s length nature of transactions. A properly prepared benchmarking analysis minimizes the risk of being challenged by the tax authority during an inspection. Also, carefully selected comparability criteria protect the taxpayer against an alternative benchmarking analysis prepared by the authorities. Last but not least, it safeguards against the additional assessment of the value of settlements in the transaction and the taxpayer’s CIT liability. Taxpayers should therefore make every effort to ensure that their benchmarking analyzes are based on market data with the best possible degree of comparability, which would take into account all relevant aspects of the transaction being examined.

It should also be remembered that significant changes to the terms of transactions between related parties have rational economic justification. The taxpayer should collect documentation that easily proves the legitimacy of such changes. Changes to the terms of transactions, introduced without significant business reasons, may trigger additional risk of being challenged by the tax authorities.

Finally, it should be emphasized that taxpayers should pay particular attention to intra-group transactions involving intangible assets – these have recently been one of the most frequently audited by tax authorities. Statistics for tax inspections made in 2021 reveal that the most frequently detected irregularities, apart from restructuring transactions, concerned transactions involving intangible assets.

What can taxpayers do to better prepare for such inspections? Instead of preparing a standard analysis, the solution may be to prepare the so-called DEMPE analysis. The DEMPE analysis examines the functions, assets and risks associated with the development, enhancement, maintenance, protection and exploitation of intangible assets. Therefore, it supports the taxpayer in presenting a more complete picture of an intangible asset transaction.