Intragroup trade name royalties: recent transfer pricing case law

The case (Brussels Court of First Instance, 24 March 2025, No. 2023/2835/A) concerns a multinational group active in the staffing and HR services sector, operating through a Belgian subsidiary (BelCo).

The group’s Dutch holding company (DutchCo) owned various IP rights, including the group’s well-known trade name and logo, under which the group entities carried out their activities in their respective markets.

DutchCo entered into a licence and services agreement with BelCo, allowing the latter to use the group’s trade name, trademark, logo and related know-how, and to benefit from centralised services provided by DutchCo. In consideration, BelCo paid a turnover-based royalty of 1.3%, supported by TP documentation.

The Belgian tax authorities (BTA) denied the deductibility of the royalty payments based on two separate provisions of Belgian tax law:

• Article 49 of the Belgian Income Tax Code (ITC) (general deductibility rule), which requires that expenses be incurred with the intention of generating or preserving taxable income (the “business purpose test”), with the burden of proof resting on the taxpayer; and
• Article 26 ITC (TP provision), pursuant to which any abnormal or benevolent advantage granted by a Belgian taxpayer to a related non-resident entity must be added back to the taxable base, with the burden of proof resting on the BTA.

According to the BTA, the royalty payments did not meet the business purpose test, as BelCo had allegedly failed to demonstrate that the use of the trade name and related services resulted in actual income.

In the alternative, the BTA argued that the royalty was not at arm’s length and therefore constituted an abnormal or benevolent advantage. In this respect, it relied on the OECD Transfer Pricing Guidelines, claiming that no royalty should be due where the local entity contributes to the development of the brand through marketing and advertising activities. According to the BTA, BelCo did not derive sufficient quantified added value or gain from the licence.

The Court reiterated that, under Belgian tax law, a taxpayer is not required to demonstrate that an expense effectively generated a measurable profit. It is sufficient that the expense was incurred with the intention of generating or preserving taxable income.

In this case, the Court accepted that the taxpayer had sufficiently demonstrated that the use of the trade name and related IP was expected to generate real commercial value for BelCo. In particular, the Court took into account that the licence provided access to a well-established brand, business know-how, and an international client base and network.

The Court further noted that DutchCo effectively performed centralised, value-adding activities through its personnel in relation to the licensed IP.

In light of these elements, the Court concluded that the royalty payments satisfied the conditions of article 49 ITC and were therefore tax deductible.

From a TP perspective, the Court confirmed that, although the OECD Guidelines recognise that in certain circumstances no royalty may be due for the use of a trade name, this does not preclude a group from organizing its operations such that a subsidiary pays a royalty to the legal owner of the IP.

The fact that BelCo’s own trade name incorporated the group brand name did not alter this conclusion.

Similarly, the Court considered that BelCo’s local marketing and advertising expenses were not decisive, as these activities were limited to the Belgian market and did not detract from the value of access to a globally recognised brand.

Importantly, the Court found that the BTA had failed to demonstrate that the royalty deviated from what independent parties would have agreed under comparable circumstances. It also questioned how the IP owner could reasonably be expected to allow the use of a valuable trade name without appropriate remuneration, thereby showing little support for what appeared to be the BTA’s underlying premise.

On this basis, the Court ruled in favour of the taxpayer and annulled the tax assessment.

The case also fits within a broader trend of increased scrutiny of intra-group trademark royalties, both in Belgium and internationally.

Where trademarks and related IP are legally owned by one group entity, other group companies typically obtain the right to use the brand, trade name or logo in their local operations. In more decentralized business models – such as in the present case – this use is often remunerated through a royalty.

However, such arrangements are increasingly challenged by tax authorities, in particular where the local entity also uses the group name in its corporate identity. In these situations, the key question is whether the local entity derives a distinct economic benefit from the brand, beyond incidental benefits derived from group membership.

Under the OECD Guidelines, a trademark royalty is justified where the local entity derives a distinct economic benefit from the use of the trademark or trade name that an independent party would be willing to pay for.

In that analysis, legal ownership alone is not the only relevant parameter. The pricing must also reflect who actually creates and controls the value of the brand, i.e. who performs the relevant DEMPE functions. If the local entity itself contributes to building the brand in its market through significant marketing efforts, this may need to be reflected through compensation or a lower royalty.

In practice, the key distinction is between:

• remunerable use of a trademark, where the brand itself supports local revenue generation (e.g. through recognition, customer trust or pricing power); and
• non-chargeable group affiliation, where the benefit derives merely from being part of a multinational group or using the group name as part of the corporate identity.

The boundary therefore lies in whether the use of the trademark provides a sufficiently tangible and economically justifiable benefit, rather than a purely incidental advantage linked to group membership.

In Belgium, intercompany payments such as royalties may be assessed under both TP rules and the general deductibility provision. While these provisions have distinct purposes and evidentiary rules, they may overlap in practice.

From a TP perspective (Articles 26 and 185(2)(a) ITC), the BTA bear a relatively high burden of proof. They must first demonstrate that the taxpayer’s methodology is inappropriate or incorrectly applied, and then establish what independent parties would have agreed under comparable circumstances. Belgian courts have applied this test strictly, often rejecting adjustments that are not supported by a robust comparability analysis.

In addition, the BTA also rely on Article 49 ITC (deductibility of expenses) to assess intercompany payments. Under this provision, the burden of proof lies with the taxpayer, who must demonstrate that the expense serves a genuine business purpose and is expected to contribute to the generation or preservation of taxable income. In practice, this provision is regularly invoked in disputes relating to outbound intragroup payments such as royalties and interest.

When applying the above principles to trademark royalties, a distinction must be made between (i) the deductibility of the royalty under article 49 ITC and (ii) its arm’s length character under the Belgian TP rules.

For a royalty to be deductible, it must serve a genuine business purpose, i.e. be incurred with a view to contributing to the generation or preservation of taxable income. Belgian case law consistently confirms that this is an ex ante test: it is sufficient that, at the time the arrangement was entered into, the royalty could reasonably be expected to serve such a purpose.

Importantly, this does not require any ex post demonstration or quantification of the benefit. The OECD concepts relating to the measurement of economic advantage do not as such carry over into article 49 ITC. As long as a reasonable commercial rationale exists and the expense is properly documented, deductibility should not be denied merely because the benefit cannot be precisely quantified or demonstrated ex post, or ultimately does not materialise.

From a TP perspective, the focus shifts to the quantum of the royalty. The question is whether the royalty is commensurate with the expected economic advantage derived from the use of the trademark, taking into account the respective DEMPE contributions of the parties.

This analysis remains inherently forward-looking. Independent parties would agree on a royalty based on the anticipated commercial value of the brand (e.g. market recognition, customer trust or pricing power), rather than on actual ex post results. At the same time, the level of the royalty must reflect the allocation of value creation, including any local marketing contributions by the licensee.

While both frameworks refer to the notion of “benefit”, their function differs:

• under article 49 ITC, the intention to contribute to taxable income suffices; and
• under TP rules, the magnitude of the expected economic advantage determines the pricing.

In practice, both analyses should converge where the use of the trademark serves a valid commercial purpose and the royalty reflects a reasonable valuation of that expected advantage.

In the present case, the Belgian entity operates under a decentralized model and commercially exploits a globally recognized trademark, from which it derives brand recognition, network benefits and support from centralized initiatives. In that context, it is economically rational for the IP owner to charge, and for the Belgian entity to pay, a royalty for the use of the brand. As such, the royalty meets the requirements of article 49 ITC, which only requires that the expense be incurred with a reasonable expectation of contributing to taxable income. The BTA’s position that an ex post quantifiable benefit must be demonstrated is not aligned with this standard.

From a TP perspective, the key question is whether the level of the royalty is arm’s length. While local marketing activities performed by the Belgian entity are relevant in assessing the appropriate royalty rate, they do not justify a rejection of the royalty as such. Only in limited cases – where the brand has no recognition in the local market and value is created entirely by the local entity – could this result in a reduced or even no royalty. In all other cases, the analysis should focus on whether the royalty reflects what independent parties would have agreed, taking into account the respective contributions to the brand’s value.

In recent years, the BTA have increasingly relied on the OECD’s DEMPE framework to challenge intra-group IP structures, often arguing that foreign IP owners do not perform sufficient functions to justify (residual) IP income.

Belgian courts, however, have consistently taken a cautious approach. Existing case law shows a clear reluctance to disregard legal ownership and contractual arrangements or to accept far-reaching functional reallocations without strict compliance with the evidentiary requirements under Belgian law.

The same approach is reflected in the present case. The court considered the BTA’s reliance on broad OECD principles (such as the measurable benefit test for trademark use) to fully deny the royalty deduction to be disproportionate and arbitrary. It emphasised that the BTA had not substantiated why the royalty would not be arm’s length in the specific factual context, and questioned how the IP owner could reasonably be expected to allow the use of a valuable trade name without compensation.