Contents - AL-Tax

8.3 Analysis Under Existing Regime 1194. Data solicitation and marketing tools. USP utilizes “control pages” (or basepages) in developing different data solicitation and direct marketing formatsand content. FS will use these control pages, along with the basic graphicsand layout, testing methodologies and other know-how that USP’s marketingstaff have built up. However, we are advised that both solicitations and directmarketing formats and content have to be adapted to the European market forcultural and legal reasons.The transfer of this bundle of intangible assets is akin to a business format franchise,which “includes not only the product [or] service and trademark, but the entirebusiness format itself—a marketing strategy and plan, operating manuals and standards,quality control, and continuing two-way communication.” 1USP’s legal, HR and financial planning staffs have also provided, and will continuefor some time to provide, certain start-up services to FS. For example, theEuropean Union imposes significantly more stringent controls vis-a-vis consumers’confidential data than the U.S. Government at present. As such, FS was requiredto register as a Data Controller and to provide the necessary assurances regardingits protocols for the protection of confidential data. USP’s legal staff assisted FSin this process. The legal staff has also assisted FS in structuring and drafting itscontracts with clients. USP’s HR Group developed an employee contract template,with input from the Legal Department. USP’s financial planning staff developed aninitial budget and projections for FS, based on input from the latter’s senior staffand its own results during its ramp-up period.Lastly, in addition to the above start-up services, USP’s IT Group will performroutine software and hardware maintenance on an ongoing basis, provide customizationservices to FS, and make all software upgrades available to it. USP’s legal staffwill provide routine legal support for the foreseeable future. Financial planningdocuments and statements will be prepared by USP’s personnel, and payroll, theprocessing of transactions, and receivables and payables functions will be handledby USP’s personnel. Both the President and the CEO of USP will provide high-leveladvisory services to the Managing Director of FS for some period.8.3 Analysis Under Existing RegimeArm’s length services fees, payable by FS to USP, can be established under one ofseveral specified transfer pricing methods. However, none of the specified methodsunder the existing transfer pricing regime can be used to analyze USP’s transfer ofintangible assets to FS (unless one interprets the franchise model as an applicationof the inexact comparable uncontrolled transactions (CUT) method).The CUT method, as currently drafted and applied, requires a higher level ofcomparability than broadly similar franchise arrangements would satisfy. The resale1 U.S. Department of Justice, Franchising in the Economy, 1988.