Contents - AL-Tax

12.4 Analysis Under Alternative Regime 17312.4.1.3 Use and Promotion of USP’s MarksAs noted above, FS is contractually obligated to develop and promote USP’s brandidentity in international markets and indemnify USP against all losses, damages,expenses and other costs incurred as a result of alleged claims of improper useof USP’s brand name. In contrast, the companies owned jointly by USP and itsunaffiliated JV partners have no obligation to develop and promote USP’s brandname. Moreover, USP expressly indemnifies the JV companies against all losses,damages and expenses that arise due to claims of trademark infringement. Hence,FS bears significant costs and risks associated with the development of USP’s marksin its territory, and is, for this reason, entitled to retain the associated intangibleincome. Neither USP’s unaffiliated JV partners nor the separate JV companies bearany such costs or risks. Moreover, USP’s arm’s length JV agreements do not providefor the payment of trademark royalties. As such, there is no mechanism to transfermarketing intangible income from the JV companies to USP.12.4.1.4 Marketing and Promotion of WebsitesUSP’s JV agreement with FS does not stipulate minimum promotional expendituresor activities. As a practical matter, FS invests very heavily in the marketing andpromotion of its international sites. USP’s arm’s length JV agreements describe itscounterparties’ obligations regarding marketing and promotion in detail, albeit interms of specific numbers of editorial mentions, television spots, etc., rather thancost or a percentage of revenues. USP’s JV partners’ obligations in this regarddecline over time. The JV partners have invested considerably less per annum, asa percentage of net revenues, than FS since the JV companies and FS commencedoperations.12.4.1.5 Allocation of JV IncomeInasmuch as USP owns 50% of the separate JV companies’ shares, it has claims to50% of their respective free cash flows (after payment of interest and repayment ofprincipal on outstanding debt). Under the terms of its JV agreement with FS, USPhas claims to 20% of the latter’s free cash flows.12.4.2 Summary of Qualitative ObservationsIn summary, USP bears substantially higher costs and risks under its arm’s lengthJV agreements, as compared with its intercompany JV agreement. USP permits bothits affiliated and independent JV partners to use its IT platform and brand identity,and provides the same range of IT and site operations support thereto. FS bearssignificant costs and risks associated with the development of USP’s marks in itsterritory, and is therefore entitled to retain the associated intangible income. USP’sthird party JV partners do not bear costs or risks associated with the developmentof its brand identity in their respective territories, and, in principle, are therefore not