Or. Admin. Code § 150-314-0100

Current through Register Vol. 63, No. 12, December 1, 2024

Section 150-314-0100 - Disallowance of Certain Intercompany Transactions Involving Intangible Assets

(1) The provisions of section (3) of this rule apply in situations where:

(a) An intangible asset is owned by one corporation, organization, trade or business (the owner) and used by another (the user) for a royalty or other fee,

(b) Both the owner and the user are "owned by the same interests," as defined in Treas. Reg.§1.469-4T, paragraph (j),

(c) The owner and the user are not included in the same Oregon tax return, and

(d) The separation of ownership of the intangible asset from the user of the intangible asset results in either:

(A) Evasion of tax, or

(B) A computation of Oregon taxable income that is not clearly reflective of Oregon apportionable income.

(2) For purposes of this rule, separation of the ownership and use of an intangible asset is for "evasion of taxes" when such separation has no effect on the operations of the user beyond payment of the royalty or other fee.

(3) The user of the intangible asset must add the royalty or other expense for such use to federal taxable income as an "other addition" on the Oregon tax return. The owner of the intangible asset must subtract the royalty or other income from such use from federal taxable income as an "other subtraction" on the Oregon tax return. The following example is for illustrative purposes only.

Example: Alpha Corporation (Alpha) uses a number of trademarks in its retail sales business. After developing the value of the trademarks over a period of 30 years, Alpha incorporated a subsidiary, Beta, Inc. (Beta) in Bermuda and transferred the trademarks to Beta for shares of newly issued Beta stock. Alpha paid royalties to Beta for use of the trademarks. Beta is not included in Alpha's consolidated federal and Oregon tax returns. After the transfer of the trademarks to Beta, Alpha uses the trademarks as it had before the transfer and the only change in its business operation is the payment of the royalty. The transfer of the trademarks does not change Alpha's business operations as they are readily apparent to or as they affect relations with customers, vendors, or other external parties. Alpha requires that Beta manage the trademarks as Alpha had before the transfer. Alpha must add the royalty deduction back to federal taxable income on its Oregon Corporation Excise Tax return. If Beta is subject to Oregon taxation, the royalty income must be subtracted from its federal taxable income.

Or. Admin. Code § 150-314-0100

REV 4-2003, f. & cert. ef. 12-31-03; REV 3-2009, f. & cert. ef. 7-31-09; Renumbered from 150-314.295, REV 32-2016, f. 8-12-16, cert. ef. 9-1-16; Renumbered from 150-314.280(3), REV 33-2016, f. 8-12-16, cert. ef. 9/1/2016; REV 68-2017, amend filed 12/22/2017, effective1/1/2018

Publications: Contact the Oregon Department of Revenue to learn how to obtain a copy of the publication referred to or incorporated by reference in this rule pursuant to ORS 183.360(2) and 183.355(1)(b).

Statutory/Other Authority: ORS 305.100

Statutes/Other Implemented: ORS 314.295