Customs Valuation Treatment of International Marketing Fee of Multinational Enterprises and its BEPS Implications: Focusing on the Adidas Case of the Supreme Court of Korea

Abstract

There have been a number of court cases in Korea concerning customs valuation treatment of international marketing activities of MNEs. In customs valuation cases, substance over form rule should apply as ordinary tax cases, with all relevant facts and circumstances being considered, including the general rights and obligations of trademark owner and licensee, details of the specific license agreement between the parties and the practical aspects, and special characteristics of the parties. In the Adidas case of the Supreme Court, it is reasonable to regard the international marketing activities as contributing to enhancing or at least maintaining the brand value by repeatedly exposing the brand through various media rather than as advertising or promoting for individual products. Thus, there is no denying that global marketing conducted by MNE headquarters support and enhance the brand value, and allocating the international marketing expenses to local distributors under their responsibilities cannot be easily reconciled with the essential nature of trademarks. In this sense, the Supreme Court is right to find that the substance of international marketing fee is royalty for trademark license, and the same reasoning was correctly applied to subsequent Supreme Court cases involving global marketing activities of MNEs. From the perspective of Base Erosion and Profit Shifting (BEPS) in international taxation, the international marketing fee cases of the Supreme Court signify that anti-BEPS Actions and their implementation in the customs area is becoming ever more important for customs policy and administration in dealing with global customs strategy and practices of MNEs.