Bausch & Lomb Inc. v. Comm'r of Internal Revenue
| Decision Date | 23 March 1989 |
| Docket Number | Docket No. 3394-86 |
| Citation | 92 T.C. 525,92 T.C. No. 33 |
| Parties | BAUSCH & LOMB INCORPORATED AND CONSOLIDATED SUBSIDIARIES, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Petitioner and its subsidiaries engaged in the manufacture, marketing and sale of soft contact lenses and related products in the United States and abroad. B&L Ireland was organized on February 1, 1980, under the laws of the Republic of Ireland as a third tier, wholly owned subsidiary of petitioner. B&L Ireland was organized for valid business reasons and to take advantage of certain tax and other incentives offered by the Republic of Ireland. Pursuant to an agreement dated January 1, 1981, petitioner granted to B&L Ireland a nonexclusive license to use its patented and unpatented manufacturing technology to manufacture soft contact lenses in Ireland and a nonexclusive license to use certain of its trademarks in the sale of soft contact lenses produced through use of the licensed technology worldwide. In return, B&L Ireland agreed to pay petitioner a royalty equal to five percent of sales. In 1981 and 1982, B&L Ireland engaged in the manufacture and sale of soft contact lenses in the Republic of Ireland. All of B&L Ireland's sales were made either to petitioner or certain of petitioner's wholly owned foreign sales affiliates at a price of $7.50 per lens. HELD, respondent abused his discretion under sec. 482, I.R.C. 1954, when he determined that the $7.50 sales price did not constitute an arm's-length consideration for the soft contact lenses sold by B&L Ireland to petitioner. HELD FURTHER, the royalty contained in the January 1, 1981 license agreement did not constitute an arm's-length consideration for the use by B&L Ireland of petitioner's intangibles. However, respondent's adjustment to the royalty rate was unreasonable. Sec. 1.482- 2(d), Income Tax Regs., applied to determine an arm's-length consideration for use by B&L Ireland of petitioner's intangible property.
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