3M Company v Commissioner of Internal Revenue: CASE SUMMARY
Case Information
- Court: United States Tax Court
- Case No: 160 T.C. No. 3, Docket No. 5816-13
- Applicant: 3M Company and Subsidiaries
- Defendant: Commissioner of Internal Revenue
- Judgment Date: 9 February 2023
- Download the FULL JUDGMENT
Judgment Summary
This case involved the 3M Company and its subsidiaries (collectively referred to as the “3M consolidated group”) disputing a section 482 adjustment made by the Commissioner of Internal Revenue. The dispute focused on the income taxIncome Tax is a direct levy imposed by governments on the income generated by individuals, corporations, and other entities within a specific jurisdiction. It serves as a major source of revenue for governments and funds various public expenditures, such as infrastructure projects, healthcare, education, national security, and welfare programs. The tax is generally calculated as a percentage of the taxable... treatment of intellectual propertyIntellectual Property (IP) refers to creations of the mind, including inventions, literary and artistic works, symbols, names, images, and designs used in commerce. It grants creators exclusive legal rights to use and exploit their work, ensuring protection against unauthorised use or reproduction. These rights are critical in fostering innovation and creativity while providing economic value to individuals and organisations. IP... (IPIntellectual Property (IP) refers to creations of the mind, including inventions, literary and artistic works, symbols, names, images, and designs used in commerce. It grants creators exclusive legal rights to use and exploit their work, ensuring protection against unauthorised use or reproduction. These rights are critical in fostering innovation and creativity while providing economic value to individuals and organisations. IP...) transactions between 3M’s U.S. subsidiaries and its Brazilian subsidiary, 3M do Brasil Ltda (3M Brazil), for the tax year 2006.
3M Brazil used intellectual propertyIntellectual Property (IP) refers to creations of the mind, including inventions, literary and artistic works, symbols, names, images, and designs used in commerce. It grants creators exclusive legal rights to use and exploit their work, ensuring protection against unauthorised use or reproduction. These rights are critical in fostering innovation and creativity while providing economic value to individuals and organisations. IP..., including trademarks, patents, and non-patented technology, owned by its U.S. affiliates. During 2006, 3M Brazil paid 3M Company royalties under three trademark licenses executed in 1998, which amounted to 1% of sales for each set of trademarks. However, the Commissioner of Internal Revenue issued a notice of deficiency, increasing the income of 3M Company’s U.S. group by $23.65 million, arguing that the royalties under section 482 were insufficient to reflect an arm’s-length transaction.
3M argued that Brazilian legal restrictions capped the royalties and payments for the IPIntellectual Property (IP) refers to creations of the mind, including inventions, literary and artistic works, symbols, names, images, and designs used in commerce. It grants creators exclusive legal rights to use and exploit their work, ensuring protection against unauthorised use or reproduction. These rights are critical in fostering innovation and creativity while providing economic value to individuals and organisations. IP... use, particularly under Brazil’s Law No. 8383/1991, which placed limits on remittances to foreign parent companies. 3M asserted that the adjustment should account for the maximum allowable payments under Brazilian law, claiming that U.S. tax rules must consider foreign legal restrictions when applying section 482.
The Commissioner, however, applied the U.S. Treasury Regulations (26 C.F.R. sec. 1.482-1(h)(2) (2006)), which limit the recognition of foreign legal restrictions only when such restrictions meet specific requirements, such as being publicly promulgated. The court ruled that the Brazilian restrictions did not meet these requirements and rejected 3M’s arguments. The court upheld the Commissioner’s position, confirming that the income of the 3M consolidated group should be increased to reflect arm’s-length compensation for the IPIntellectual Property (IP) refers to creations of the mind, including inventions, literary and artistic works, symbols, names, images, and designs used in commerce. It grants creators exclusive legal rights to use and exploit their work, ensuring protection against unauthorised use or reproduction. These rights are critical in fostering innovation and creativity while providing economic value to individuals and organisations. IP... use.
