Bausch & Lomb, Inc. v. Commissioner
United States Tax Court
92 T.C. 525 (1989)
- Written by David Bloom, JD
Facts
Bausch & Lomb, Inc. (B&L) (plaintiff) manufactured and sold contact lenses in the United States and abroad. Bausch & Lomb Ireland, Ltd. (B&L Ireland) was a subsidiary of B&L. B&L formed B&L Ireland to expand manufacturing capacity abroad, meet foreign demand, and provide an alternative supply source if B&L’s production facility in the United States was disrupted. B&L and B&L Ireland entered into a licensing agreement that permitted B&L Ireland to use B&L’s proprietary technology for making contact lenses in Ireland. The licensing agreement also gave B&L Ireland permission to use B&L’s trademarks. In exchange, B&L Ireland paid B&L a royalty rate of five percent of B&L Ireland’s sales. B&L Ireland manufactured contact lenses in Ireland, all sold to B&L or B&L’s foreign affiliates for $7.50 per lens. B&L was not required to purchase the lenses from B&L Ireland. B&L effectively functioned as B&L Ireland’s distributor abroad, and the $7.50 sales price was similar to what B&L Ireland would have charged other buyers. B&L would have needed a 20 percent royalty to repay investors in the contact-lens-manufacturing operations. After B&L filed tax returns, the Internal Revenue Service (IRS) (defendant) made an allocation of the income between B&L and B&L Ireland based on the sale price and the royalty and determined that B&L owed more taxes. B&L petitioned for judicial review.
Rule of Law
Issue
Holding and Reasoning (Körner, J.)
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