Coca-Cola Challenges Transfer Pricing Adjustments in Tax Court

1. Petitioner. The Coca-Cola Company (TCCC) is the parent of an affiliated group that files a consolidated Federal income tax return. TCCC is also the ultimate parent of the worldwide Coca-Cola group (the Company). TCCC is organized under the laws of the State of Delaware. Its principal place of business is One Coca-Cola Plaza NW, Atlanta, Georgia, 30313-2420. Petitioner filed timely consolidated Federal income tax returns for the 2007, 2008, and 2009 tax years with the Internal Revenue Service (IRS) by electronic means.

2. Notice of Deficiency. The Notice is dated September 15, 2015, and was issued by the IRS Small Business and Self-Employed Division, 401 W. Peachtree Street NW, Room 930, Atlanta, Georgia, 30308-3539. The Notice identifies December 14, 2015, as the last date for filing a petition in this Court. A copy of the Notice is attached as Exhibit A.

3. Amounts in Dispute. In the Notice, Respondent determined Federal income tax deficiencies in the following amounts:

             Tax Year                         Amount

4. Assignments of Error. Respondent's Code section 482 adjustments are arbitrary, capricious, and unreasonable. His deficiency determinations are based upon the following errors:

4.a. Code Section 482 and Correlative Adjustments -- Seven Foreign Licensees. Respondent erred in allocating income under Code section 482 between TCCC and seven controlled foreign licensees (Seven Foreign Licensees), four of which are branches of or disregarded subsidiary entities of Atlantic Industries (AI), a controlled foreign corporation (CFC) owned by Petitioner, and one of which is a branch of The Coca-Cola Export Corporation (Export), a member of Petitioner. The licenses from TCCC granted rights to certain intangible property, including beverage trademarks and formulas (Licensed Intangibles), for use in the Seven Foreign Licensees' production and sale primarily of beverage concentrates in markets outside the United States. Concentrate is the concentrated flavor base used to make finished beverages and beverage syrups, usually by adding carbonated or still water and in some cases sweeteners. The Seven Foreign Licensees manufactured concentrate and sold it to bottlers. The bottlers converted concentrate into finished beverage products for sale to distributors and retailers.

4.a.1. Respondent erred in allocating income to TCCC from the Ireland licensee in the amounts of $1,862,007,865 for 2007, $2,222,862,187 for 2008, and $2,105,257,955 for 2009.

4.a.2. Respondent erred in allocating income to TCCC from the Swaziland licensee in the amounts of $146,324,906 for 2007, $150,307,912 for 2008, and $257,474,162 for 2009.

4.a.3. Respondent erred in allocating income to TCCC from the Brazil licensee in the amounts of $534,512,554 for 2007, $629,325,931 for 2008, and $604,074,263 for 2009.

4.a.4. Respondent erred in allocating income to TCCC from the Mexico licensee in the amounts of $155,205,260 for 2007, $180,189,734 for 2008, and $160,335,364 for 2009.

4.a.5. Respondent erred in allocating income to TCCC from the Chile licensee in the amounts of $126,127,122 for 2007, $151,682,280 for 2008, and $161,284,378 for 2009.

4.a.6. Respondent erred in allocating income to TCCC from the Costa Rica licensee in the amounts of $41,698,147 for 2007, $58,817,163 for 2008, and $40,828,452 for 2009.

4.a.7. Respondent erred in allocating income to the Egypt licensee from TCCC in the amounts of $66,895,008 for 2007 and $27,656,527 for 2008.

4.a.8. Respondent erred in making certain correlative adjustments resulting from his Code section 482 adjustments with respect to the Seven Foreign Licensees as follows:

4.a.8.i. Respondent erred in increasing Petitioner's foreign tax credits under Code section 902 in the amounts of $15,881,091 for 2007, $51,986,232 for 2008, and $71,100,238 for 2009.

4.a.8.ii. Respondent erred in increasing Petitioner's income under Code section 78 in the amounts of $15,881,091 for 2007, $51,986,232 for 2008, and $71,100,238 for 2009.

4.a.8.iii. Respondent erred in (decreasing)/increasing Petitioner's Code section 987 gain in the amounts of ($1,638,165) for 2007, ($1,756,566) for 2008, and $5,402,536 for 2009.

4.b. Code Section 901 Adjustments-Mexico Foreign Tax Credits. Respondent erred in using his Code section 482 income adjustments to support a reduction in Petitioner's allowable foreign tax credits under Code section 901 for taxes paid or accrued to Mexico by the Mexico licensee, a branch of Export, in the amounts of $43,457,473 for 2007, $50,453,126 for 2008, and $44,893,902 for 2009.

4.c. Code Section 482 and Correlative Adjustments -- Canada. Respondent erred in allocating income under Code section 482 between TCCC, Caribbean Refrescos, Inc. (CRI), a member of Petitioner, and Coca-Cola Ltd. (CCL), a Canadian CFC.

4.c.1. Respondent erred in allocating income to TCCC from CCL in the amounts of $14,810,275 for 2007, $8,634,930 for 2008, and $7,928,905 for 2009.

4.c.2. Respondent erred in allocating income to CRI from CCL in the amounts of $66,449,756 for 2007, $35,545,696 for 2008, and $28,912,349 for 2009.

4.c.3. Respondent erred in allocating income to TCCC from CRI in the amounts of $65,124,945 for 2007, $45,124,663 for 2008, and $37,860,253 for 2009.

4.c.4. Respondent erred in making certain correlative adjustments resulting from his Code section 482 adjustments with respect to Canada as follows:

4.c.4.i. Respondent erred in reducing Petitioner's dividend income from CCL by $77,413,466 for 2008.

4.c.4.ii. Respondent erred in increasing Petitioner's capital-gain income by $67,950,240 for 2008.

4.c.4.iii. Respondent erred in reducing Petitioner's foreign tax credits under Code section 902 by $42,888,345 for 2008.

4.c.4.iv. Respondent erred in reducing Petitioner's income under Code section 78 by $42,888,345 for 2008.

4.d. Failure to Determine Overpayments. Respondent erred to the extent he failed to determine any overpayments by Petitioner of Federal income tax arising from, among other things, the Seven Foreign Licensees' overpayments for the Licensed Intangibles and Petitioner's intercompany charges for stewardship and other headquarters expenses.

5. Factual Basis for Assignments of Error. The facts upon which Petitioner relies as the basis for the assignments of error are as follows:

5.a. The Company's Business. The Company is a global business in the non-alcoholic ready-to-drink (NARTD) beverage industry with beverage products sold in more than 200 countries. NARTD products include sparkling soft drinks, purified bottled water, sports drinks, juice drinks, teas and coffees, and energy drinks.

5.a.1. The NARTD beverage industry is highly competitive.

5.a.2. To remain competitive, the Company must continuously recruit new consumers and build consumer awareness, both of which require significant ongoing investments in advertising and marketing, product and package offerings, and other innovation.

5.a.3. Consumer tastes, consumption habits, cultural norms and trends, and population demographics are dynamic and vary widely among countries and regions. To capture and retain market share, the Company must tailor its beverages, beverage portfolios, and marketing and advertising messages to the unique market conditions in different geographies around the world.

5.b. The Company's worldwide business structure and operations reflect the economic and business conditions of the NARTD beverage business. To compete successfully in markets around the world, the Company has a decentralized business structure that empowers its local and regional operations to (1) develop beverages and beverage portfolios that meet the needs of local consumers, (2) craft integrated marketing campaigns and advertising and marketing messages that will resonate in each market, and (3) build and foster business relationships with local bottlers and major retailers and distributors.

5.b.1. History of the Company's Business Structure

5.b.1.i. The Coca-Cola business started in the United States in the late nineteenth century and began expanding internationally in the early twentieth century.

5.b.1.ii. To compete effectively in the NARTD beverage business in foreign markets, the Company vested substantial responsibility for strategy development and tactical execution in foreign operating units with personnel that were close to the local markets and bottlers. By the years at issue, the Company's foreign operations had been organized into geographically defined Business Units and Operating Groups.

5.b.1.iii. As the Company grew internationally, it established controlled foreign licensees, organized as branches or CFCs (Foreign Licensees), to manufacture concentrate for sale to bottlers outside the United States. The bottlers would in turn manufacture finished beverage products for sale to retailers or distributors outside the United States.

5.b.1.iv. CFC licensees generally assumed the entrepreneurial risks and responsibilities for their markets, providing concentrate to the bottlers in those markets and funding all or substantially all of the expenses incurred in their markets and the Company's headquarters expenses allocable to non-U.S. markets. Branch licensees bore similar responsibilities, but their expenses and income were reported on Petitioner's returns for U.S. tax purposes.

5.b.1.v. The expenses incurred by Foreign Licensees included the costs of developing and executing integrated marketing campaigns to build consumer preferences for the Company's beverage products in their territories and other expenses, including research and development (R&D) and quality assurance.

5.b.1.vi. During the years at issue, more than 75% of the Company's worldwide concentrate sales were outside the United States.

5.b.2. The Seven Foreign Licensees

5.b.2.i. The Notice reflects income adjustments relating to the Seven Foreign Licensees. The Company had other Foreign Licensees during the years at issue.

5.b.2.ii. The legal-entity name of each of the Seven Foreign Licensees during the years at issue and the year in which it commenced operations as a licensee was as follows:

5.b.2.ii.A. Mexico licensee: The Coca-Cola Export Corporation Sucursal Mexico, a branch of Export, a member of Petitioner, began operations as a licensee in 1950.

5.b.2.ii.B. Brazil licensee: Coca-Cola Industrias, Ltda. (CCIL), a CFC, began operations (through its predecessor company) as a licensee in 1963.

5.b.2.ii.C. Ireland licensee: An Ireland branch of AI began operations as a licensee in 1984.

5.b.2.ii.D. Egypt licensee: An Egypt branch of AI began operations as a licensee in 1986.

5.b.2.ii.E. Swaziland licensee: Conco, Ltd., a disregarded entity subsidiary of AI, began operations as a licensee in 1987.

5.b.2.ii.F. Chile licensee: Coca-Cola de Chile, S.A., a CFC, began operations as a licensee in 1995.

5.b.2.ii.G. Costa Rica licensee: Coca-Cola Industrias, Ltda., a disregarded entity subsidiary of AI, began operations as a licensee in 2001.

5.b.2.iii. In at least two instances, Petitioner obtained rulings from the IRS applying Code section 367 to the outbound transfers of intangibles to CFC licensees. These rulings, which covered the Brazil licensee (1962) and the Ireland licensee (1984), provided that no gain or loss would be recognized on the transfers under Code section 351.

5.b.3. Since entering their markets, the Seven Foreign Licensees and related CFC licensees bore substantially all responsibility for the Company's business operations for the markets served by the Seven Foreign Licensees, including substantially all of the funding of the activities of the Company's Business Units and Operating Groups in those markets and substantially all of the headquarters expenses allocable to those markets.

5.b.4. Business Units. The Company divided its worldwide operations into distinct Business Units. Business Units typically encompassed a specific country or small group of geographically proximate countries. For example, during the years at issue, the South Latin Business Unit was responsible for the business in Peru, Bolivia, Paraguay, Uruguay, Chile, and Argentina. As described below, during the years at issue, the Business Units were responsible for growing the business in their local markets.

5.b.4.i. Each Business Unit had its own leadership team of senior executives, including a President and other senior executives that managed the marketing, strategy & insights, bottler-relations, finance, customer and commercial, technical, and human-resources functions. In each Business Unit, local and regional employees in the markets for which the Business Unit was responsible supported this leadership team.

5.b.4.ii. Business Units were broadly responsible for developing and executing marketing strategies to build consumer demand and preference in the local markets.

5.b.4.iii. The Business Units were responsible for conducting marketing research to understand consumer needs and preferences and to identify product or packaging innovation opportunities.

5.b.4.iv. The Business Units were responsible for developing integrated marketing campaigns, including advertising (e.g., outdoor, print, radio, television, and digital media), product sampling, and other experiential marketing efforts.

5.b.4.v. Subject to limited oversight, each Business Unit had authority over which beverage products were sold and how those beverage products were marketed within its markets.

5.b.4.vi. Business Units developed strategic business plans for local markets and executed those plans, typically in close coordination with the local bottlers.

5.b.4.vii. Business Units were responsible for managing and building relationships with local bottlers, including ensuring alignment of business plans and strategies with the bottlers.

5.b.4.viii. Business Units developed and provided in-store marketing strategies and materials to the bottlers.

5.b.4.ix. As the management units for the Company's operations, Business Units were accountable for attaining annual profit and volume goals. Accordingly, Business Units had wide latitude to determine the business activities, investments, and risks that they would undertake to meet their goals.

5.b.5. Operating Groups. Business Units were organized into broader regional Operating Groups. As discussed below, during the years at issue, Operating Groups and Business Units worked together to manage and grow the business in their markets.

5.b.5.i. Operating Groups were accountable for attaining annual profit and volume goals for their regions. Business Unit Presidents within a region reported to a regional Operating Group President.

5.b.5.ii. Operating Groups were generally responsible for assisting Business Units with regional coordination and functional leadership.

5.b.5.iii. Operating Groups encouraged collaboration among the Business Units, shared best practices, and coordinated with Business Units during the annual business-planning process.

5.b.5.iv. During the years at issue, Operating Groups responsible for the Business Units in their regions included:

5.b.5.iv.A. The Europe Operating Group;

5.b.5.iv.B. The Latin America Operating Group;

5.b.5.iv.C. The Eurasia and Africa Operating Group;

5.b.5.iv.D. The Pacific Operating Group; and

5.b.5.iv.E. The North America Operating Group.

5.b.5.v. Each Operating Group relied on the work of personnel located in the markets served by that Operating Group.

5.b.5.vi. The Operating Groups operated and managed R&D centers located outside the United States.

5.b.5.vi.A. During the years at issue, there were R&D centers located in the regions served by the Seven Foreign Licensees.

5.b.5.vi.B. Among other responsibilities, R&D centers worked with Business Units to develop unique beverage formulations, new sales equipment, and innovative packaging solutions tailored to the tastes and needs of local consumers. There are, for example, now over 100 different formulations of Fanta Orange worldwide.

5.b.6. Company Headquarters. The Company's headquarters in Atlanta generally provided global functional leadership, coordination, governance, and oversight.

5.b.6.i. Headquarters managed investor relations and certain centralized activities (e.g., information technology, legal, and human resources) for the Company's global operations.

5.b.6.ii. Headquarters provided certain technological and scientific leadership and performed certain R&D and quality-assurance functions in coordination with the Business Units and Operating Groups.

5.b.6.iii. Headquarters provided certain strategic leadership, oversight, and guidance with respect to the marketing of the Company's beverages.

5.b.6.iv. Headquarters coordinated the business-planning process to ensure alignment of strategies developed by the Business Units and Operating Groups and facilitated the sharing of best practices, many of which were developed outside of the United States, in functional areas.

5.b.6.v. Headquarters performed shareholder and duplicative activities, including those that (1) were performed to protect TCCC's capital investments and (2) facilitated TCCC's reporting requirements.

5.b.6.vi. Substantially all of the costs of the foregoing headquarters expenses associated with non-U.S. markets were charged to Foreign Licensees.

5.b.7. Foreign Licensees Bore Risk and Responsibility for Foreign Business Operations. Foreign Licensees funded the Company's non-bottling foreign operations in their markets, primarily with the proceeds from the sale of concentrate.

5.b.7.i. Foreign Licensees incurred costs for direct marketing expenses and the manufacture and sale of concentrate.

5.b.7.ii. The Company's costs for the business activities and personnel of the relevant Business Units and Operating Groups -- including investments in marketing and innovation for their local markets -- were borne by Foreign Licensees either directly or through intercompany charge mechanisms.

5.b.7.iii. Headquarters expenses that benefited a specific Foreign Licensee were charged directly to, or otherwise treated as reimbursed by, that Foreign Licensee.

5.b.7.iv. Allocable portions of certain headquarters expenses that benefited worldwide operations, such as global sponsorships and global procurement, were charged to, or otherwise treated as reimbursed by, Foreign Licensees.

5.b.7.v. The remaining pool of headquarters expenses, including the costs of headquarters marketing, R&D, and quality-assurance departments, as well as stewardship expenses, were accumulated annually and allocated between U.S. and foreign operations based on relative time spent or other allocation metrics derived through an annual survey of knowledgeable personnel in each department. The portion allocated to foreign operations was apportioned among and charged to certain Foreign Licensees under a charge-out system known as "pro rata." The pro-rata charge-out system has existed since 1946. Over time, some Foreign Licensees -- including, for example, the Ireland licensee-bore more than their allocable shares of pro-rata expenses relative to the proportion of the benefits they received.

5.b.7.vi. From their establishment as licensees through 2009, the Seven Foreign Licensees invested more than $45 billion in pre-royalty operating expenses and marketing and incentive activities in their markets.

5.b.7.vii. Since they became licensees, the Seven Foreign Licensees have borne all of the economic burdens and the entrepreneurial risks and responsibilities attributable to their substantial investments and business activities in their markets.

5.c. Bottlers. Bottlers under contracts with Petitioner produce and sell finished beverage products to distributors and retailers. This business model allows the Company to focus on developing new beverage products and building consumer awareness through extensive marketing while allowing bottlers to focus on manufacturing, sales, and distribution.

5.c.1. Bottlers procure the inputs for producing finished beverages-including concentrate purchased from Foreign Licensees, sweeteners, carbon dioxide, and packaging materials-and then produce finished beverages for sale to distributors and retailers.

5.c.2. Bottlers make substantial capital investments in manufacturing, sales, and distribution infrastructure. These include investments in plants, bottling lines, trucks, and other assets. Bottlers also fund in-store promotional activities.

5.d. Administrative History and Petitioner's Transfer Pricing

5.d.1. The 1996 Closing Agreement. In 1996, following an audit of Petitioner's transfer pricing for the years 1987 through 1989, Petitioner and the IRS executed a closing agreement (the Closing Agreement) with respect to the portions of certain CFC licensees' income payable to Petitioner for the 1987 through 1995 tax years. The Closing Agreement covered the Seven Foreign Licensees except for the Costa Rica licensee (which did not exist at the time of the Closing Agreement) and the Mexico licensee (a branch of Export).

5.d.1.i. The Closing Agreement set forth a methodology for allocating foreign-earned income between covered foreign licensees and Petitioner.

5.d.1.ii. The Closing Agreement provided that for years after 1995, no penalties would be assessed in connection with Petitioner's transfer pricing if Petitioner followed the methodology set forth in the Closing Agreement.

5.d.1.iii. For its post-1995 tax years, Petitioner consistently applied the Closing Agreement methodology to allocate income from the covered foreign licensees to Petitioner. After forming the Costa Rica licensee in 2001, Petitioner applied the Closing Agreement methodology to allocate income from the Costa Rica licensee.

5.d.1.iv. Notwithstanding that all income of the Mexico licensee is taxed currently in the United States, for purposes of determining its Mexican tax liability, Petitioner also applied the Closing Agreement methodology to the Mexico licensee starting in 2000.

5.d.1.v. The IRS audited and accepted Petitioner's use of the Closing Agreement methodology in every tax year from 1996 through 2006.

5.d.1.vi. Under the Closing Agreement methodology, the Seven Foreign Licensees paid more than $18 billion to Petitioner for tax years 1987 through 2009, $6 billion of which was paid during the years in issue. Over $15 billion of the $18 billion represents transfers to Petitioner in excess of the $45 billion in expenses reflected in paragraph 5.b.7.vi. In addition, Petitioner included in its U.S. Federal income tax returns all of the Mexico licensee's income for all years.

5.e. Respondent's Position

5.e.1. Section 482 and Correlative Adjustments

5.e.1.i. The Notice contains no explanation for departing from the Closing Agreement methodology that was applied to Petitioner's preceding twenty tax years.

5.e.1.ii. On information and belief, the income adjustments in the Notice are based on a report prepared by an outside economist retained by Respondent (Report).

5.e.1.ii.A. The Report sets forth the same income adjustments as those identified in the Notice.

5.e.1.ii.B. The adjustments in the Report are determined under the comparable profits method (CPM) set forth in Treas. Reg. § 1.482-5.

5.e.1.ii.C. The Report's CPM analysis is premised on treating the Seven Foreign Licensees as the tested parties and limiting them to routine returns by using a return on balance-sheet operating assets of bottlers as the profit-level indicator for establishing comparable profit levels.

5.e.1.ii.D. The functions, assets, and risks of bottlers are not comparable to those of the Seven Foreign Licensees.

5.e.1.ii.E. The Report admits that it does not consider the extent to which foreign legal restrictions may prevent the allocation of income from certain of the Seven Foreign Licensees to Petitioner.

5.e.1.iii. Respondent's Code section 482 adjustments with respect to the Seven Foreign Licensees ignore any foreign legal restrictions on the payment of royalties to TCCC.

5.e.1.iii.A. Under Brazilian law, currency remittances outside of Brazil required the approval of the Brazilian Central Bank. Such approval was subject to applicable law.

5.e.1.iii.B. During the years at issue, Brazilian law limited or barred the remittance of royalties by the Brazil licensee with respect to the Licensed Intangibles.

5.e.1.iv. For the years at issue alone, the Seven Foreign Licensees paid more than $6 billion under the Closing Agreement methodology, of which 88% is attributable to the Ireland, Brazil, and Mexico licensees.

5.e.1.v. The Notice seeks to charge the Seven Foreign Licensees an additional $9.4 billion in royalties. Of that charge, approximately $8.4 billion -- 89% of the adjustment-relates to the Ireland, Brazil, and Mexico licensees, which had been licensees for more than twenty, forty, and fifty years, respectively.

5.e.1.vi. When combined with the amounts paid by the Seven Foreign Licensees under the Closing Agreement methodology, the Notice's $9.4 billion income adjustment totals more than 100% of the aggregate operating profits of the Seven Foreign Licensees for the years at issue. 5.e.1.vii. Petitioner Legally Liable for Mexican Income Taxes. Respondent improperly applies Code section 482 principles to reduce Petitioner's foreign tax credits attributable to income taxes properly paid to Mexico.

5.e.1.vii.A. As a branch of Export, all of the income earned by the Mexico licensee is subject to U.S. Federal income tax, and all such income was reported on Petitioner's U.S. tax returns for the years at issue.

5.e.1.vii.B. Even if sustained, Respondent's allocation of income from the Mexico licensee to TCCC using Code section 482 principles results in no additional U.S. Federal income tax, absent Respondent's improper reduction of Petitioner's foreign tax credits.

5.e.1.vii.C. Petitioner is legally liable for the Mexican income taxes for which it claimed foreign tax credits under Code section 901 and has exhausted all effective and practical remedies-including invocation of competent-authority procedures available under applicable tax treaties-to reduce its liability for Mexican income taxes. Consequently, Respondent's adjustments to Petitioner's Mexico foreign tax credits are erroneous.

5.e.1.viii. Respondent's Canadian Adjustments

5.e.1.viii.A. CCL, a Canadian CFC, is a wholly owned subsidiary of Export.

5.e.1.viii.B. CRI and Export are wholly owned subsidiaries of TCCC.

5.e.1.viii.C. In the 1920s, TCCC transferred its entire Canadian business to CCL, including all then-existing Canadian trademarks and trade names as well as rights to exploit the Coca-Cola secret formula. Since then, CCL became the registered owner in Canada of other relevant trademarks. During the years at issue, CCL was the registered owner in Canada of over fifty trademarks, including the trademarks for Coca-Cola, Coke, Diet Coke, Sprite, Fresca, Tab, and Fanta.

5.e.1.viii.D. During the years at issue, TCCC and CRI licensed from CCL the right to exploit CCL's trademarks in Canada. Pursuant to that license, TCCC and CRI manufactured concentrate for sale to bottlers in Canada.

5.e.1.viii.E. Respondent's adjustments with respect to Canada are squarely inconsistent with his adjustments with respect to the Seven Foreign Licensees.

5.e.1.viii.E.1. With respect to Canada, Respondent applies the CPM to allocate routine returns to the legal owner of intangible property while allocating all non-routine profits to the licensee that bore entrepreneurial risks and expenses of the Canadian business.

5.e.1.viii.E.2. With respect to the Seven Foreign Licensees, by contrast, Respondent applies a CPM to allocate only routine returns to the Seven Foreign Licensees, notwithstanding that they bore entrepreneurial risks and expenses for their markets, while allocating all non-routine profits to TCCC as the legal owner of intangible property.

5.e.1.viii.F. Respondent bases his Canadian adjustments on two Notices of Proposed Adjustment (NOPAs) issued on September 11, 2012.

5.e.1.viii.G. In both NOPAs, Respondent relies on economic ownership of intangible property as the basis for allocating non-routine profits to a licensee.

5.e.1.viii.H. In both NOPAs, Respondent states that the licensees -- TCCC and CRI -- "bear all responsibility and costs associated with the continued development, enhancement and maintenance of the trademarks owned by [CCL]."

5.e.1.viii.I. In both NOPAs, Respondent cites authorities, including Treas. Reg.§ 1.482-4(f)(3) and (4), and DHL Corp. v. Commissioner, 285 F.3d 1210 (9th Cir. 2002), for the propositions that legal ownership is not the primary factor in determining the allocation of income attributable to intangible property and that the primary factor in such determination is "which party bore the greatest direct and indirect costs in-developing the intangible property in a particular region."

6. Prayer for Relief. WHEREFORE, Petitioner prays that this Court hear this proceeding and determine:

6.a. that Respondent erred in determining that Petitioner had deficiencies in Federal income tax for 2007, 2008, and 2009;

6.b. that Petitioner overpaid Federal income tax for 2007, 2008, and 2009 to the extent demonstrated by the evidence; and

6.c. that Petitioner is entitled to such further relief as this Court may deem proper.

DATED: December 14, 2015