Court: No discount for Talbots when it comes to paying taxes

The Massachusetts Appeals Court ruled against the clothing chain today in a tax case involving a subsidiary at which nobody worked.

The Hingham-based Talbots set up a subsidiary in another state, loaned it more than $100 million, transferred certain intellectual assets to it, then tried to deduct the cost of royalties for use of that property.

But the subsidiary had no employees and all decisions were made at Talbots headquarters back here in Massachusetts, and that constitutes a legal "sham," the court ruled, adding it was not amused to learn that:

The record also contains several letters and memoranda from Talbots employees and outside advisors which reveal that the transfer and licensing arrangement here "was specifically devised as a tax avoidance scheme."

The case is similar to a ruling against Syms in 2002 and against publisher IDG last fall.

• Complete ruling