Honda Motor de Argentina S.A. is an Argentine company that distributes motor vehicles and motorcycles and imports products and some production inputs from related Honda entities abroad. For the 2009 fiscal year it prepared a transfer pricing study using the TNMM, with Honda Argentina as the tested party and several foreign wholesale distributors as external comparables, including the Canadian company Commercial Solutions Inc.
Following an income tax audit for 2009, the tax authorities issued an assessment of additional income taxes in the amount of ARS 9,703,569.88 plus interest and a penalty equal to twice the omitted tax. The adjustment rested solely on rejecting Commercial Solutions Inc. as a comparable, on the grounds that it had a negative operating margin in 2009, traded in different products, was a “public company” which the authorities treated as state owned, and had recorded a goodwill impairment that, in their view, made it atypical.
Honda appealed to the National Tax Court. It argued that “public company” in this context means a listed company, not a state enterprise, and produced data to show that Commercial Solutions Inc. was a privately owned company whose shares were traded on the Toronto Stock Exchange. Honda maintained that both it and the Canadian company were wholesale distributors with similar functions, assets and risks, that the goodwill impairment had been treated as non operating and excluded from the operating margin used in the TNMM, and that the 2009 loss reflected the global financial crisis, not structural differences. It stressed that the comparable had been profitable in 2006–2008 and relied on the OECD Transfer Pricing Guidelines and prior Tribunal precedents to argue that loss making comparables are not automatically excluded.
Judgment
The National Tax Court upheld Honda’s appeal and revoked the assessment and penalty in full. It concluded that the assessment lacked a rational and objective basis and therefore could not stand.
The Court held that the tax authorities had misinterpreted the term “public company” and that there was no evidence of state ownership or a different risk profile. Referring to the OECD Guidelines, the Court emphasised that under TNMM comparability focuses on functions, assets and risks rather than exact product matching, that loss making companies are not excluded per se, and that extreme results require analysis of their causes rather than automatic rejection. It found that both Honda and Commercial Solutions Inc. were wholesale distributors with comparable functional profiles, that the goodwill impairment had been correctly removed from the operating result used in the analysis, and that the tax authorities had not provided a concrete, economically grounded counter analysis or alternative comparables.
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