“Yogo Food-Distributor” is a subsidiary in the “Yogo Group” and trades in spices and canned meat and vegetables from the territory of the former Yugoslavia. The main sales markets are Austria and Germany (90%), the remainder being distributed among France, Scandinavia, Great Britain and the Benelux countries.
Following an audit the tax authorities issued an assessment of additional taxable income determined by way of a benchmark study into comparable businesses.
Yogo Food Distributor was of the opinion that the benchmark-study did not comply with the OECD guidelines in regards of comparability factors and filed a complaint with the Court.
Judgement of the Court
The contested notices (corporate income tax notices for the years 2010, 2011 and 2012, each dated 13 October 2014) and the preliminary appeal decision (dated 22 September 2017) are annulled pursuant to section 278(1) BAO and the matter is referred back to the tax authority.
“In order to be able to assess the arm’s length nature of these agreements and the payments made on the basis of these agreements, it is necessary to investigate the following issues:
– First, in the sense of a function and risk analysis, it must be determined which assets were used in the context of the complainant’s business activities and which risks it had to bear, in each case in relation to the years in dispute. The contract of 13 December 2002 states that the complainant had “no suppliers/customers or the necessary financial resources”. On the other hand, within the EU, it could provide “warehouse management, logistics, personal customer care, contact with forwarding agents, etc.”. It will “endeavour to explore sales-promoting ideas or identify new products that meet market demand and implement them in agreement with the O-AG”. The O-AG is obliged to “establish the first contact with the customer or to sell the goods on the Western European market”. Financial support is also promised. In payment transactions, the complainant is to act as invoicing party, but all payment flows are to go through O-AG’s accounts.
– There are no findings as to which concrete tasks and activities the complainant actually fulfilled or carried out from 2002 onwards and whether the actual circumstances (the conduct of business, the distribution of tasks between the complainant and O-AG, the contracting parties’ powers and possibilities of disposition) still corresponded in the years in dispute to those at the time of the conclusion of the contract in 2002.
– With regard to the Supplementary Agreement I-2010 of 26 January 2010, it must be determined which of the economic aspects cited (cost increases in sales, unchanged or reduced sales prices, increased customer bonuses) are suitable to justify a change in the amount of the commission for an individual business year in advance in view of the actual economic relations of the contracting parties (business handling, distribution of tasks, powers and possibilities of disposition) between the complainant and O-AG.
– With regard to Supplementary Agreement II-2010 of 26 January 2010, it must be determined which “economic circumstances” justify the granting of a lump-sum support contribution and from which an “increased need for marketing activities and listing expenses” results, this again for a single business year in advance.
– With regard to the Supplementary Agreement I-2011 of 29 March 2011, it must be determined, taking into account the results of the functional and risk analysis, to what extent the actual economic circumstances between the complainant and O-AG changed at the time of the conclusion of this agreement compared to those in 2002 (conclusion of the agreement of 13 December 2002). 12.2002), taking into account the wording in the supplementary agreement: “…The complainant thus acts as the successor supplier of Y-Deutschland customers, Y-Deutschland delivers/invoices to the complainant. All expenses/income relating to the change of distribution or the subsequent distribution are for the account/benefit of [the complainant]. O-AG assumes any existing debtor risk at the time of the sales conversion. …” Furthermore, it has to be determined which “imminent additional expenses with regard to marketing activities” are suitable to justify the waiver of the contractually agreed commission “in connection with all sales of the Y-Germany business” and a reduction of the commission (obviously meant – for the remaining sales) for a single business year in advance, this taking into account the complaint’s allegations regarding the take-over of the distribution “of Markte M for the markets Germany, Benelux and France”. In this context, the results of the investigations which led the tax office to qualify these transactions as the “purchase of a distribution area” (preliminary appeal decision) must also be mentioned.
– With regard to the Supplementary Agreement I-2012 of 9 January 2012, it must be determined, taking into account the results of the functional and risk analysis, to what extent the “need for increased sales promotion measures” or a product range expansion for an upcoming business period are suitable to justify a lump sum payment of EUR 250,000 from the complainant.
Insofar as the tax office, based on the results of the investigation, comes to the conclusion that the contractual agreements concluded by the complainant with O-AG stand up to an arm’s length comparison, findings are to be made, based on corresponding investigations and in compliance with the right to be heard of the parties, as to the extent to which the conclusions on the arm’s length nature of the commission amount, which were apparently drawn from the database studies in the administrative files submitted, are still considered viable, taking into account the results of the functional and risk analysis to be carried out and taking into account the objections of the complainant.”