Maxilari sells mushrooms imported from Poland to related parties.
Following an audit, the tax authorities concluded that the sale was made at significantly lower prices than the market price. This conclusion was derrived by applying a CUP method where the prices of the mushrooms was compared to commodity prices of similar products.
A complaint was filed by Maxilari with the Administrative Court which later held that the assessment was in accordance with the substantive law – on the basis of the information gathered on wholesale sales of similar goods, the revenue authorities correctly determined the market prices for the sale of such goods, referring to the data provided by the State Commission for Commodity Exchanges and Auctions, whose reply is official, the data relate to a specific geographical area and market conditions identical to those under which the applicant trades, the price indicated is wholesale. On that basis the Court concluded that Maxilari’s appeal was unfounded.
An appeal was then filed by Maxilari with the Supreme Administrative Court.
Judgment of the Supreme Administrative Court
The Supreme Administrative Court set aside the decision of the Administrative Court and ruled in favour of Maxilari.
Excerpts
“This Court does not share his conclusion and finds it unsupported by the facts of the case. It follows from the definition of the comparable uncontrolled price method in Article 18(1) of the Ordinance that this method requires a comparison between the price of a good or service in a controlled transaction and the price of a good or service in a comparable uncontrolled transaction. By definition – §1, item 2 of the Regulation, “uncontrolled transaction” is a transaction made between independent / unrelated / persons. The analysis of the facts of the case leads to the conclusion that in practice the revenue authority has not established such an “uncontrolled transaction” on the basis of which it has made the comparison with the sales prices of the audited company. The information submitted by the State Commission for Commodity Exchanges and Auctions does not contain any data on the type of mushrooms /mushrooms or other cultivated ones/, the importing country, the quantity and quality of the mushrooms, the companies trading in cultivated mushrooms. The absence of such information excludes the possibility of carrying out a comparability analysis as required by Article 6 of the Ordinance.
In the course of the audit, the obliged person has given explanations that he purchases quantities of mushrooms of low quality, with little durability, that he has no costs for transport, storage, etc. /which was also established during the audit/, and therefore sells at such low prices. At the same time, a valuation expertise was appointed in the case /both basic and additional/, and in the additional conclusion, an analysis was made of the market prices at which similar mushrooms imported from Poland were sold by third parties not related to the audited company, which prices did not differ significantly from the prices at which Maxilari Ltd. sold. That expert report was not commented on at all by the Court of First Instance and the expert’s findings are not contradicted by the other evidence in the case. The new documentary evidence submitted with the cassation appeal concerning the market prices should not be discussed in the light of the prohibition of new facts under Article 220 of the Code of Civil Procedure. In addition, the appellant submits that it has submitted evidence of final audit certificates, whereas in fact audit reports of three companies have been submitted and there is no evidence that audit certificates have been issued on the basis of those reports.
In view of the foregoing, it should be held that the revenue authority has not proved with admissible means of evidence the existence of a hypothesis under Article 15 in conjunction with Article 16, paragraph 1 of the Income Tax Act, giving grounds for the financial result of the company to be transformed in accordance with Article 78 of the Income Tax Act and to be determined additional corporate tax liabilities and interest for delay.
By holding otherwise and rejecting the appeal of the company against the contested revision act, the Administrative Court – Varna has rendered an incorrect judgment.“
Click here for English translation
Click here for other translation