Bulgaria vs Montupet, January 2021, Supreme Administrative Court, Case No 630

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Montupet EOOD is a Bulgarian subsidiary in the French Montupet Group which specializes in the production of aluminum components for the automotive industry.

In February 2016, the French Group became part of the Canadian LINAMAR Group, which specializes in the manufacture and assembly of components for the automotive industry. The French group and its production facilities (plants in France, Bulgaria, Northern Ireland, Mexico and Spain) retained their core business as part of one of LINAMAR’s five main business areas – light metal casting.

Effective 01.01.2017, Montupet SAS and Montupet EOOD entered into a Services Agreement, which canceled a previous agreement of 21.12.2009 in the part concerning the corporate and management services provided. Pursuant to the new agreement, Montupet SAS undertakes to provide Montupet EOOD with business advisory services in various areas such as business strategy and development advice; financial strategy advice; legal advice; human resources strategy advice; pricing advice and price negotiations with global customers; supply chain management assistance and advice; marketing strategy advice; engineering and methods assistance and advice; technical advice; customer contact development. According to the new contract, the pricing mechanism for the services is based on a cost allocation key for the services provided.

The revenue authority formed the conclusion that the majority of the services provided by the French company after 01.01.2017 were of a general administrative nature and did not differ significantly in their nature and/or volumes from the services provided to Montupet EOOD under the previous agreement of 21.12.2009. On the basis of the evidence available, no specific additional benefits for the Bulgarian company resulting from the services received in 2017 an going forward could be identified. Furthermore some of the services were not related to the activities of Montupet EOOD, but instead categorized as “shareholder activities” carried out wholly for the benefit of the parent company or other members of the group, which should not be recognised as intra-group services.
The tax authorities also disregarded the evidence submitted concerning the market nature of the price of the services in question. An assessment was issued where the deductions for payments under the new service contract had been adjusted based on the arm’s length provisions.

Montupet filed an appeal with the Administrative court which was dismissed.

An appeal was then filed with the Supreme Administrative Court

Judgement of the Supreme Administrative Court

The Supreme Administrative Court set aside the decision of the Administrative Court.

Excerpts

“In the light of the evidence in the case, it is established that the performance of services was agreed between Montupet SAS and Montupet EOOD The NRA Transfer Pricing Manual (fiche 12) states that intra-group services in practice refers to the centralisation of a number of administrative and management services in a single company (often the parent company), which serves the activities of all or a number of enterprises of a group of related parties selected on a regional or functional basis. The provision of such services is common in multinational companies. The concept of intra-group services covers services provided between members of the same group, in particular technical, administrative, financial, logistical, human resource management (HRM) and any other services. According to paragraph 7.5 of the OECD Transfer Pricing Manual for Multinational Enterprises and Tax Administrations (the “OECD Manual”), the analysis of intra-group services involves the examination of two key questions: 1/ whether the intra-group services are actually performed and 2/ what the remuneration within the group for those services should be for tax purposes. Paragraph 7.6 of the OECD Guidance states that, under the arm’s length principle, whether an intra-group service is effectively performed where an activity is carried out for one or more group members by another group member will depend on whether the activity provides the group member concerned with an economic or commercial benefit to improve its trading position. This can be determined by analysing whether an independent undertaking on comparable terms would have been willing to pay for the activity if it had been carried out for it by an independent undertaking or whether it would only have carried it out with its own funds.
In the instant case, it is apparent from the reasoning of the opinion rendered by the revenue authorities and the ultimate conclusion of the trial court that part of the income paid for the services constituted a disguised distribution of profits within the meaning of § 1(5)(b). “a” of the Tax Code and as such subject to taxation under the Tax Code. However, the contested decision does not set out any specific considerations in this respect, and there is no analysis of the type of services performed, the actual performance of those services, and the manner in which the remuneration for the services was priced. On the other hand, the conclusion of the revenue administration, which is fully accepted by the national court, that part of the income is not taxable under Article 195(1)(b) of the Code of Conduct. 1 of the Income Tax Act, as well as the impossibility of determining the exact amount of the income falling within the scope of Article 12 of the Income Tax Act is unjustified, as it remains unclear what part of the income earned should not be taxed under Article 195(1) of the Income Tax Act. 1 of the Income Tax Act, respectively do not fall within the scope of the DTT. In the course of the administrative appeal, as well as in the course of the court proceedings, the foreign company submitted evidence, including a list of corporate services for 2017, documentation of Linamar’s transfer pricing for fiscal 2017, a cost allocation statement, evidence of specific benefits received in relation to the services provided, as well as a statement of business trips made by employees of other companies in the Montupet Group in the city of Montupet. Ruse for 2017. Thus, the documents listed were not discussed by the first instance court, leaving unclarified the circumstances concerning the actual performance of the intra-group services, their direct and long-term effect and, accordingly, the existence of an economic or commercial benefit for the Bulgarian company, on the one hand, and, on the other hand, the method used to determine the market transfer price for the services performed by Montupet SAS. In that regard, it cannot be accepted that the annual financial results of Montupet EOOD, as discussed by the tax administration and by the court, and the correlation made with the costs of the services rendered, constitute an analysis of whether an independent undertaking under comparable conditions would have been prepared to pay for the activity if it had been carried out for it by an independent undertaking or whether it would have carried it out itself with its own resources. It remains unclear whether, in determining the remuneration for the services within the group, the companies use the methods in accordance with Chapter VIII ‘Special rules for the determination of market prices for services within a group of related parties’ of Ordinance No H-9 of 14 August 2006 on the procedure and methods for applying the methods for determining market prices”

“The failure to consider the arguments of the parties, the evidence in the case and the absence of any findings of fact in the judgment as to the facts relevant to the dispute constitutes a material breach of law and an obstacle to reviewing the lawfulness of the final conclusion of the court of first instance that the opinion appealed against before it is lawful. The judgment should be set aside and the case referred back to a different formation of the court. It should, on the rehearing, consider all the arguments in the revenue authorities’ act, including the qualification of the income in the light of what was agreed and the nature of the service rendered, all the arguments in the company’s appeals, and assess the existence of grounds under Article 136 and Article 136a of the Income Tax Code, certified under Article 137 of the Income Tax Code, and the existence of evidence under Article 138 of the Income Tax Code. If special knowledge is required, the court should, pursuant to Article 171(2) of the Code of Civil Procedure, appoint an expert to answer the disputed questions.

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Решение №630

TP-Guidelines

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