A Kenyan company, Avic International Beijing (EA) Limited, purchased completely knocked-down motor vehicle parts from Avic International Beijing Company Limited (China) and then assembled them into finished products and sold these products to independent buyers. To determine the pricing of the controlled transaction between Avic International Beijing (EA) Limited (Kenya) and Avic International Beijing Company Limited (China), the resale price method had been applied. The tax authorities disagreed with use of the resale price method and instead applied a TNMM which resulted in additional taxable income, and moreover a deemed dividend distribution to which withholding taxes was applied. An appeal was filed by Avic International Beijing (EA) Limited with the Tax Appeal Tribunal. Judgement The tribunal upheld the assessment regarding use of the TNMM, but the calculation of withholding taxes on the deemed dividend distribution was changed due to lack of legal basis for collecting ... Continue to full case

Cummins Car & General had priced goods purchased from a related party for sale to external customers using the CUP method based on prices that had previously agreed between the two parties before they became related parties. An assessment was issued by the tax authorities where the pricing of the goods had instead been determined using the resale price method. According to the tax authorities, the CUP method could not be used as there was a significant time lag between the previously agreed prices and the current controlled transactions. In the assessment, the tax authorities had also adjusted the commission rates in relation to a transaction between unrelated parties. An appeal was lodged with the Tax Appeals Tribunal. Judgement The Tribunal upheld the tax assessment relating to the use of the RPM method instead of the CUP method, but overturned the assessment relating to the ... Continue to full case

The case of Volkswagen Argentina S.A. concerns whether the company’s income for FY 1999 – 2001 had been determined in accordance with the arm’s length principle. For the purposes of its transfer pricing analysis, Volkswagen Argentina (VWA) had included in its profits an extraordinary gain resulting from the waiver of a loan granted by Volkswagen Argentina Holding S.A., and on this basis had concluded that the results were at – or even above – arm’s length. The tax authorities disagreed with the adjustment made to VWA’s profits and found that the company had not been remunerated at arm’s length and an assessment of additional taxable income was issued. An complaint was made to the Tax Court, which ruled in VWA’s favour. The tax authorities then filed an appeal with the Court of Appeal, which was dismissed in December 2019. The case went on to the ... Continue to full case

SA Engie, the holding company of an international group formed from the merger of the Gaz de France and Suez groups and carrying on an active operational activity in the field of energy sales to private and business customers, had, until 2018, a division dedicated to the management of liquefied natural gas (LNG), incorporating SA Engie then called GDF Suez and its American (GDF Suez Gas North America LLC, known as GSGNA) and its Luxembourg subsidiary (GDF Suez LNG Supply SA, known as GSLS), whose business consisted of purchasing, transporting by means of LNG carriers and selling volumes of this resource, based on long-term supply contracts and medium- and long-term sales contracts held by each of the group’s three entities. In addition, in order to manage unforeseen and unpredictable events at the time of deliveries and to dispose of residual volumes, a ‘single voice’ arrangement ... Continue to full case

Heidelberg Italia S.R.L. sold goods at a lower mark-up (4% instead of a more appropriate 10%) to a subsidiary located in an Italian region enjoying certain tax advantages. According to the taxpayer the reduced mark-up served legitimate economic goals and furthermore the Italian transfer pricing rules in Article 110 did not apply to purely domestic transactions. The tax authorities disagreed and issued an assessment where the price of the goods sold to the subsidiary had been adjusted upward to a 10% mark-up. On appeal the court of first instance ruled in favour of Heidelberg and set aside the assessment of the tax authorities. However, this decision was later overturned by the Regional Tax Commission and the case then ended up in the Supreme Court. Judgment The Supreme Court held that the principles embodied in Article 9 TUIR require comparing the transaction to normal market conditions, ... Continue to full case

“MC Parts B.V.”, is part of a multinational group and from its transfer pricing documentation it follows that it has two activities within the group: distributor and support service provider. – “MC Parts B.V.” is a distributor of spare parts and accessories. The parts are supplied by both by group companies and external suppliers. Remuneration for these activities is determined on the basis of turnover (transactional net margin method, 3.1% of operating margin) in accordance with the transfer pricing documentation. – “MC Parts B.V.” performs various activities for a group company 2, including technical services, marketing and logistics. The support activities qualify as “after sales activities”. The remuneration for these activities is determined in accordance with the transfer pricing documentation on the basis of the costs to be allocated to this function, using a profit mark-up (net total cost plus 5%). On the initiative of ... Continue to full case

A public medical university “W” had submitted a request for a written interpretation (binding ruling) to the tax authorities asking whether it was considered a related entity under the Polish arm’s length provisions to a public health care institution it had established. The tax authorities replied in the affirmative. Not satisfied with the ruling, an appeal was filed with the Regional Court, which rejected the binding ruling and concluded that the parties were not related. The tax authorities then appealed to the Supreme Administrative Court. Judgement of the Supreme Administrative Court. The Supreme Administrative Court ruled in favor of the tax authorities and overturned the decision of the Regional Court. Excerpt “It is not possible to agree with the assertion of the Court of First Instance that it is possible to assume a priori that the funds received under the agreement by the SPZOZ do ... Continue to full case

The Second Chamber of the Supreme Court of Brazil issued an interpretation of Normative Instruction SRF n. 243/2002 concerning the legal basis for application of the sixth method – RPL60 – under the Brazilianarm’s length provision contained in art. 18 of Law no. 9430/1996. The Second Champer of the Supreme Court concluded that the interpretation adopted by the Brazilian Federal Revenue Service through Normative Instruction SRF n. 243/2002 did not violate art. 18 of Law n. 9.430/1996. Excerpts “This is a writ of mandamus filed for the purpose of ensuring the right to calculate transfer prices using the PRL method according to the criteria established by art. 18 of Law no. 9430/1996, excluding those contained in SRF Normative Instruction no. 243/2002. The main objective of the transfer pricing methodology is to ensure that taxable events do not escape the state’s taxing power due to the ... Continue to full case

Mayer & Cie is one of the world’s leading suppliers of industrial knitting machines. Following an audit, the tax authorities disallowed a tax deduction of CZK 4,066,097 in FY2014, which Mayer & Cie. had incurred as a result of the disposal of unusable material. According to the tax authorities, the disposal was made on the basis of a controlled transaction in the form of an order from the parent company to cease production of certain knitting machines. Mayer & Cie. appealed to the Regional Court, which ruled in its favour. The court concluded that the Czech arm’s length principle did not apply to the transaction in question, as it did not involve a price agreed between related parties. The tax authorities then appealed to the Supreme Administrative Court. Judgement of the court The Supreme Administrative Court upheld the decision of the Regional Court and ruled ... Continue to full case

Cidiverte S.p.A. is an Italian distributor of video-games. Following an audit, the tax authorities issued Cidiverte S.p.A an assessment of additional income resulting from a reduction of the pricing of costs it had paid to its Italian sister company. Appeals were filed by Cidiverte with the local and regional courts, but the objections were dismissed by reference to a previous judgement of the Supreme Court in Case no. 11949/2012 concerning disallowed costs in the same group. The regional court found that, Cidiverte had failed to prove the existence, pertinence and conformity of the price shown on the invoice with the arm’s length value. A study carried out by Price Waterhouse Coopers on behalf of Cidiverte was considered to be a mere “opinion” and therefore not sufficient evidence to support the deductions in question. An appeal was then filed by Cidiverte with the Supreme Court. Judgement ... Continue to full case

V. sp. z o.o. was part of the E group, in which the parent company was E. S.A.. V.’s principal activity was wholesale of tobacco products. The authority issued an assessment based on finding of irregularities consisting in the company’s overstatement, in its VAT purchase registers and tax returns for the periods indicated, of the net purchase value and input VAT resulting from invoices issued to it by: 1) L. sp. z o.o. and I. sp. z o.o. for marketing services for e-cigarettes, 2) E. S. sp. z o.o. for data processing services, 3) E. S. sp. z o.o. concerning re-invoicing of purchases incurred by E. S. sp. z o.o.. The tax authorities did not find that V. sp. z o.o. was entitled to reduce output tax by the input tax shown on the disputed invoices issued to it by: L. sp. z o.o. and ... Continue to full case

Janssen-Cilag Farmaceutica LTDA filed a request for clarification with the Superior Tribunal de Justica concerning the sixt method – PRL60 – applied in Brazil in the years in question. Accordcing to the the company, there were no legal basis for applying the method. Judgement of the Supreme Court The Court dismissed the complaint. Excerpts “The appellant has failed to demonstrate any omission or contradiction in the judgment, which was expressed in a clear and reasoned manner with regard to the issues relevant to the resolution of the dispute. According to the case law of this Court, “the purpose of a motion for clarification is simply and solely to complete, clarify or correct an omitted, obscure or contradictory decision. They are not intended to adjust the decision to the understanding of the embattled party, nor to accept claims that reflect mere nonconformity, and even less to ... Continue to full case

ESAB CZ was a contract manufacturer for ESAB Europe. The contract set ESAB CZ’s target profit margin for 2014 and 2015 at between 2,5 % and 3,5 %, with an adjustment to 3 % if the actual profit margin achieved was outside that range. Those values were determined on the basis of a benchmarking analysis which produced a minimum profit margin of 0,41 % and an interquartile range of profit margins between 2,14 % and 5,17 %. The benchmarking analysis were not disputed, but the tax authorities held that the cost base on which the markup was calculated should have included annual amortisations/depreciations. ESAB CZ disagreed and filed a complaint with the Regional Court. Judgement of the Court The court ruled in favour of the tax authorities. Excerpts “51. Furthermore, it should be emphasised that the applicant has not demonstrated that the asset allowance does ... Continue to full case

Autocentro Pavese S.R.L., a company engaged in the purchase and sale of cars, had rented a showroom to another company with the same shareholding structure and director for a fee of only 5,000 euro per year. Following a tax audit an assessment of additional taxes was issued. The audit had resulted in several findings, one of which concerned the failure to issue invoices in accordance with market prices for renting of showrooms. The Court of Appeal upheld the assessment and an appeal was then lodged by Autocentro Pavese S.R.L. with the Supreme Court. Judgement of the Supreme Court The Supreme Court upheld the judgement and dismissed the appeal of Autocentro Pavese S.R.L. “On the subject of the determination of business income, the deviation from the “normal value” of the transaction price pursuant to Article 9 of Presidential Decree No. 917 of 1986 may in fact ... Continue to full case

Innodis granted loans to five wholly-owned subsidiaries between 2002 and 2004. The loans were unsecured, interest-free and had a grace period of one year. The subsidiaries to which the loans were granted were either start-up companies with no assets or companies in financial difficulties. The tax authorities (MRA) had carried out an assessment of the tax liability of Innodis Ltd for the assessment years 2002 – 2003 and 2003 – 2004. In the course of the assessment, a number of items were added to the taxable income, including income from interest-free loans to subsidiaries and overseas passage allowances to eligible employees, which had been earmarked but not paid. The tax authorities took the view that the grant of the interest-free loans was not on arm’s length terms as required by section 75 of the Income Tax Act 1995 (ITA) and was clearly preferential treatment of ... Continue to full case

Arditi S.p.A. is an Italian group in the lighting industry. It has a subsidiary in Hong Kong which in turn holds the shares in a Chinese subsidiary where products are manufactured. Following an audit the tax authorities held that the entities in Hong Kong and China had used the trademark owned by the Italian parent without paying royalties, and on the basis of the arm’s length principle a 5% royalty was added to the taxable income of Arditi S.p.A. Arditi appealed against this assessment alleging that it had never received any remuneration for the use of its trademark by the subsidiary, and in any case that the tax authorities had not determined the royalty in accordance with the arm’s length principle. The Court of first instance upheld the appeal of Arditi and set aside the assessment. An appeal was then filed by the tax authorities ... Continue to full case

Prinoth S.p.A. is an Italian manufacturer of snow groomers and tracked vehicles. For a number of years the parent company had been suffering losses while the distribution subsidiaries in the group had substantial profits. Following an audit the tax authorities concluded that the transfer prices applied between the parent company and the distributors in the group had been incorrect. An assessment was issued where the transfer pricing method applied by the group (cost +) was rejected and replaced with a CUP/RPM approach based on the pricing applied when selling to independent distributors. An appeal was filed by Prinoth S.p.A. which was rejected by the Court of first instance. The Court considered “the assessment based on the price comparison method to be well-founded, from which it emerged that in the three-year period from 2006 to 2008 the company had sold to its subsidiaries with a constant ... Continue to full case

The customs value declared by “Import GmbH” of the goods imported from related parties X, Y and Z was in dispute. In the course of a customs audit, the customs office (Hauptzollamt, HZA) found that Y had invoiced “Import GmbH” for subsequent debit amounts of EUR (…) for 2015, EUR (…) for 2016 and EUR (…) for 2017. These were based on a Distribution Agreement of (…) concluded between “Import GmbH” and Y, according to which “Import GmbH” undertook to purchase products from the latter and to sell them in the defined distribution area. With the 1st Supplementary Agreement of (…), supplies from affiliated companies of the group company were also included in this agreement and thus, inter alia, also the supplies from Z. With the second supplementary agreement of the same date, it was stipulated that “Import GmbH” should receive an “agreed margin” which ... Continue to full case

H-Customs GmbH – the applicant and appellant – is a subsidiary of H, Japan. In the period at issue, from 17 October 2009 to 30 September 2010, H-Customs GmbH imported more than 1,000 consignments of various goods from H, which it had cleared for free circulation under customs and tax law at the defendant HZA (Hauptzollamt – German Customs Authorities). H-Customs GmbH declared the prices invoiced to it by H Japan as the customs value. Some of the imported articles were duty-free; for the articles that were not duty-free, the HZA imposed customs duties of between 1.4 % and 6.7 % by means of import duty notices. In 2012, H-Customs GmbH applied to the HZA for a refund of customs duties for the goods imported during the period at issue in the total amount of… €. It referred to an Advance Pricing Agreement (APA) concluded ... Continue to full case

In 2014 a profit transfer agreement was effectively concluded between the plaintiff, C GmbH (controlled company), and its sole shareholder A. The profits to be transferred and interest to be paid for the disputed years 2009-2011 were subsequently booked to a “liabilities to shareholders” clearing account, but counterclaims or lump sum payments were not booked. The tax Authorities did not recognize the profit transfer agreement for 2009-2011 on the grounds that the agreement had not actually been implemented before 2014. Merely posting a liability to the clearing account is not sufficient. An appeal was filed by C GmbH. Judgement of the FG The FG dismissed the appeal. The court agreed with the tax authorities and concluded that the 2014 profit transfer agreement had not actually been carried out for 2009-2011. Click here for English translation Click here for other translation ... Continue to full case