Category: Burden of Proof

The legal issue of whether the burden of proof for arm’s length pricing of controlled transactions rests with the tax authorities or the taxpayer.

In most jurisdictions, the tax administration bears the burden of proof both in its own internal dealings with the taxpayer (e.g. assessment and appeals) and in litigation. In some of these countries, the burden of proof can be reversed, allowing the tax administration to estimate taxable income, if the taxpayer is found not to have acted in good faith, for example, by not cooperating or complying with reasonable documentation requests or by filing false or misleading returns. In other countries, the burden of proof rests on the taxpayer.

Australia vs CUB Australia Holding Pty Ltd, September 2021, Federal Court of Australia, Case No FCAFC 171

Australia vs CUB Australia Holding Pty Ltd, September 2021, Federal Court of Australia, Case No FCAFC 171

In this case CUB Australia Holding Pty Ltd appeals a judicial review decision by a judge of the Federal Court. The tax authorities had issued a Notice on 4 March 2020 requesting CUB to provide certain details about documents over which CUB had claimed legal professional privilege (LPP). CUB declined to provide the requested details about the documents in full. The tax authorities then issued a “formal notice” to the taxpayer demanding (under threat of prosecution for non-compliance) the information. CUB argued that the notice was issued (at least partly) for an “improper purpose” and was therefore invalid. According to CUB, evidence showed that the authorities did not seek the information to decide whether to challenge the taxpayer’s claim of legal professional privilege, but instead to determine the claim. Judgement of the Federal Court The court upheld the previous judicial review-decision. The officer that had ... Continue to full case
Malaysia vs Ensco Gerudi Malaysia SDN. BHD., July 2021, Juridical Review, High Court, Case No. WA-25-233-08-2020

Malaysia vs Ensco Gerudi Malaysia SDN. BHD., July 2021, Juridical Review, High Court, Case No. WA-25-233-08-2020

Ensco Gerudi provided offshore drilling services to the petroleum industry in Malaysia, including leasing drilling rigs, to oil and gas operators in Malaysia. In order to provide these services, the Ensco entered into a Master Charter Agreement dated 21.9.2006 (amended on 17.8.2011) (“Master Charter Agreement”) with Ensco Labuan Limited (“ELL”), a third-party contractor, to lease drilling rigs from ELL. Ensco then rents out the drilling rigs to its own customers. As part of the Master Charter Agreement, Ensco agreed to pay ELL a percentage of the applicable day rate that Ensco earns from its drilling contracts with its customers for the drilling rigs. By way of a letter dated 12.10.2018, the tax authorities initiated its audit for FY 2015 to 2017. The tax authorities issued its first audit findings letter on 23.10.2019 where it took the position that the pricing of the leasing transactions between ... Continue to full case
Italy vs TMC Italia SpA, June 2021, Supreme Court, Case No 18436/2021

Italy vs TMC Italia SpA, June 2021, Supreme Court, Case No 18436/2021

TMC Italy SpA is a parent company which provides services and support to the commercial production activities of its affiliated companies based in foreign countries (Spain, Czech Republic, Germany, France, Israel, Brazil, United Kingdom). The costs of providing these intra-group services had been allocated between the related parties based on the number and salary of employees in FY 2008 and 2009. The tax administration issued an assessment where the allocation was instead be based on turnover – due to data supporting better correlation. The Court of first instance held in favour of the tax authorities. This decision was appealed by TMC to the Supreme Court. Judgement of the Court The Court dismissed the appeal of TMC in its entirety and decided in favour of the tax authorities. Excerpts: “CTR considered legitimate and correct the use of the method of allocation of the profits of the ... Continue to full case

Denmark vs. “Advisory business ApS”, June 2021, High Court, Case No SKM2021.335.OLR

The case concerned a Danish company that provided legal services regarding tax deductions for improvements to real estate, etc. In 2006, the owner of the Danish company moved to Y2 city and in the process established a company in Y2 city, which would then provide services to the Danish sister company, including legal advice. The tax authorities had increased the Danish company’s taxable income by an estimated total of approximately DKK 58.4 million, as the tax authorities considered that the company’s transfer pricing documentation was sufficiently deficient, in accordance with Section 3 B(8) of the Tax Control Act, cf. Section 5(3), and that the service agreements were not concluded at arm’s length in breach Danish arm’s length provisions. Judgement of the High Court The tax authorities were entitled to exercise discretion over pricing of the controlled transactions as the transactions had not been priced at ... Continue to full case
Australia vs Glencore, May 2021, High Court, Case No [2021] HCATrans 098

Australia vs Glencore, May 2021, High Court, Case No [2021] HCATrans 098

Glencore Australia (CMPL) sold copper concentrate produced in Australia to its Swiss parent, Glencore International AG (GIAG). The tax authorities found, that the price paid by Glencore International AG to Glencore Australia for the copper concentrate in the relevant years according to a price sharing agreement was less than the price that might reasonably be expected to have been paid in an arm’s length dealing between independent parties. The tax assessment was brought to court by Glencore. The Federal Court of Australia found in favor of Glencore. The ruling of the Federal Court was appealed by the Australian tax authorities. On 6 November 2020, a Full Federal Court in a 3-0 ruling dismissed the appeal of the tax authorities. The tax authorities then submitted a application for special leave to the High Court. This application was dismissed by the Court in a judgement issued 20 ... Continue to full case
Italy vs GI Group S.p.A., May 2021, Supreme Court, Case No 13850/2021

Italy vs GI Group S.p.A., May 2021, Supreme Court, Case No 13850/2021

A non-interest-bearing loan had been granted by GI Group S.p.A., to a related company – Goldfinger Limited – in Hong Kong, in order to acquire a 56% shareholding in the Chinese company Ningbo Gi Human Resources Co. Limited. The Italien tax authorities had issued an assessment, where an interest rate on the loan had been determined and an amount equal to the interest calculated on that basis had been added to the taxable income of GI Group S.p.A. GI Group brought this assessment to the Regional Tax Commission where a decision was rendered setting aside the assessment. This decision was appealed to the Supreme Court by the tax authorities. Judgement of the Supreme Court The Supreme court upheld the appeal of the tax authorities and referred the case back to the Regional Tax Commission. According to the Supreme Court, the decision of the Tax Commission ... Continue to full case
France vs. SARL Cosi Immobilier, April 2021, CAA de LYON, Case No. 19LY00527

France vs. SARL Cosi Immobilier, April 2021, CAA de LYON, Case No. 19LY00527

SARL Cosi Immobilier, is a wholly owned subsidiary of the Swiss company Compagnie de Services Immobiliers SA (Cosi SA). The group is engaged in sale of properties and real estate. Following a tax audit covering the FY 2011 and 2012, an assessment of additional corporate income tax was issued, together with penalties. According to the tax authorities service fees paid by SARL Cosi to its Swiss parent (50% of the the sales commission received) for online marketing of properties and real estates located in France had not been at arm’s length. The company requested the administrative court of Lyon to discharge the assessments, but this request was rejected by the court in a judgement issued 11 December 2018. This decision was then appealed by the company to the Supreme Administrative Court. Judgement of the Supreme Administrative Court The Appeal of Cosi Immobilier was rejected by ... Continue to full case
Italy vs "Fruit old s.a.s", March 2021, Supreme Court, Case No R.G.N. 8952/2013, 2021-25

Italy vs “Fruit old s.a.s”, March 2021, Supreme Court, Case No R.G.N. 8952/2013, 2021-25

Fruit old s.a.s was active in wholesale of fruit and vegetables. In 2003 it purchased products at a price higher than the market price from another company owned by the same partners, Fruit new s.r.l., and resold them at a price lower than the purchase price. Both companies were domiciled in Italy. Following these transactions the entire business of Fruit old s.a.s (premises, employees and customers) was transferred to Fruit new s.r.l. The tax authorities issued an assessment where the price of the transactions had been adjusted, since it was in the taxpayer’s interest to transfer income from the Fruit old s.a.s to Fruit new s.r.l. The company argued that the transactions in question only took place over a short period of three months. It also stated that the pricing of the transactions were motivated by an “intra-group strategy”. Lower courts had ruled in favour ... Continue to full case
France vs. SMAP, March 2021, Administrative Court of Appeal, Case No. 19VE01161

France vs. SMAP, March 2021, Administrative Court of Appeal, Case No. 19VE01161

The French company SMAP carries out activities in the area of advertising management and organisation of trade fairs. Following an audit of the company for FY 2008 to 2011 and assessment was issued where deduction of costs for certain intra group “services” had been denied, resulting in additional value added tax, corporate income tax surcharges, apprenticeship tax and business value added tax. The company held that the tax administration had disregarded fiscal procedures, and that the reality of the services – and deductibility of the costs – cannot be disregarded on mere presumptions. Decision of the Court The Appeal of SARL SMAP was rejected by the Court. “Firstly, the administration notes that by virtue of a Lebanese legislative decree n° 46 of 24th June 1983, companies governed by Lebanese law … carrying out their essential activities outside the national territory are considered as offshore companies ... Continue to full case
France vs Bluestar Silicones France, Feb 2021, Supreme Administrative Court (CAA), Case No 16VE00352

France vs Bluestar Silicones France, Feb 2021, Supreme Administrative Court (CAA), Case No 16VE00352

Bluestar Silicones France (BSF), now Elkem Silicones France SAS (ESF), produces silicones and various products that it sells to other companies belonging to the Bluestar Silicones International group. The company was audited for the financial years 2007 – 2008 and an assessment was issued. According to the tax authorities, the selling prices of the silicone products had been below the arm’s length price and the company had refrained from invoicing of management exepences and cost of secondment of employees . In the course of the proceedings agreement had been reached on the pricing of products. Hence, in dispute before the court was the issue of lacking invoicing of management exepences and cost of secondment of employees for the benefit of the Chinese and Brazilian subsidiaries of the Group. According to the company there had been no hidden transfer of profits; its method of constructing the ... Continue to full case
Spain vs BIOMERIEUX ESPAÑA SA, February 2021, National Court, Case No 2021:416

Spain vs BIOMERIEUX ESPAÑA SA, February 2021, National Court, Case No 2021:416

BIOMERIEUX ESPAÑA SA is active in the business of clinical and biological analysis, production, distribution, training and technical assistance. Likewise, the provision of computer services and, in particular, the computer management of laboratories. Following an audit the tax authorities found that the controlled prices agreed for the acquisition of instruments and consumables between bioMérieux España and its related entities, bioMérieux SA and bioMérieux Inc, did not provided bioMérieux España with an arm’s length return on is controlled activities. A tax assessment was issued for FY 2008 on the basis af a thorough critical analysis of the benchmark study provided by the BIOMERIEUX, and detailed reasoning and analysis in regards to comparability and market developments. Judgement of the National Court The Audiencia Nacional dismissed the appeal of Biomerieux España SA and decided in favour of the tax authorities. Excerpts “As we already reasoned in our SAN ... Continue to full case
Czech Republic vs. STARCOM INTERNATIONAL s.r.o., February 2021, Regional Court , Case No 25Af 18/2019 - 118

Czech Republic vs. STARCOM INTERNATIONAL s.r.o., February 2021, Regional Court , Case No 25Af 18/2019 – 118

A tax assessment had been issued for FY 2013 resulting in additional taxes of to CZK 227,162,210. At first the tax administration disputed that the applicant had purchased 1 TB SSDs for the purpose of earning, maintaining and securing income. It therefore concluded that the Starcom Internatioal had not proved that the conditions for tax deductions were met. On appeal, the tax administrator changed its position and accepted that all the conditions for tax deductions were met, but now instead concluded that Starcom Internatioal was a connected party to its supplier AZ Group Czech s.r.o. It also concluded that the transfer prices had been set mainly for the purpose of reducing the tax base within the meaning of Section 23(7)(b)(5) of the ITA. It was thus for the tax authorities to prove that Starcom Internatioal and AZ Group Czech s.r.o. (‘AZ’) were ‘otherwise connected persons’ ... Continue to full case
Italy vs "Plastic Pipes s.p.a.", January 2021, Supreme Court, Case 230-2021

Italy vs “Plastic Pipes s.p.a.”, January 2021, Supreme Court, Case 230-2021

Plastic Pipes s.p.a. produces and sells flexible plastic pipes, via foreign subsidiaries, to which it supplies the product to be resold to foreign customers and it operates abroad, selling the product directly to customers, also in foreign countries where it has a subsidiary. The tax authorities had issued a notice of assessment for FY 2006 claiming that Plastic Pipes s.p.a. had incurred (and deducted) marketing costs in the interest of its subsidiaries, without recharging their share of the expenses. The Court of first instance set aside the assessment of the tax authorities. Judgement of the Supreme Court. The supreme Court dismissed the appeal of the tax authorities. Excerps “…the burden of proof on the tax authorities is limited to providing evidence of the existence of the intra-group transaction and of the agreement of a consideration lower than the normal market value; the taxpayer who intends ... Continue to full case
Australia vs Glencore, November 2020, Full Federal Court of Australia, Case No FCAFC 187

Australia vs Glencore, November 2020, Full Federal Court of Australia, Case No FCAFC 187

Glencore Australia (CMPL) sold copper concentrate produced in Australia to its Swiss parent, Glencore International AG (GIAG). The tax administration found, that the price paid by Glencore International AG to Glencore Australia for the copper concentrate in the relevant years according to a price sharing agreement was less than the price that might reasonably be expected to have been paid in an arm’s length dealing between independent parties. ‘The amended assessments included in the taxpayer’s assessable income additional amounts of $49,156,382 (2007), $83,228,784 (2008) and $108,675,756 (2009) referable to the consideration which the Commissioner considered would constitute an arm’s length payment for the copper concentrate sold to Glencore International AG in each of the relevant years. The Federal Court of Australia found in favor of Glencore. “Accordingly I find that the taxpayer has established that the prices that CMPL was paid by GIAG for the ... Continue to full case
Denmark vs. ECCO A/S , October 2020, High Court, Case No SKM2020.397.VLR

Denmark vs. ECCO A/S , October 2020, High Court, Case No SKM2020.397.VLR

ECCO A/S is the parent company of a multinational group, whose main activity is the design, development, production and sale of shoes. The group was founded in 1963, and has since gone from being a small Danish shoe manufacturer to being a global player with about 20,000 employees and with sales and production subsidiaries in a large number of countries. ECCO purchased goods from both internal and external producers, and at issue was whether transactions with it’s foreign subsidiaries had been conducted at arm’s length terms. ECCO had prepared two sets of two transfer pricing documentation, both of which were available when the tax authorities issued its assessment. The transfer pricing documentation contained a review of the parent company’s pricing and terms in relation to both internal and external production companies, and a comparability analyzes. The High Court issued a decision in favor of the ... Continue to full case
Chile vs Wallmart Chile S.A, October 2020, Tax Court, Case N° RUC N° 76.042.014K

Chile vs Wallmart Chile S.A, October 2020, Tax Court, Case N° RUC N° 76.042.014K

In 2009, Walmart acquired a majority in Distribución y Servicio D&S S.A., Chile’s leading food retailer. With headquarters in Santiago, Walmart Chile operates several formats including hypermarkets, supermarkets and discount stores. Following an audit by the tax authorities related to FY 2015, deduction of interest payments in the amount of CH$8.958,304,857.- on an “intra-group loan” was denied resulting in a tax payable of Ch$1,786,488,290. According to Wallmart, the interest payments related to debt in the form of future dividend payments/profit distributions. Decision of the Tax court “…this Court concludes that the claimant has not been able to prove the existence of a current account between Inversiones Walmart and Walmart Chile, nor has it been able to prove the appropriateness of the reduction in expenses in the amount of CH$8.958,304,857.- for interest paid to its related company, because it did not justify the need for such ... Continue to full case
Denmark vs. Adecco A/S, June 2020, Supreme Court, Case No SKM2020.303.HR

Denmark vs. Adecco A/S, June 2020, Supreme Court, Case No SKM2020.303.HR

The question in this case was whether royalty payments from a loss making Danish subsidiary Adecco A/S (H1 A/S in the decision) to its Swiss parent company Adecco SA (G1 SA in the decision – an international provider of temporary and permanent employment services active throughout the entire range of sectors in Europe, the Americas, the Middle East and Asia – for use of trademarks and trade names, knowhow, international network intangibles, and business concept were deductible expenses for tax purposes or not. In  2013, the Danish tax authorities (SKAT) had amended Adecco A/S’s taxable income for the years 2006-2009 by a total of DKK 82 million. Adecco A/S submitted that the company’s royalty payments were operating expenses deductible under section 6 (a) of the State Tax Act and that it was entitled to tax deductions for royalty payments of 1.5% of the company’s turnover ... Continue to full case
France vs SAS Groupe Lagasse Europe, January 2020, CCA de VERSAILLES, Case No. 18VE00059 18VE02329

France vs SAS Groupe Lagasse Europe, January 2020, CCA de VERSAILLES, Case No. 18VE00059 18VE02329

A French subsidiary, SAS Groupe Lagasse Europe, of the Canadian Legasse Group had paid service fees to another Canadian group company, Gestion Portland Vimy. The French tax authorities held that the basis for the payments of service fees had not been established, and that there was no benefit to the French subsidiary. The payments constituted an indirect transfer of profits within the meaning of the ‘article 57 of the general tax code; Excerps from the judgement of the Court: “11. Under the terms of article 57 of the general tax code, applicable in matters of corporate tax under article 209 of the same code: “For the establishment of income tax due by the companies which are dependent or have control of companies located outside of France, the profits indirectly transferred to the latter, either by increasing or decreasing the purchase or sale prices, or by ... Continue to full case
Czech Republic vs. AZETKO s.r.o., September 2019, Supreme Court, No. 5 Afs 341/2017 - 47

Czech Republic vs. AZETKO s.r.o., September 2019, Supreme Court, No. 5 Afs 341/2017 – 47

The tax authorities of the Czech Republic issued an assessment of additional income taxes and penalties for FY 2010 and 2011, because AZETKO s.r.o. according to the tax authorities did not receive an arm’s length remuneration for administration and operation of a website and e-shop on behalf on a related party, Quantus Consulting s.r.o. AZETKO disagreed with the assessment and brought the case to court. The regional court ruled in favor of AZETKO, but the tax administration appealed the decision to the Supreme Administrative Court. Judgement of the Supreme Court The Supreme Court found the tax administrations change in pricing method under the appeal of the case unsubstantiated. The tax administration had originally applied the CUP method, but in the appeal proceedings instead used the net margin transaction method (TNMM). On that basis, the appeal was dismissed by the Court. The conditions for application of ... Continue to full case
Australia vs Glencore, September 2019, Federal Court of Australia, Case No FCA 1432

Australia vs Glencore, September 2019, Federal Court of Australia, Case No FCA 1432

Glencore Australia (CMPL) sold copper concentrate produced in Australia to its Swiss parent, Glencore International AG (GIAG). The tax administration found, that the price paid by Glencore International AG to Glencore Australia for the copper concentrate in the relevant years according to a price sharing agreement was less than the price that might reasonably be expected to have been paid in an arm’s length dealing between independent parties. ‘The amended assessments included in the taxpayer’s assessable income additional amounts of $49,156,382 (2007), $83,228,784 (2008) and $108,675,756 (2009) referrable to the consideration which the Commissioner considered would constitute an arm’s length payment for the copper concentrate sold to Glencore International AG in each of the relevant years. The Federal Court of Australia found in favor of Glencore. “Accordingly I find that the taxpayer has established that the prices that CMPL was paid by GIAG for the ... Continue to full case
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