In 2009 Facebook entered a cost-sharing arrangement, under which the US parent company granted its Irish affiliate the right to use its platform, user base, advertising relationships, and other marketing intangibles in all territories outside the US and Canada. Facebook valued those assets at $6.3 billion, arguing that Ireland’s ongoing share of research costs should be calculated from this figure. The Internal Revenue Service disagreed, asserting that the correct method for valuing the transfer was the ‘income method’. Using its own forecasts, discount rate and licensing benchmark, the IRS concluded that the US assets were actually worth $19.9 billion. Facebook challenged both the figures and the regulations. The company argued that, since both parties had contributed ‘non-routine’ intangibles, the income method was inappropriate. Even if that method had been applicable, Facebook claimed that the IRS had used inflated revenue projections and an unjustified risk premium ... Continue to full case

Alcoa of Australia Ltd. is engaged in mining and sold smelter-grade alumina to an unrelated party, Aluminium Bahrain B.S.C., under long-term contracts. [Australia’s transfer pricing legislation is applicable if an Australian entity gets a tax benefit in Australia from non-arm’s length cross-border conditions, regardless of whether the parties are related to one another. There are no control or ownership thresholds for the legislation to apply. This ensures that independent parties engaging in, for example, collusive behavior or other practices where they are not dealing exclusively in their own economic interests will not circumvent the rules by reason of their non-association.] Following an audit in which the arm’s-length pricing of the transactions was tested using the CUP method, the tax authorities concluded that Alcoa had not received an arm’s-length consideration for its sale of alumina. According to the tax authorities, it had undercharged Aluminium Bahrain B.S.C. by ... Continue to full case

The dispute concerned various expenses deducted in ΧΑΜΙΩ ΑΒΕΕ’s declared taxable profits for 2013. The tax authority had disallowed several of these, the most substantial being fees for “management services” allegedly rendered under intra-group agreements. The Administrative Court of Appeal upheld the assessment, leading ΧΑΜΙΩ ΑΒΕΕ to file an appeal with the Supreme Administrative Court. In its appeal, the company argued that the tax authority had failed to demonstrate that the disputed expenses were unproductive and that the court had unlawfully shifted the burden of proof to the taxpayer, particularly concerning the management service fees. Judgment The Supreme Administrative Court rejected the appeal and upheld the judgment of the lower court. It ruled that the burden of proving the deductibility and productive purpose of the expenses rested with the taxpayer. In the Court’s view, the invoices and related contracts for the management services lacked adequate ... Continue to full case

“Airline S.A.” claimed various expenses as deductible payments for intra-group services, arguing that these costs were essential and necessary within the corporate group. However, the tax authorities determined that “Airline S.A.” had not provided sufficient documentation to demonstrate that the services were actually rendered. “Airline S.A.” appealed to the Tax Court, contending that under transfer pricing principles—specifically the OECD Guidelines for Intra-Group Services—the key questions should be whether the services were indeed provided and whether the charges were at arm’s length. Judgment The Tax Court dismissed the appeal and ruled in favor of the tax authorities. The Court held that the central issue was not compliance with transfer pricing rules, but rather the absence of concrete evidence that the claimed expenses were actually incurred. To qualify as deductible, taxpayers must substantiate that the transactions took place and provide reliable documentation proving both the provision of ... Continue to full case

In FY 2013, Stefanutti Stocks Kenya Limited, a Kenyan subsidiary of a South African company, had deducted salary costs amounting to Kshs 46,391,512.00 in respect of expatriates provided by its South African affiliated company due to lack of local resources. According to the tax authorities, the salary costs were not sufficiently substantiated to qualify as expenses wholly and exclusively incurred in the production of income and, on this basis, disallowed deductions for the reported costs. On appeal, the Tax Appeal Tribunal initially upheld the position of the tax authorities in a 2021 decision. However, Stefanutti Stocks Kenya Limited appealed to the High Court, which ruled in 2023 that the Tribunal had failed to determine whether the salary expenses were allowable under section 15. The High Court remitted the matter back to the Tribunal to deal specifically with this issue. Judgment of the Tribunal On re-examination ... Continue to full case

The dispute concerns whether Íslenska kalkþörungafélagið ehf., a local Icelandic producer of calcareous algae, properly determined its transfer prices when selling its production to its Irish parent company in the years 2016 – 2020. According to the Icelandic tax authorities, the company’s cost-plus method did not comply with the OECD transfer pricing guidelines. In particular, the authorities concluded that the company had incorrectly determined its cost base by excluding both payroll expenses and depreciation of fixed assets, thereby understating actual costs and reducing taxable income in Iceland. The authorities also found that the transfer pricing documentation submitted by Íslenska kalkþörungafélagið ehf. was insufficient. Íslenska kalkþörungafélagið ehf. argued that it correctly applied the cost-plus method by focusing only on “variable” costs and claimed that adding such fixed costs would make its exports uncompetitive and that much of the group’s value was created by the parent company’s ... Continue to full case

Fibusa SAS is a holding company with investments in four Romanian subsidiaries involved in the development of wind power stations in Romania. Between 2011 and 2014, Fibusa granted these subsidiaries interest-free loans, each with a term of less than one year, renewable on the same terms and repayable at any time. The total loan amounts were nearly €26 million in 2011, over €33 million in 2012, and more than €35.5 million across 2013 and 2014. These loans were primarily financed through borrowings undertaken by Fibusa, with interest expenses amounting to €2,086,730 for the year ending 2013 and €2,385,774 for 2014. Following a tax audit, the authorities assessed additional corporate income tax and corresponding penalties for the years 2011 to 2014, treating the absence of interest on the loans as indirect distribution of profits abroad. Fibusa challenged the assessment, but its complaint was rejected by the ... Continue to full case

The case concerns a number of expenses claimed by “Airline S.A.” as deductible payments for intra-group services, in particular aircraft leasing and related costs, which the company argued should be deductible under the transfer pricing rules. “Airline S.A.” claimed that these costs were essential and necessary expenses within an airline group, emphasizing that it is common for one member of the group – usually the one with the stronger financial capacity – to contract services with third parties and then sublease or subcontract them to related entities. According to the company, this arrangement reflects common practices in the airline industry, where expenses such as aircraft rentals, turbine maintenance, line maintenance, and software costs are often handled centrally and then passed on to operating subsidiaries. The tax authority’s audit did not dispute the general practice of intra-group services or their business logic; rather, the authority concluded ... Continue to full case

“DCF AG” had acquired 52.99% of the shares in a Turkish company from a related party for a purchase price of EUR 116,599,677. The Austrian tax authority believed the agreed price was not at arm’s length, pointing to a significantly lower price paid by a Turkish buyer for a 15% share shortly beforehand and alleging that the taxpayer should have realized the valuation was excessive. In its defence “DCF AG” relied on two independent valuation reports that used recognized DCF methods, explained why the earlier third-party sale was not a valid comparison, and showed that at the time of purchase there were strong indications the target’s sales and profits would grow. Judgment The Court ruled in favour of “DCF AG”. The Court noted that expert opinions based on recognized valuation standards (in this case, DCF analyses by KPMG Turkey and Deloitte Turkey) confirmed the appropriateness ... Continue to full case

Futaba Czech s.r.o. is a Czech company that has been operating since 2005 as a manufacturer and supplier of components for the automotive industry and is part of the Japanese Futaba group. Futaba had been loss making in FY 2016-2017. Following a transfer pricing audit, the tax authorities found that Futaba had provided “comprehensive production service”, which should have compensated by the group. An assessment was issued based on the TNMM with NCP as Profit Level Indicator. Futaba Czech contested the assessment on several grounds. It argued that no instructions or pricing directives from the parent had been proven; that it in fact bore most business functions, risks and financing decisions; that the tax authorities had wrongly reallocated the functional‐and‐risk profile in a value‐chain analysis (for example assigning research and development 50 percent weight versus only 15 percent to production); that the choice of the ... Continue to full case

The tax authorities considered Minebea to be a contract manufacturer with limited functions within the Valeo group and had issued a TP adjustment where the company’s taxable profit had been determined using the TNMM, IQR and median. Deductions for certain intra-group services (management and technical services) were also denied. Minebea appealed to the Administrative Court, which rejected the appeal, and then Minebea appealed to the Supreme Administrative Court. Judgment of the Court The Supreme Administrative Court dismissed the appeal and upheld the judgment of the Administrative Court and the assessment made by the tax authorities. Click here for English translation Click here for translation ... Continue to full case

Executive Offshore Shipping SDN BHD is active in the chartering of offshore support vessels. It is related to another company, one Eagle High (L) Limited (“EHLL”) located in Labuan – a low tax jurisdiction. EHLL is a ship-owning company. Both companies are part of the same group known as the Executive Offshore Group. EHLL had provided (i) charter hire of vessels and (ii) crew management services to Executive Offshore Shipping for the assessment years 2014 to 2016. In consideration of the services provided by EHLL, Executive Offshore Shipping paid EHLL a cost-plus mark-up of 35% as charter hire and crew management fee. Following an audit, the tax authorities concluded that the comparables and transfer pricing method selected by Executive Offshore Shipping were inappropriate and that the 35% mark-up on the vessel charter hire and crew management fees was not at arm’s length. The Inland Revenue ... Continue to full case

The transaction in question involved intercompany sales between Scania Argentina S.A. and its foreign affiliates. To justify the pricing of these controlled transactions, Scania applied the Transactional Net Margin Method (TNMM), using Return on Total Costs (ROTC) as a profit-level indicator. They also made a comparability adjustment for costs relating to extraordinary idle capacity. However, the tax authorities rejected both the PLI chosen and the comparability adjustments made by Scania. They excluded two comparables from the benchmark study, applying a Return on Capital Employed (ROCE) PLI, and issued an assessment for additional taxes for FY 2003 on this basis. However, on appeal, the Tax Court overturned the decision, ruling that the transfer pricing analysis was reasonable and adequately justified. The court accepted the use of ROTC over ROCE due to the volatility of Argentina’s market in 2000. It also recognised the legitimacy of the adjustment ... Continue to full case

The Administrative Court had annulled an income assessment issued by the tax authorities to Yazaki Bulgaria in FY 2014, 2015 and 2016. An appeal was filed by the tax authorities with the Supreme Administrative Court for annulment of the judgment. In the assessment, the tax authorities had accepted the comparability analysis carried out by Yazaki Bulgaria in respect of transactions relating to the manufacture of automotive products, including the calculated interquartile range of market values established on the basis of data for 25 comparable companies. According to the benchmark study the Net Cost Plus margins of the comparable companies for the three-year period were as follows: 2014 weighted average Net Cost Plus – lower quartile 2.27%, median 4.16% and upper quartile 7.02%; 2015 weighted average Net Cost plus 2015 – lower quartile 1.68%, median 4.31% and top quartile 6.80%; 2016 weighted average Net Cost plus ... Continue to full case

One of the issues in this case was the arm’s length nature of an agency agreement between Costa Crociere and its Brazilian subsidiary, Costa Cruzeiros Agencia Maritima e Turismo Ltda. The tax authorities had reclassified the said agency agreement between Costa Crociere and its Brazilian subsidiary as a loan. According to the tax authorities, the funds transferred under this agreement, amounting to approximately €40 million, were in fact a long-term loan and, on this basis, interest income was added to Costa Crociere’s taxable income on the basis of transfer pricing adjustments using a LIBOR interest rate adjusted for country risk. In the appeal to the Supreme Court, Costa Crociere argued that the tax authority had no right to recharacterise the transaction as a loan and, if permissible, had incorrectly calculated the interest due. Judgment The Supreme Court disagreed that the tax authorities were bound by ... Continue to full case

A Kenyan PE of Siemens Aktiengesellschaft had operated under a transfer pricing policy applying a 3% Net Cost Plus margin, justifying it based on its limited-risk functional profile and minimal exposure to entrepreneurial risks. Siemens Germany, as the main contracting entity and the project’s entrepreneur, bore the risk and assumed losses following the insolvency of consortium partner Isolux. The tax authorities disagreed with the 3% margin and applied a median Net Cost Plus margin of 6.94%, derived from a benchmarking study of comparable European engineering and project management companies, citing that the PE’s actual returns were negative and thus outside the arm’s length range. An appeal was filed by Siemens with the Tax Appeals Tribunal. Judgment The Tribunal dismissed the appeal by Siemens AG’s Kenyan Permanent Establishment, upholding the tax authorities assessments on corporation tax, withholding tax (WHT), and PAYE. The Tribunal found that the ... Continue to full case

The Revenue raised an additional assessment on gain received from the transfer of technical know-how by Keysight Technologies to Agilent Technologies International for the amount of RM821,615,000.00 being income under section 4(f) of the Income Tax Act 1967 (ITA 1967) together with the penalty under section 113(2) ITA 1967. The Revenue contended that subsection 91(3) of the ITA 1967 provided that the Revenue may issue an assessment after the expiration of the time period of 5 years on grounds of fraud or willful default or negligence. The findings of negligence on the part of Keysight Technologies include failure to support the claim that the gain from the transfer of technical knowhow (i.e. the marketing and manufacturing intangibles) by Keysight Technologies to Agilent Technologies International was an outright sale and failure to furnish the document and information as requested by the Revenue in the audit letter ... Continue to full case

A Czech subsidiary, ELI LILLY ČR, s.r.o., had deducted costs purportedly relating to marketing services it had provided to a group company in Switzerland, Eli Lilly Export S.A. The costs were of a nature that would normally not be deductible for tax purposes. Following an audit, the tax authorities disallowed the tax deductibility of the costs in question on the basis that the company had failed to demonstrate a direct relationship between the costs and the income. An appeal was lodged by ELI LILLY ČR, in which the company argued that the costs were directly related to the income, since the income from the services had been determined under the arm’s length principle using the cost-plus method. Judgment of the Court The Court dismissed the appeal and ruled in favour of the tax authorities. Excerpt in English “55. The Supreme Administrative Court thus concluded in ... Continue to full case

The Alstom Group is active in the transportation sector where it produces trains, metros, services, infrastructure, signalling etc. Following an audit, the French tax authorities found that Alstrom Transport SA had deducted costs that it was not contractually obliged to assume. In addition, the tax authorities found that services provided by Alstrom Transport SA to related parties – at costs – under a cost-sharing agreement had not been priced at arm’s length and applied a mark-up of 5%. Alstom appealed to the Administrative Court and subsequently to the Administrative Court of Appeal. Judgment The Administrative Court of Appeal ruled partly in favour of Alstom and partly in favour of the tax authorities. According to the court, the tax authorities were right to deny the deduction of costs related to a contract entered into by another related party in 2008. However, the court sided with Alstrom with ... Continue to full case

A tax assessment had been issued to J – G Retalho, SGPS, S.A., regarding an arrangement whereby ownership to intangibles had been transferred to an related party in Switzerland and subsequent royalty payments for use of the intangibles had been deducted in the taxable income. “With regard to the costs of royalties paid by the controlled companies F… and P… to the Swiss entity – J… – with which they are in a situation of special relations, as defined in article 58.4 of the IRC Code, it was found that the costs of royalties were not recognised. In the course of the general external inspections carried out on the accounts of each of these companies, it was concluded that the costs in question derive respectively from a contract for the use of the F… brand, sold to that entity for a period of no less ... Continue to full case