Category: Commodity Transactions

Commodity transactions are transactions involving mining and extraction commodities (oil, gas and minerals) and agricultural commodities (wheat, coffee, cocoa, fruit, sugar, meat etc.). Transfer pricing issues related to commodity transactions are often related to marketing and sales hubs in low tax jurisdictions, eg. use of the Singapore-sling scheme. See also about “the sixth method”.

Ukrain vs PrJSC "Poltava GZK", June 2022, Supreme Court, Case No 440/1053/19

Ukrain vs PrJSC “Poltava GZK”, June 2022, Supreme Court, Case No 440/1053/19

Poltova GZK is a Ukrainian subsidiary of the Ferrexpo group – the world’s third largest exporter of iron ore pellets. In FY 2015 the iron ore mined in Ukraine by Poltava GZK was sold to other companies in the group – Ferrexpo Middle East FZE, and the transfer prices for the ore was determined by application of the CUP method using Platts quotations. However, according to the tax authorities Poltava GZK used Platts quotations for pellets with a lower iron content when pricing the higher quality pellets, resulting in non arm’s length prices for the controlled transactions and lower profits in the Ukraine subsidiary. The tax authorities also found that Poltava GZK had overestimated the cost of freight – in the case of actual transportation of pellets by ships of different classes (“Panamax”, “Capesize”), the adjustment of the delivery conditions was carried out only at ... Continue to full case
Argentina vs Malteria Pampa SA, October 2021, Federal Administrative Court, Case No TF 35123-A

Argentina vs Malteria Pampa SA, October 2021, Federal Administrative Court, Case No TF 35123-A

Malteria Pampa S.A in Argentina exported malt to a related intermediary in Uruguay that in turn sold on the goods to the brewery in Brazil at a higher price. The tax authorities applied the Sixth method and issued an assessment where the export price was determined based on the latter price used in the transaction with the brewery in Brazil. Furthermore a substantial fine was issued to the Malteria Pampa S.A. for non compliance. In February 2019 the Tax Court decided in favour of the tax authorities. “That the factual and legal points considered by the customs verification – corroborated in this pronouncement – complied with the application parameters of the TP rules invoked in the Technical Report, forming a solid conviction that the transactional prices of the sale declared in the field “Merchandise Value” of the PE 07-003-EC01-004994-P and PE N° 07-003- EC01-004995-Z of ... Continue to full case
Colombia vs Carbones El Tesoro S.A., September 2021, Administrative Court, Case No. 22352

Colombia vs Carbones El Tesoro S.A., September 2021, Administrative Court, Case No. 22352

At issue is the selection of the most appropriate transfer pricing method for sale of coal mined by Carbones El Tesoro S.A. in Colombia to its related party abroad, Glencore International AG. Carbones El Tesoro S.A. had determined the transfer price by application of the TNMM method. The tax authorities found that the most appropriate method for pricing the transactions was the CUP method. To that end, the tax authorities applied a database (McCloskey price list) in which the price, was determined by referring to a good similar to that traded (thermal coal) and to the Btus (British Thermal Unit) thereof. On 29 April 2011, the Settlement Management Division of the Barranquilla Regional Tax Directorate issued an assessment by which it modified the income tax return for the taxable year 2007, in the sense of disregarding as a net loss for the year the amount ... Continue to full case
Ukrain vs PJSP Gals-K, July 2021, Supreme Administrative Court, Case No 620/1767/19

Ukrain vs PJSP Gals-K, July 2021, Supreme Administrative Court, Case No 620/1767/19

Ukrainian company “PJSP Gals-K” had been involved in various controlled transactions – complex technological drilling services; sale of crude oil; transfer of fixed assets etc. The tax authority found, that prices had not been determined in accordance with the arm’s length principle and issued a tax assessment. Gals-K disagreed and filed a complaint. The Administrative Court dismissed the tax assessment and this decision was later upheld by the Administrative Court of Appeal. Judgement of the Supreme Administrative Court The Supreme Court set aside the decisions of the Court of Appeal and remanded the case to the court of first instance for a new hearing. The court considered that breaches of procedural and substantive law by both the Court of Appeal and the Court of First Instance have been committed, and the case should therefore be referred to the Court of First Instance for a new ... Continue to full case
Argentina vs Nidera S.A., June 2021, Supreme Court, Case No CAF 38801/2013/CA2-CS2

Argentina vs Nidera S.A., June 2021, Supreme Court, Case No CAF 38801/2013/CA2-CS2

Nidera S.A. exported commodities (cereals, oilseeds etc.) via group traders domiciled on the British Virgin Islands. In the absence of evidence to the contrary, in transactions involving entities domiciled in low-tax jurisdictions, it was presumed that prices had not been agreed in accordance with the arm’s length principle. The tax authorities issued an adjustment by applying the “CUP” method (Sixth method), considering the statistical average prices set as a reference value by the National Secretariat of Agriculture, Livestock and Fisheries, corresponding to the date of shipment (and not to the date of agreement as claimed by the claimant). However adjustments were only made to those transactions where the quoted price was higher than the one agreed by Nidera S.A. An appeal was filed with the National Court by Nidera S.A. In 2016 the National Court of Appeals issud ist decision in the case. The decision ... 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
Canada vs Cameco Corp., February 2021, Supreme Court, Case No 39368.

Canada vs Cameco Corp., February 2021, Supreme Court, Case No 39368.

Cameco, together with its subsidiaries, is a large uranium producer and supplier of the services that convert one form of uranium into another form. Cameco had uranium mines in Saskatchewan and uranium refining and processing (conversion) facilities in Ontario. Cameco also had subsidiaries in the United States that owned uranium mines in the United States. The Canadian Revenue Agency found that transactions between Cameco Corp and the Swiss subsidiary constituted a sham arrangement resulting in improper profit shifting. Hence, a tax assessment was issued for FY 2003, 2005, and 2006. Cameco disagreed with the Agency and brought the case to the Canadian Tax Court. In 2018 the Tax Court ruled in favor of Cameco and dismissed the assessment. This decision was appealed by the tax authorities to the Federal Court of Appeal. The Federal Court of Appeal in 2020 dismissed the appeal and also ruled ... Continue to full case
Ukrain vs PJSC "Azot", January 2021, Supreme Administrative Court, Case No 826/17841/17

Ukrain vs PJSC “Azot”, January 2021, Supreme Administrative Court, Case No 826/17841/17

Azot is a producer of mineral fertilizers and one of the largest industrial groups in Ukraine. Following an audit the tax authorities concluded that Azot’s export of mineral fertilizers to a related party in Switzerland, NF Trading AG, had been priced significantly below the arm’s length price, and moreover that Azot’s import of natural gas from Russia via a related party in Cyprus, Ostchem Holding Limited, had been priced significantly above the arm’s length price. On that basis, an assessment of additional corporate income tax in the amount of 43 million UAH and a decrease in the negative value by 195 million UAH was issued. In a decision from 2019 the Administrative Court ruled in favor of the tax authorities. This decision was then appealed by Azot to the Supreme Administrative Court. The Supreme Administrative Court dismissed the appeal and decided in favor of the ... Continue to full case
Romania vs "GAS distributor" SC A, December 2020, Court of Appeal, Case No 238/12.03.2020

Romania vs “GAS distributor” SC A, December 2020, Court of Appeal, Case No 238/12.03.2020

The disputed issue concerns the purchase prices of natural gas by SC A from an affiliated company SC B. By orders of the National Energy Regulatory Authority (NERA), the prices of supply of natural gas to domestic and non-domestic consumers were regulated and fixed, but not the price at which SC A purchased it from the SC B. The tax authority issued an assessment where the price of the controlled gas transaction was determined by reference to profit level indicators of comparable businesses. SC A brought the decision to the Romanian courts. Judgement of the Court of Appeal The appeal of SC A was dismissed and the assessment of the tax authorities upheld. Excerpt “In the present case, in order to adjust the expenses for the cost of the goods purchased from SC “B.” SRL, based on the level of the central market trend, the ... 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
Mexico vs Majestic Silver Corp, September 2020, Federal Administrative Court, Not published

Mexico vs Majestic Silver Corp, September 2020, Federal Administrative Court, Not published

On 23 September 2020, the Federal Administrative Court in Mexico issued a not yet published decision in a dispute between the Mexican tax authorities (SAT) and Canadian mining group First Majestic Silver Corp’s Mexican subsidiary, Primero Empresa Minera. The court case was filed back in 2015 by the tax authorities, to cancel an Advance Pricing Agreement (APA) issued to Primero Empresa Minera back in 2012. According to the APA, a methodology had been determined allowing the Mexican mining company to sell silver at 4.04 dollars per ounce to a group company based in Barbados (Silver Trading Barbados Ltd) via Luxembourg, when the average market price of silver was above 30 dollars. The APA was applied by Primero Empresa Minera for FY 2010 – 2014. The Federal Court decided in favor of the tax authorities that the APA was invalid and therefore nullified. After receiving the ... Continue to full case
Canada vs Cameco Corp., June 2020, Federal Court of Appeal, Case No 2020 FCA 112.

Canada vs Cameco Corp., June 2020, Federal Court of Appeal, Case No 2020 FCA 112.

Cameco, together with its subsidiaries, is a large uranium producer and supplier of the services that convert one form of uranium into another form. Cameco had uranium mines in Saskatchewan and uranium refining and processing (conversion) facilities in Ontario. Cameco also had subsidiaries in the United States that owned uranium mines in the United States. In 1993, the United States and Russian governments executed an agreement that provided the means by which Russia could sell uranium formerly used in its nuclear arsenal. The net result of this agreement was that a certain quantity of uranium would be offered for sale in the market. Cameco initially attempted to secure this source of uranium on its own but later took the lead in negotiating an agreement for the purchase of this uranium by a consortium of companies. When the final agreement was signed in 1999, Cameco designated ... Continue to full case
Zambia vs Mopani Copper Mines Plc., May 2020, Supreme Court of Zambia, Case No 2017/24

Zambia vs Mopani Copper Mines Plc., May 2020, Supreme Court of Zambia, Case No 2017/24

Following an audit of Mopani Copper Mines Plc. the Zambian Revenue Authority (ZRA) found that the price of copper sold to related party Glencore International AG had been significantly lower than the price of copper sold to third parties. A tax assessment was issued where the ZRA concluded that the internal pricing had not been determined in accordance with the arm’s length principle, and further that one of the main purposes for the mis-pricing had been to reduce tax liabilities. Mopani Copper Mines Plc. first appealed the decision to Zambia’s Tax Appeal Tribunal, and after a decision was handed down by the Tribunal in favor of the ZRA, a new appeal was filed with the Supreme Court. The Supreme Court dismissed Mopani’s appeal and ruled in favor of the ZRA. App-024-2017-Mopani-Copper-Mines-Plc-Vs-Zambia-Revenue-Authority-20th-May-2020-Mambilima-Cj-Malila-And-Mutuna-JJS ... Continue to full case
Australia vs BHP Biliton Limited, March 2020, HIGH COURT OF AUSTRALIA, Case No [2020] HCA 5

Australia vs BHP Biliton Limited, March 2020, HIGH COURT OF AUSTRALIA, Case No [2020] HCA 5

BHP Billiton Ltd, an Australian resident taxpayer, is part of a dual-listed company arrangement (“the DLC Arrangement”) with BHP Billiton Plc (“Plc”). BHP Billiton Marketing AG is a Swiss trading hub in the group which, during the relevant years, was a controlled foreign company (CFC) of BHP Billiton Ltd because BHP Billiton Ltd indirectly held 58 per cent of the shares in the Swiss trading hub. BHP Billiton Plc indirectly held the remaning 42 per cent. The Swiss trading hub purchased commodities from both BHP Billiton Ltd’s Australian subsidiaries and BHP Billiton Plc’s Australian entities and derived income from sale of these commodities into the export market. There was no dispute that BHP Billiton Marketing AG’s income from the sale of commodities purchased from BHP Billiton Ltd’s Australian subsidiaries was “tainted sales income” to be included in the assessable income of BHP Billiton Ltd under ... Continue to full case
Russia vs PJSC Uralkali, November 2019, Supreme Court Review Panel, Case No. А40-29025/2017

Russia vs PJSC Uralkali, November 2019, Supreme Court Review Panel, Case No. А40-29025/2017

PJSC Uralkali, produced and sold fertilizers (“potassium chloride”) through a related Swiss trader. Uralkali had informed the authorities about the controlled transaction and submitted the required TP documentation. To substantiate the pricing of the transaction they had applied the transactional net margin method (TNMM) with the Swiss trader as the tested party. The Russian tax authorities disapproved of the choice of method and the way the method had been applied. They conducted an analysis, using the CUP method, and determined the the prices used in the controlled transaction deviated from price quotations of an independent pricing agency (Argus). Hence a tax assessment was issued. PJSC Uralkali disapproved of the assessment and brought the case to court. The court of first instance supported Uralkali’s position, and argued that the tax authority should have applied the same TP method as the Taxpayer. Failure of the tax authority ... Continue to full case
Ukrain vs Rivneazot, September 2019, Supreme Administrative Court, Case No 817/1737/17

Ukrain vs Rivneazot, September 2019, Supreme Administrative Court, Case No 817/1737/17

The Ukrainian group Rivneazot imports natural gas from – and exports mineral to – foreign related companies. The tax authority carried out an audit and concluded that the controlled prices of these transactions had not been determined in accordance with the arm’s length principle, which had resulted in an understatement of taxable income. Rivneazot disagreed. According to the company the CUP method had correctly been applied to the controlled natural gas import transactions and the TNMM had correctly been applied to the controlled export transactions. In 2018 the Administrative Court decided in favor of Rivneazon and set aside the tax assessment. The court concluded that information provided by the company were sufficient to use the preferred CUP method with a defined market price range for natural gas. The decision was then appealed to the Administrative Court of Appeals. The Court of Appeal upheld the decision ... 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
Russia vs PJSC Uralkali, April 2019, Court of Appeal, Case No. А40-29025/2017

Russia vs PJSC Uralkali, April 2019, Court of Appeal, Case No. А40-29025/2017

PJSC Uralkali, produced and sold fertilizers (“potassium chloride”) through a related Swiss trader. Uralkali had informed the authorities about the controlled transaction and submitted the required TP documentation. To substantiate the pricing of the transaction they had applied the transactional net margin method (TNMM) with the Swiss trader as the tested party. The Russian tax authorities disapproved of the choice of method and the way the method had been applied. They conducted an analysis, using the CUP method, and determined the the prices used in the controlled transaction deviated from price quotations of an independent pricing agency (Argus). Hence a tax assessment was issued. PJSC Uralkali disapproved of the assessment and brought the case to court. The court of first instance supported Uralkali’s position, and argued that the tax authority should have applied the same TP method as the Taxpayer. Failure of the tax authority ... Continue to full case
Russia vs RIF Trading House, April 2019, Moscow City Court, Case No. No. A40-241020/18

Russia vs RIF Trading House, April 2019, Moscow City Court, Case No. No. A40-241020/18

In 2014, RIF Trading House sourced and bought agricultural products in Russia – wheat, barley, corn and peas. These products were then exported to a trader in the UAE, which turned out to be related to RIF Trading House. However, RIF Trading House had not provide information on the relationship, nor the required transfer pricing documentation on the controlled transactions. Following an audit, the Russian Federal Tax Service came to the conclusion that the export prices had been lowered in the supply of products to the trader in UAE. The Russian Federal Tax Service independently conducted a transfer pricing analysis – functional analysis, analyzed the market, commodity exchange prices (Platts, ICAR) etc., and then issued a tax assessment where combinations of pricing methods and adjustments had been applied to determine the pricing of the controlled transactions and thus the income of RIF Trading House. Disagreeing ... Continue to full case
Ukrain vs PJSC "Azot", March 2019, Administrative Court of Appeal, Case No 826/17841/17

Ukrain vs PJSC “Azot”, March 2019, Administrative Court of Appeal, Case No 826/17841/17

Azot is a producer of mineral fertilizers and one of the largest industrial groups in Ukraine. Following an audit the tax authorities concluded that Azot’s export of mineral fertilizers to a related party in Switzerland, NF Trading AG, had been priced significantly below the arm’s length price, and moreover that Azot’s import of natural gas from Russia via a related party in Cyprus, Ostchem Holding Limited, had been priced significantly above the arm’s length price. On that basis, an assessment of additional corporate income tax in the amount of 43 million UAH and a decrease in the negative value by 195 million UAH was issued. The Court ruled in favor of the tax authorities. Click here for translation UK v Az 2019 ... Continue to full case
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