Category: Services and Fees

Management fees are usually payments from subsidiaries for head office services. Management fees have been used to shift income from high tax to low tax jurisdictions. For transfer pricing practitioners it is important to establish the facts and supporting documentation substantiating that management services are actually being performed. The mere description of a payment as a “management fee” should not be expected to be treated as prima facie evidence that such services have been rendered.

Norway vs Eni Norge AS , September 2023, District Court, Case No TSRO-2022-185908

Norway vs Eni Norge AS , September 2023, District Court, Case No TSRO-2022-185908

Eni Norge AS was a wholly owned subsidiary of Eni International B.V., a Dutch company. Both companies were part of the Eni Group, in which the Italian company Eni S.p.A was the HQ. Eni Norway had deducted costs related to the purchase of “technical services” from Eni S.p.A. Following an audit, the tax authorities reduced these deductions pursuant to section 13-1 of the Taxation Act (arm’s length provision). This meant that Eni Norway’s income was increased by NOK 32,673,457 in FY 2015 and NOK 16,752,728 in FY 2016. The tax assessment issued by the tax authorities was later confirmed by a decision of the Petroleum Tax Appeal Board. The Appeals Board considered that there were price deviations between the intra-group hourly rates for technical services and the external hourly rates. The price deviations could be due to errors in the cost base and/or a lack ... Continue to full case
Denmark vs Maersk Oil and Gas A/S (TotalEnergies EP Danmark A/S), September 2023, Supreme Court, Case No BS-15265/2022-HJR and BS-16812/2022-HJR

Denmark vs Maersk Oil and Gas A/S (TotalEnergies EP Danmark A/S), September 2023, Supreme Court, Case No BS-15265/2022-HJR and BS-16812/2022-HJR

Maersk Oil and Gas A/S (later TotalEnergies EP Danmark A/S) continued to make operating losses, although the group’s combined oil and gas operations were highly profitable. Following an audit of Maersk Oil, the tax authorities considered that three items did not comply with the arm’s length principle. Maersk Oil incurred all the expenses for preliminary studies of where oil and gas could be found, but the results of these investigations and discoveries were handed over to the newly established subsidiaries free of charge. Licence agreements were signed with Qatar and Algeria for oil extraction. These agreements were entered into with the subsidiaries as contracting parties, but it was Maersk Oil that guaranteed that the subsidiaries could fulfil their obligations and committed to make the required technology and know-how available. Expert assistance (time writing) was provided to the subsidiaries, but these services were remunerated at cost ... Continue to full case
Czech Republic vs. Stora Enso Wood Products Ždírec s.r.o., August 2023, Supreme Administrative Court, No.  7 Afs 358/2021 - 34

Czech Republic vs. Stora Enso Wood Products Ždírec s.r.o., August 2023, Supreme Administrative Court, No.  7 Afs 358/2021 – 34

Stora Enso Wood Products Ždírec s.r.o. a the Czech subsidiary in the Stora Enso Group, a multinational manufacturer of packaging and building products. In the years in question, Enso Wood Products Ždírec s.r.o. provided manufacturing services to its parent company and made losses. An audit was initiated by the tax authorities focusing on the method of determining transfer prices between related parties as defined in Article 23(7) of the Income Tax Act (which contains the Czech arm’s length principle). On the basis of a functional and risk analysis (in which it examined the extent to which the applicant depended on the decision-making mechanisms of another entity in the group), the tax administration concluded that Stora Enso Wood Products Ždírec s.r.o. did not act as a fully-fledged independent entity in its production and related activities, but as a producer with a limited functional and risk profile, ... Continue to full case
Czech Republic vs. Eli Lilly ČR, s.r.o., August 2023, Supreme Administrative Court, No. 6 Afs 125/2022 - 65

Czech Republic vs. Eli Lilly ČR, s.r.o., August 2023, Supreme Administrative Court, No. 6 Afs 125/2022 – 65

Eli Lilly ČR imports pharmaceutical products purchased from Eli Lilly Export S.A. (Swiss sales and marketing hub) into the Czech Republic and Slovakia and distributes them to local distributors. The arrangement between the Czech company and the Swiss company is based on a Service Contract in which Eli Lilly ČR is named as the service provider to Eli Lilly Export S.A. (the principal). Eli Lilly ČR was selling the products at a lower price than the price it purchased them for from Eli Lilly Export S.A. According to the company this was due to local price controls of pharmaceuticals. However, Eli Lilly ČR was also paid for providing marketing services by the Swiss HQ, which ensured that Eli Lilly ČR was profitable, despite selling the products at a loss. Eli Lilly ČR reported the marketing services as a provision of services with the place of ... Continue to full case
Colombia vs Bavaria S.A., June 2023, Supreme Administrative Court, Case No. 25000-23-37-000-2017-00654-01 (25885)

Colombia vs Bavaria S.A., June 2023, Supreme Administrative Court, Case No. 25000-23-37-000-2017-00654-01 (25885)

Bavaria S.A. is part of the SABMiller group – a multinational brewing and beverage group – and in FY2013 the company had deducted costs related to various intra-group transactions – licences, cost of sales, procurement services, administrative services, technical support, other expenses (reimbursements to related parties), etc. Following an audit, the Colombian tax authorities disallowed the deduction of some of these costs. Deductions for investments in productive assets were also disallowed. This resulted in additional taxable income and an assessment was issued together with a substantial penalty. Judgement of the Supreme Administrative Court The Court partially upheld the assessment and partially annulled it. Excerpts “At this point it is necessary to clarify that, although the Administration alleges the violation of the arm’s length principle, insofar as it considers that no independent third party, in a comparable situation, would have paid the commission under the conditions ... Continue to full case
Spain vs Institute of International Research España S.L., June 2023, Audiencia Nacional, Case No SAN 3426/2023 - ECLI:EN:AN:2023:3426

Spain vs Institute of International Research España S.L., June 2023, Audiencia Nacional, Case No SAN 3426/2023 – ECLI:EN:AN:2023:3426

Institute of International Research España S.L. belongs to the international group Informa Group Brand, of which Informa PLC, a company listed on the London Stock Exchange, is the parent company. In 2006 it had entered into a licence agreement (“for the use of the Licensed Property, Copyright, Additional Property Derived Alwork, the Mark and Name of the Licensor for the sale of Research and Dissemination Services”) under which it paid 6.5% of its gross turnover to a related party in the Netherlands – Institute of International Research BV. Furthermore, in 2007 it also entered into a “Central Support Services Agreement” with its parent Informa PLC according to which it paid cost + 5% for centralised support services: management, finance, accounting, legal, financial, fiscal, audit, human resources, IT, insurance, consultancy and special services. Following an audit, the tax authorities issued assessments of additional income for the ... Continue to full case
Czech Republic vs STOCK Plzeň-Božkov, s. r. o., May 2023, Supreme Administrative Court, Case No 10 Afs 93/2021 - 69

Czech Republic vs STOCK Plzeň-Božkov, s. r. o., May 2023, Supreme Administrative Court, Case No 10 Afs 93/2021 – 69

STOCK Plzeň-Božkov, s. r. o. had deducted costs for production consultancy services, financial services and internal support services allegedly received from related parties. The tax authorities disallowed deduction of the costs for tax purposes on the basis that the evidence provided by STOCK regarding the nature and pricing of the services was insufficient. Judgement of the Supreme Administrative Court The Court ruled in favour of STOCK in relation to the production consultancy services. The tax authority’s requirement that the company document each individual ‘piece of advice’ and quantify the benefits in minute detail was unreasonable. According to the Court, it is sufficient to explain how the production services were provided and what benefits the company derived from them. The Court agreed with the tax authority’s conclusions regarding the financial services. STOCK did not document the conditions of withdrawal or the amount of credit granted to ... Continue to full case
Poland vs R. S.A., March 2023, Supreme Administrative Court, Cases No II FSK 2290/20

Poland vs R. S.A., March 2023, Supreme Administrative Court, Cases No II FSK 2290/20

In its application for an individual interpretation, R. S.A. stated that it distributes fast moving goods in Poland, Lithuania, Latvia and Estonia. It purchases these goods from the company E. based in H. and sells them to independent wholesale distributors and retailers. At the applicant’s request, the Minister of Finance in 2015 issued a decision on a advance price agreement, recognising the correctness of the selection and application of the transactional net margin method in the applicant’s purchase of goods from a related party for further distribution in the Baltic States. In the activities covered by the decision, R. S.A. performs the functions of a distributor with limited risk and limited marketing functions and incurs the associated operating costs, which consist of both its own costs (purchase from group entities of, inter alia, advisory, legal, technical, organisational, financial and marketing/sales services) and external costs (including ... Continue to full case
Italy vs Dolce & Gabbana S.R.L., November 2022, Supreme Court, Case no 02599/2023

Italy vs Dolce & Gabbana S.R.L., November 2022, Supreme Court, Case no 02599/2023

Italien fashion group, Dolce & Gabbana s.r.l. (hereinafter DG s.r.l.), the licensee of the Dolce&Gabbana trademark, entered into a sub-licensing agreement with its subsidiary Dolce&Gabbana Industria (hereinafter DG Industria or Industria) whereby the former granted to the latter the right to produce, distribute and sell products bearing the well-known trademark throughout the world and undertook to carry out promotion and marketing activities in return for royalties. DG s.r.l., in order to carry out promotion and marketing activities in the U.S.A., made use of the company Dolce&Gabbana Usa Inc. (hereinafter DG Usa) with contracts in force since 2002; in particular, on March 16, 2005, it entered into a service agreement whereby DG Usa undertook to provide the aforesaid services in return for an annual fee payable by DG s.r.l.; this consideration is determined on the basis of the costs analytically attributable to the provision of the ... Continue to full case
Spain vs "SGGE W T Spanish branch", January 2023, TEAC, Case No Rec. 00/07503/2020/00/00

Spain vs “SGGE W T Spanish branch”, January 2023, TEAC, Case No Rec. 00/07503/2020/00/00

SGGE W T is a Spanish branch of SGG that carries out distribution and marketing activities related to the information technology network products and services. SGG is part of the KF group which “is an international group that provides solutions and services in the Information Technology (IT) sector, starting its activity in . .. as a distributor of access and communications networks”. The group “is the result of several corporate operations, mainly company acquisitions and mergers carried out to increase its share in world markets” and “is mainly organized in three divisions (SGG, QR and …) according to the IT areas (Technology, Integration and Consulting) in which they operate”. Following an audit of FY 2015 and 2016 the tax authorities issued assessments of additional income to the Spanish branch. One of the issues identified was SGGE’s remuneration for its sales and marketing activities. According to ... Continue to full case
India vs Mylan Pharmaceuticals Private, December 2022, Income Tax Appellate Tribunal, ITA No.122/Hyd/2022

India vs Mylan Pharmaceuticals Private, December 2022, Income Tax Appellate Tribunal, ITA No.122/Hyd/2022

Mylan Pharmaceuticals is engaged in the business of trading pharmaceutical products in both domestic and export markets. It also provides business support services and research and development activities to other group companies. Following an audit, the tax authorities issued a notice of assessment which partially disallowed deductions for advertising and promotional expenses for the launch of new products. Mylan appealed to the Principal Commissioner of Income Tax where the assessment was subsequently overturned. The tax authorities then appealed to the Income Tax Appellate Tribunal. Judgement of the ITAT The Income Tax Appellate Tribunal allowed the appeal and set aside the decision of the Commissioner of Income Tax. Excerpts “It has been held in various decisions that for invoking jurisdiction u/s 263 of the I.T. Act, the twin conditions namely, (a) the order is erroneous and (b) the order is prejudicial to the interest of the ... Continue to full case
Czech Republic vs. Eli Lilly ČR, s.r.o., December 2022, Supreme Administrative Court, No. 7 Afs 279/2021 - 65

Czech Republic vs. Eli Lilly ČR, s.r.o., December 2022, Supreme Administrative Court, No. 7 Afs 279/2021 – 65

Eli Lilly ČR imports pharmaceutical products purchased from Eli Lilly Export S.A. (Swiss sales and marketing hub) into the Czech Republic and Slovakia and distributes them to local distributors. The arrangement between the local company and Eli Lilly Export S.A. is based on a Service Contract in which Eli Lilly ČR is named as the service provider to Eli Lilly Export S.A. (the principal). Eli Lilly ČR was selling the products at a lower price than the price it purchased them for from Eli Lilly Export S.A. According to the company this was due to local price controls of pharmaceuticals. At the same time, Eli Lilly ČR was also paid for providing marketing services by the Swiss HQ, which ensured that Eli Lilly ČR was profitable, despite selling the products at a loss. Eli Lilly ČR reported the marketing services as a provision of services ... Continue to full case
Czech Republic vs ANITA B s.r.o., November 2022, Supreme Administrative Court, Case No 4 Afs 381/2021-40

Czech Republic vs ANITA B s.r.o., November 2022, Supreme Administrative Court, Case No 4 Afs 381/2021-40

Following an audit the tax authorities issued an assessment of additional income resulting from an adjustment of the tax deductions related to marketing expenses. According to the tax authorities the price agreed between the related parties for advertising space was excessive and not determined in accordance with the arm’s length principle. ANITA B s.r.o. filed an appeal against the assessment. The Regional Court dismissed the appeal as unfounded by judgment of 26 October 2021, No. 62 Af 70/2019-48. The Court concluded that the tax authorities had established that the price agreed between ANITA B s.r.o. and its supplier (ELAPROMO) differed from the price that would have been agreed between unrelated parties. The Court upheld the method chosen by the tax authorities and concluded that ANITA B s.r.o. had failed to prove that the advertising costs claimed were justified in full. An appeal was then filed ... Continue to full case
Greece vs "Pharma Distributor Ltd.", November 2022, Tax Court, Case No ΔΕΔ 3712/2022

Greece vs “Pharma Distributor Ltd.”, November 2022, Tax Court, Case No ΔΕΔ 3712/2022

Following an audit, the Greek tax authorities determined that the profit of “Pharma Distributor Ltd” for sales and service activities had not been determined in accordance with the arm’s length principle. The tax authorities issued an assessment of additional taxable income, rejecting the resale price method used by “Pharma Distributor Ltd” and instead applying the TNMM. An appeal was filed by “Pharma Distributor Ltd”. Judgement of the Tax Court The Court dismissed the appeal in part and allowed it in part. The tax authorities’ assessment was largely upheld in relation to sales activities, where it was found that the prices charged by “Pharma Distributor Ltd” were outside the interquartile range. In relation to the service activities, the Court found that the remuneration for these activities was within the arm’s length range and therefore annulled the assessment. Excerpts “In the light of the above, as regards ... Continue to full case
Denmark vs. "C-Advisory Business ApS", November 2022, Supreme Court, Case No BS-22176/2021-HJR (SKM2023.8.HR)

Denmark vs. “C-Advisory Business ApS”, November 2022, Supreme Court, Case No BS-22176/2021-HJR (SKM2023.8.HR)

A was the sole owner of “C-Advisory Business ApS” established in Denmark in 2003. The company advised and represented taxpayers in cases related to tax deductions for land improvements to immovable property. A was also the sole owner of a company established in Dubai in 2006. The Dubai company provided services for “C-Advisory Business ApS” in Denmark and a total of DKK 78,785,549 was expensed in FY 2006-2010 relating to the purchase of these services. The Danish tax authorities considered that the payments had not been at arm’s length and reduced the service fees to the Dubai company to DKK 20 million for the income years in question. This resulted in additional taxable income of “C-Advisory Business ApS” in a total amount of DKK 58,5 million. Following an unsuccessful complaint to the Tax Tribunal, “C-Advisory Business ApS” filed an appeal with the regional court where ... Continue to full case
Spain vs "XZ Insurance SA", October 2022, Tribunal Economic-Administrative Central (TEAC), Case No Rec. 00/03631/2020/00/00

Spain vs “XZ Insurance SA”, October 2022, Tribunal Economic-Administrative Central (TEAC), Case No Rec. 00/03631/2020/00/00

“XZ Insurance SA” is the parent company in a group engaged in insurance activities in its various branches, both life and non-life, finance, investment property and services. An audit was conducted for FY 2013-2016 and in 2020 an assessment was issued in relation to both controlled transactions and other transactions. Among outher issued the tax authorities determined that “XZ Insurance SA” did not receive any royalty income from the use of the XZ trademark by to other entities of the group, both domestic and foreign. In the assessment the tax authorities determined the arm’s length royalty percentage for use of the trademarks to be on average ~0,5%. “In order to estimate the market royalty, the first aspect to be studied is the existence of an internal comparable or comparable trademark assignment contracts. And we have already stated that the absence of valid internal and external comparables ... Continue to full case
India vs Akzo Nobel India Pvt Ltd, September 2022, High Court of Delhi, ITA 370/2022

India vs Akzo Nobel India Pvt Ltd, September 2022, High Court of Delhi, ITA 370/2022

The tax authorities had disallowed deductions for purported administrative services paid for by Akzo Nobel India to a group company in Singapore. The Income Tax Appellate Tribunal upheld the assessment in a Judgement issued in February 2022. An appeal was then filed by Akzo Nobel India with the High Court. Judgement of the High Court The High Court dismissed the Appeal of Akzo Nobel India and upheld the judgement of the Income Tax Appellate Tribunal. Excerpt “…this Court finds that all the three authorities below have given concurrent findings of fact that the Appellant had failed to furnish evidence to demonstrate that administrative services were actually rendered by the AE and the assessee had received such services. In fact, the ITAT has noted in the impugned order “….On a specific query made by the Bench to demonstrate the receipt of services from AE through cogent ... Continue to full case
Poland vs "H. LVAS Sp. z oo", September 2022, Administrative Court, Case No I SA / Go 234/22

Poland vs “H. LVAS Sp. z oo”, September 2022, Administrative Court, Case No I SA / Go 234/22

“H. LVAS Sp. z oo” had deducted expenses related to intra-group services in its taxable income. The services had been provided by its German parent company, H. GmbH. The services (supervision and management support, coordination of projects, support in accounting, controlling, IT and personnel) had been classified by the group as low value-added services. Following a inspection, the tax authority issued an assessment where these deductions had been denied resulting in additional taxable income. An appeal was filed by H with the Administrative Court. Judgement of the Administrative Court The Court found that the assessment issued by the tax authorities was incorrect and remanded the case for further considerations. Excerpts “Inaccuracies or incompleteness of documentation, and in particular its absence, may result in the necessity to estimate income (cf. the judgments of the Supreme Administrative Court of 22 October 2014, II FSK 2494/12 and of ... Continue to full case
India vs Sulzer Tech India Pvt Ltd, July 2022, Income Tax Appellate Tribunal, Case No ITAT No 633-MUM-2021

India vs Sulzer Tech India Pvt Ltd, July 2022, Income Tax Appellate Tribunal, Case No ITAT No 633-MUM-2021

Sulzer Tech India Pvt Ltd (the assessee) is in the business of providing design and engineering services. To that end Sulzer Management AG, an associated enterprise provided various IT and support services to Sulzer Tech India. The payment for these services had been determined based on a benchmark study where Sulzer Management AG was chosen as the tested party. The cost plus margin for the selected comparables ranged from 4.08% to 7.08%, with a median of 5.69%, and on that basis the payment to Sulzer Management of Rs. 2,52,49,650, which was equal to cost plus 5%, was considered to be at arm’s length. The tax authorities disagreed and held that Sulzer Tech India at arm’s length would not have paid any amount toward services which are not availed to it and have not benefited its business. Accordingly, an adjustment of additional income of Rs. 2,52,49,650, ... Continue to full case
Spain vs LA REHOS, S.L., July 2022, Supreme Court, Case No 7268/2021, ATS 10616/2022 - ECLI:EN:TS:2022:10616A

Spain vs LA REHOS, S.L., July 2022, Supreme Court, Case No 7268/2021, ATS 10616/2022 – ECLI:EN:TS:2022:10616A

The issue presented before the Spanish Supreme Court is if and how the arm’s length principle apply to the salary of the owner of a consultancy company for personal services provided to an independent company, i.e. if the price agreed for provision of these services to an independent party is a CUP in relation to the salary of the owner. “In order to determine the market value of the services provided by Mr. Primitivo to the company LA REHOS, S.L., is based on the value of the relationship between LA REHOS, S.L. and the third parties from which it obtains the income for the services rendered by Mr. Primitivo with the necessary corrections to obtain the equivalence: those derived from the expenses and costs related to the activity of Mr. Primitivo incurred by or residing in the entity LA REHOS, S. L. and those that ... Continue to full case