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.

Sweden vs Absolut Company AB, June 2019, Supreme Administrative Court, Case no 1913-18

Sweden vs Absolut Company AB, June 2019, Supreme Administrative Court, Case no 1913-18

The Absolut Company AB had been issued an assessment of additional taxable income of SEK 247 mio. The assessment was based on the position that (1) The Absolut Company AB had been selling below the arm’s length price to an US group company – The Absolut Spirit Company Inc. (ASCI), and (2) that acquired distribution services from ASCI that had been priced above the arm’s length price. In 2018 the Swedish Administrative Court of Appeal ruled in favor of the tax administration. The Swedish Supreme Administrative Court has now ruled in favor of The Absolute Company AB. According to the Supreme Administrative Court the Swedish Tax Agency did not fulfill the burden of proof. The Supreme Administrative Court further states that the full range of results in the benchmark study could be applied and that a multiple year analysis of the tested party data can be used ... Continue to full case
Switzerland vs R&D Pharma, December 2018, Tribunal fédéral suisse, 2C_11/2018

Switzerland vs R&D Pharma, December 2018, Tribunal fédéral suisse, 2C_11/2018

The Swiss company X SA (hereinafter: the Company or the Appellant), is part of the multinational pharmaceutical group X, whose parent holding is X BV (hereinafter referred to as the parent company) in Netherlands, which company owns ten subsidiaries, including the Company and company X France SAS (hereinafter: the French company). According to the appendices to the accounts, the parent company did not employ any employees in 2006 or in 2007, on the basis of a full-time employment contract. In 2010 and 2011, an average of three employees worked for this company. By agreement of July 5, 2006, the French company undertook to carry out all the works and studies requested by the parent company for a fee calculated on the basis of their cost, plus a margin of 15%. The French company had to communicate to the parent company any discoveries or results relating ... Continue to full case
Wheaton Precious Metals Reaches Settlement on Canadian Tax Dispute Regarding Foreign Income

Wheaton Precious Metals Reaches Settlement on Canadian Tax Dispute Regarding Foreign Income

Wheaton Precious Metals Corp. has reached a settlement with the Canada Revenue Agency which provides for a final resolution of Wheaton’s tax appeal in connection with the reassessment under transfer pricing rules of the 2005 to 2010 taxation years related to income generated by the Company’s wholly-owned foreign subsidiaries, Wheaton International, outside of Canada. Wheaton is the leading company in the precious metals streaming business, essentially providing up-front financing to mining companies looking to build mines. In return, it earns the right to buy silver and gold output from those mines at a heavily discounted price, which it sells on for a profit. When Wheaton earns money from mines outside Canada, income is reported through foreign subsidiaries and Wheaton does not pay tax on it in Canada. The CRA essentially thinks this is tax avoidance, and earnings should be taxed according to transfer pricing rules ... Continue to full case
Finland vs Loss Corp, December 2017, Administrative Court, Case no 17/0979/4

Finland vs Loss Corp, December 2017, Administrative Court, Case no 17/0979/4

The Finnish tax authorities had made a transfer pricing adjustment to a Finnish marketing and sales subsidiary with continuous losses. The tax authorities had identified a “hidden” services transaction between the Finnish subsidiary and an unidentified foreign group company. The Administrative Court ruled in favor of the tax authorities. The adjustment was not considered by the Court as a recharacterisation. Reference was made to TPG 2010, paragraphs 1.34, 1.42 to 1.49, 1.64, 1.65 and 1.70 to 1.72 Click here for translation Finland vs Loss Corp 29 December 2017 Administrative Court 17-0979-4 Share: ... Continue to full case
Finland vs Corp, September 2017, HFD:2017:145

Finland vs Corp, September 2017, HFD:2017:145

Ruling by the Finnish Supreme Administrative Court on enterprise resource planning and intra-group services arrangements. A Oyj had provided its subsidiaries with supply chain services, marketing and brand management services as well as personnel and computer services. The services offered by A Plc mainly consisted in the coordination and harmonization of the Group’s operations. A’s turnover consisted almost exclusively of the service fees received from the sale of these administrative services. As a service charge, A Oyj had charged the amount of the costs incurred in producing the services without the amount of the bonus. On the basis of the tax audit findings, the Tax Administration has added to the taxed income of A plc with ex post taxation and tax corrections to the detriment of the taxpayer the sums equivalent to seven percent payables. The amount of the bonus was established on the basis ... Continue to full case
Finland vs Corp, Sep. 2017, HFD No. 2017-146

Finland vs Corp, Sep. 2017, HFD No. 2017-146

/ Comparables, Services and Fees
Ruling by the Finnish Supreme Administrative Court on a service provider’s obligation to add a mark-up on its costs when calculating an arm’s length service charge. A Plc had provided services to it’s subsidiaryes related to supply chains, marketing and product brand management services, and human resource management services and adb services. Most of A Plc’s income consisted of these service. The amount invoiced corresponded to the servide “production cost”. No mark-up had been added. The tax administration had set a 7% mark-up determined on the basis on a search of comparative companies. The Supreme Administrative Court considered that, in order for A Plc’s service charges to be in accordance with the arm’s length principle, a profit margin should be added. However, the mark-up on the service charges should not have been determined on the basis of the level of profits in third-party comparables. Services ... Continue to full case

Korea vs Semiconductor Corp, August 2017, Korean Court, Case No 2015-중-2770

/ Services and Fees
TP case – Korea vs Semiconductor Corp, August 2017 Click here for English translation Korea-2015-2770-2017-08-21 Share: ... Continue to full case
New Zealand vs Honk Land Trustee Limited, 10 March 2017, Court of Appeal

New Zealand vs Honk Land Trustee Limited, 10 March 2017, Court of Appeal

The Court of Appeal upheld decisions of the High Court confirming the Commissioner of Inland Revenue’s disallowance of a $1,116,000 management fee for income tax purposes. The Court of Appeal dismissed Honk Land Trustees Limited’s (“HLT”) appeal on the following alternative grounds: (1) there was no satisfactory evidence to show that management services were in fact provided; (2) there was no sufficient nexus shown; and (3) in the event the management fees were deductible, they were nevertheless part of a void tax avoidance arrangement. Additionally, the Court of Appeal agreed that the Commissioner was entitled to impose abusive tax position shortfall penalties. NewZealand vs Honk-Land-Trustees-Limited-v-Commissioner-of-Inland-Revenue Share: ... Continue to full case
India vs. Gap International Sourcing Pvt. Ltd.,  May 2016, ITA No.1077/Del./2016

India vs. Gap International Sourcing Pvt. Ltd., May 2016, ITA No.1077/Del./2016

Gap International Sourcing was engaged in sourcing products from India to other group companies. The activity comprised of assistance in identification of vendors, provision of assistance to vendors in procurement of apparel, inspection and quality control and coordination with vendors to ensure delivery of goods to group companies. The necessary technical and intellectual basis for provision of these services were provided by the group companies. The Indian company used TNMM to benchmark the service fee at full cost plus 15%. The tax administration disregarded the functional profile and characterisation of Gap International Sourcing by assuming that the functional profile was substantially higher than those of limited risk support service providers. The tax administration found that a cost plus form of remuneration did not take into account substantial intangible assets owned by the taxpayer. Intangibles were identified to be human asset intangibles, supply chain intangibles and ... Continue to full case
India vs. Li & Fung (Trading) Ltd. March 2016, ITTA

India vs. Li & Fung (Trading) Ltd. March 2016, ITTA

Li & Fung (Trading) Ltd., Hong Kong, entered into contracts with its global third party customers for provision of sourcing services with respect to products to be sourced by such global customers directly from third party vendors in India. For the sourcing services, the Hong Kong company received a 5% commission of the FOB value of goods sourced. The company in India was providing sourcing support services to the Hong Kong group company, and remunerated at cost plus 5 percent mark-up for provision of these services. The tax administration found that the the company in India should get the 5% commission on the free on board (FOB) value of the goods sourced from India as the Hong Kong company contributed no value. The Tribunal held that the compensation received by the company in Hong Kong – 5% of the FOB value – should be distributed between the company in India and the company in Hong Kong in the ... Continue to full case
France vs. Sté Property Investment Holding, 9 December 2015, CE No 367897

France vs. Sté Property Investment Holding, 9 December 2015, CE No 367897

In the case of Sté Property Investment Holding a French company deducted fees paid for management services provided by a foreign related company. The court indicated that, even if the recharge concerned fees charged by subcontractors of the foreign company, the French company could only deduct the fees if it could prove that the services provided were real, the services were not duplicates, and the price of the services complied with the arm’s length principle. Click here for translation France vs Sté Property Investment Holding, 9 December 2015, CE No 367897 Share: ... Continue to full case
Italy vs Alfa Gomma SUD s.r.l. July 2014, Supreme Court 16480

Italy vs Alfa Gomma SUD s.r.l. July 2014, Supreme Court 16480

This case was about tax deductibility of service costs charged to an Italien company by an European Cost Centre within the group. The Supreme Court stated that it is necessary to give evidence that the Italian company have actually received a service and that this service is objectively definable and documented. The Court ruled in favor of the tax administration. Click here for translation Italy Supreme-Court-18-July-2014-No.-16480.pdf Share: ... Continue to full case
Germany vs. Corp. December 2012, Federal Tax Court 11.10.2012, I R 75/11

Germany vs. Corp. December 2012, Federal Tax Court 11.10.2012, I R 75/11

A GmbH agreed at year end to accept management charges from its Dutch parent for services performed during the year. The legal question was the relationship between arm’s-length principle as included in double tax treaties and income correction norms in German tax law. The court rejected a tax office assessment attempt on the basis of a hidden distribution of profits because of a delay in agreeing management charges in writing, saying that the double tax treaty related party provision bases the arm’s length standard on amount, rather than on the reason for, or documentation, of a transaction. Click here for translation Germany-vs-Corp-October-2012-BUNDESFINANZHOF-Urteil-IR-75-11- Share: ... Continue to full case
France vs. Eduard Kettner, March 2012, Administrative Court of Appeals of Paris, No. 10PA04193

France vs. Eduard Kettner, March 2012, Administrative Court of Appeals of Paris, No. 10PA04193

Kettner was a French distributor of hunting products. Kettner was charged service fees by it’s German parent company for a range of services including packaging, warehouse and inventory management, IT, management fees etc. The tax administration was of the opinion that the fees had not been determined in accordance with the arm’s length principle and were able to show discrepancies in the invoicing and a lack of supporting information for expenses charged back to the French distributor. The court considered that the tax administration did not demonstrate a “transfer of profits abroad” as no comparison with independent companies had been made in order to validate that the fees paid had not been at arm’s-length. Click here for translation France vs kettner_no_10pa04193_administrative_court_of_appeals_of_paris_29_03_2012-pdf Share: ... Continue to full case
France vs. Société Office Dépôt France SNC, Jan 12 CAA No

France vs. Société Office Dépôt France SNC, Jan 12 CAA No

In the case of Société Office Dépôt France SNC, a US company recharged a portion of audit costs to the French company. The court found that such costs were incurred in the interest of the US company only, and were accordingly not tax deductible in France. DEPOT FRANCE SNC _15_10_2013_CAA 12VE00798″ target=”_blank” rel=”noopener noreferrer”>Click here for translation DEPOT FRANCE SNC _15_10_2013_CAA 12VE00798 Share: ... Continue to full case
Canada vs Alberta Printed Circuits Ltd., April 2011, Tax Court of Canada, Case No 2011 TCC 232

Canada vs Alberta Printed Circuits Ltd., April 2011, Tax Court of Canada, Case No 2011 TCC 232

Alberta Printed Circuits Ltd (APC, the taxpayer) was a Canadian manufacturer of custom prototype circuit boards. The manufacturing process was initially manual and later automated. In 1996, a Barbados company, APCI Inc.,  was formed via a complex ownership structure. The Barbados company provided services to Alberta Printed Circuits Ltd. by performing setup functions, software and website development, and maintenance services. APCI charged the appellant a fixed fee for the setup services and a square-inch fee for non-setup services. Alberta Printed Circuits Ltd charged the same fee for the same services to third-party customers. The tax authorities asserted that the Alberta Printed Circuits Ltd overpaid APCI $3.4 million because the terms and conditions of the agreements differed from those that would have been entered at arm’s length. Alberta Printed Circuits Ltd provided evidence of internal comparable transactions and transfer prices were determined by the comparable uncontrolled price (CUP) method. The court ... Continue to full case

Czech Republic vs. Corp. February 2011, Supreme Administrative Court, Afs 19/2010-125

A Czech company (the lessor) owned real estate and rented it to independent parties. An Austrian related company provided management and consulting services to the lessor The service fees significantly increased each year, although the income of the Czech company and the number of lease contracts were constant in the examined years The tax authorities required that the taxpayer prove the actual provision of the services and their relationship to taxable income. The tax authorities rejected this explanation and concluded that the taxpayer had not proven the real condition of the real estate in the examined period. The legal question was: the scope of the burden of proof that rests with the taxpayer with respect to services received from related party The court ruled that: the taxpayer was obliged to prove the relationship of the expensed service fees to its taxable income. Tangible evidence of ... Continue to full case
India vs. Gemplus India Pvt. Ltd. March 2009, ITA case no. 352

India vs. Gemplus India Pvt. Ltd. March 2009, ITA case no. 352

Gemplus India Pvt. Ltd. is a part of the Gemplus group, engaged in providing smart card solutions for the telecommunications industry, financial services industry and other e-businesses. The company entered into a intra group management services agreement for receipt of services in marketing and sales support, customer service support, finance, accounting and administration support and legal support. The tax administration found there was no clear proof that such services had actually been rendered. There was no specific benefit derived by the Indian company. Gemplus India Pvt. Ltd. had not established the benefit of these services and had already incurred expenses towards professional and consultancy services and employed qualified personnel in India for rendering similar services. The Appellate Tribunal decided the case in favour of Revenue. To satisfy the arm’s-length standard, a charge for intra group services or intangibles must at least meet the following conditions: ... Continue to full case

Korea vs Levi’s, September 2006, Supreme Court, Case no 2004두7955

Korea vs Levi’s – Supreme Court case No. 2004두7955 Management support services Click here for translation Korean-TP-case-Levis-2004두7955 Share: ... Continue to full case
France vs SA Borsumij Whery France, Feb 1997, Adm Court of appeal, No 94PA00511

France vs SA Borsumij Whery France, Feb 1997, Adm Court of appeal, No 94PA00511

The administration found that the reimbursement of a charge represented a transfer of profits abroad where the French company has not substantiated the benefit of the services which the French company could perform itself. The submission of incomplete documents was deemed to be insufficient. This analysis was confirmed by the French Supreme Tax Court. Click here for translation France vs SA Borsumij Whery France, Feb 1997, Adm Court of appeal, Share: ... Continue to full case
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