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.

Switzerland vs Swiss Investment AG, February 2020, Administrative Court Zurich, Case No SB.2018.00094 and SB.2018.00095

Switzerland vs Swiss Investment AG, February 2020, Administrative Court Zurich, Case No SB.2018.00094 and SB.2018.00095

Two Swiss investors had established a structure for the management of a private equity fund in the form of a Swiss “Investment Advisor” AG and a Jersey “Investment Mananger” Ltd. They each held 50% of the shares in the Swiss AG and 50% of the shares in the Jersey Ltd. Swiss AG and Jersey Ltd then entered an investment advisory agreement whereby the Swiss AG carried out all advisory activities on behalf of Jersey Ltd and Jersey Ltd assumed all the risk of the investments. Both investors were employed by Swiss AG and Jersey Ltd had no employees execpt two directors who each received a yearly payment of CFH 15,000. According to the investment advisory agreement Jersey Ltd would remunerate the Swiss AG with 66% of the gross fee income. The Swiss AG would carry out all relevant functions related to investment advisory and recommend ... Continue to full case
Poland vs Shared Service Center, February 2020, Administrative Court, SA/PO 935/19

Poland vs Shared Service Center, February 2020, Administrative Court, SA/PO 935/19

A shared service center in Poland both provided intra-group services to the group and in doing so also received and paid for services from other group companies. At issue was payments for the services that the Shared Service Center in Poland received. Under some circumstances intra-group service costs are non-deductible in Poland according to local anti-avoidance provisions aimed at base eroding payments, and according to the tax authorities the payments for intra group services received by the Shared Service Center were non-deductible according to these anti-avoidance provisions. The tax authorities had considered that the payments for the received services were non-deductible according to these provisions. Court decision Service costs that are directly connected with provision of services that generate income, and are included in the base for remuneration of the services provided are deductable and thus not covered by the non-deduction provisions. The Company’s revenues ... 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
Malaysia vs Shell Services Asia Sdn Bhd, November 2019, High Court, Case No BA 25-68-08/2019

Malaysia vs Shell Services Asia Sdn Bhd, November 2019, High Court, Case No BA 25-68-08/2019

The principal activities of Shell Services Asia Sdn Bhd in Malaysia is to provide services to related companies within the Shell Group. The company is part of a contractual arrangement for the sharing of services and resources within the Shell Group as provided in a Cost Contribution Arrangement. The tax authorities conducted a transfer pricing audit, and based on the findings, issued a tax assessment for fiscal years 2011 to 2016, where the Cost Contribution Arrangement had been recharacterised as an intra-group services arrangement. The taxable income was adjusted by imposing a markup on the total costs of the company for fiscal years 2012, 2014, 2015 and 2016. Consequently, the company had to pay the additional taxes in the amount of: RM 3,474,978.44; RM 2,559,754.38; RM 7,096,984.69; RM 2,537,458.50; RM 15,669,176.01. The company did not agree with the proposal. The judgement by the High Court only relates to proceedings ... Continue to full case
Zimbabwe vs Delta Beverages LTD, Court Case No HH664-19

Zimbabwe vs Delta Beverages LTD, Court Case No HH664-19

Delta Beverages LTD had been issued a tax assessment where various fees for service, technology license of trademarks, technology and know-how had been disallowed by the tax authorities (Zimra) of Zimbabwe. Among the issues contented by the tax authorities were technical service fees calculated as 1.5 %  of turnover. “The sole witness confirmed the advice proffered to the holding company’s board of directors in the minutes of 17 May 2002 that such an approach was common place across the world. This was confirmed by the approvals granted by exchange control authority to these charges. It was further confirmed by the very detailed 19 page Internal Comparable Analysis Report dated 5 October 2010 conducted by a reputable international firm of chartered  accountants, which was commissioned by the Dutch Company to assess internal compliance with the arm’s length principles in its transfer pricing policy for trademark royalties ... Continue to full case
Spain vs ARW Enterprise Computin Solution SA, September 2019, Tribunal Superior de Justicia, Case No STSJ M 7038/2019 - ECLI: ES:TSJM:2019:7038

Spain vs ARW Enterprise Computin Solution SA, September 2019, Tribunal Superior de Justicia, Case No STSJ M 7038/2019 – ECLI: ES:TSJM:2019:7038

A Spanish subsidiary, ARW Enterprise Computin Solution SA, had deducted intra-group management fees paid according to two service contracts with two french group companies – Distrilogie SA and DCC France Holding SAS. For an expense to be deductible it is required not only that invoice, account, payments have been imputed correctly, but also that the expense have been held for obtaining income and to the direct benefit of the subsidiary. The Spanish tax authorities found, that these requirements had not been sufficiently proved by Computin Solution SA and issued a tax assessment. Click here for translation Spain vs Computin STSJ_M_7038_2019 ... Continue to full case
Norway vs A/S Norske Shell, September 2019, Borgarting lagmannsrett, Case No LB-2018-79168 – UTV-2019-807

Norway vs A/S Norske Shell, September 2019, Borgarting lagmannsrett, Case No LB-2018-79168 – UTV-2019-807

A/S Norske Shell with operations on the Norwegian continental shelf, which formed part of the Shell group, conducted research and development (R&D) through a subsidiary. All R&D costs were deducted. The tax authority applied the arms length principle and issued a tax assessment. It was assumed that the R&D expense was due to a joint interest with the other upstream companies in the Shell group. The Court of Appeal found that the R&D conducted in Norway also constituted an advantage for the foreign part of the group for which an independent company would demand compensation. Therefore, there was a revenue reduction that provided the basis for determining the company’s income by discretion in accordance with section 13-1 of the Tax Act. The determination of the size of the income reduction in the tax assessment had not based on an incorrect or incomplete fact, nor did ... Continue to full case
Brazil vs CCA group, September 2019, COSIT, SC No. 276-2019

Brazil vs CCA group, September 2019, COSIT, SC No. 276-2019

In a public ruling, the General Tax Coordination Office in Brazil (COSIT) found that a transaction labled as a “cost sharing agreement” between a foreign group and its Brazilian subsidiary, was in fact a mere agreement for provision of services. COSIT pointed to the key characteristics of cost sharing agreements. These had been listed in a prior ruling from 2012: Segregation of costs and risks inherent in the development, production or acquisition of goods, services or rights; Consistent contribution by each entity with expected and effectively-received benefits by each entity; Identification of the benefit to each participant entity; Mandatory reimbursement of costs incurred with no mark-up; Advantages offered to all participating group entities; and Payments for support activities whether such activities were actually used. < COSIT also pointed to the guidance provided in the 2017 Transfer Pricing Guidelines, Chapter VIII. Click here for translation SC_Cosit_n_276-2019 ... Continue to full case
Denmark vs MAN Energy Solutions, September 2019, Supreme Court, Case No BS-4280-2019-HJR

Denmark vs MAN Energy Solutions, September 2019, Supreme Court, Case No BS-4280-2019-HJR

A Danish subsidiary in the German MAN group was the owner of certain intangible assets. The German parent, acting as an intermediate for the Danish subsidiary, licensed rights in those intangibles to other parties. In 2002-2005, the Danish subsidiary received royalty payments corresponding to the prices agreed between the German parent company and independent parties for use of the intangibles. The group had requested an adjustment of the royalty payments to the Danish subsidiary due to withholding taxes paid on inter-company license fees received by the German Parent. This was rejected by the Danish tax authorities. The Supreme Court found no basis for an adjustment for withholding taxes as the agreed prices between the German parent and the Danish Subsidiary matched the market price paid by independent parties. Click here for translation Denmark vs MAN Energy Solutions, September 2019, Supreme Court, Case No BS-4280-2019-HJR ... Continue to full case
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
Poland vs A Sp. z o.o., June 2019, Administrative Court, Case No GD 530/19

Poland vs A Sp. z o.o., June 2019, Administrative Court, Case No GD 530/19

A Polish Subsidiary A SP. z o.o. had incurred a loss in 2012 in the amount of PLN 1,357,333.66 and following an audit the tax authorities issued an assessment whereby the loss was reduced by an amount of PLN 234,019.90. The disputable issue was whether, in the circumstances of the case under consideration, the tax authorities correctly determined the amount of the applicant’s loss for 2012 in an amount other than that resulting from the correction of the declaration due to the finding that the Company undervalued income from transactions concluded with related entities for a total amount of PLN 234,019.90. The Administrative Court dismissed the complaint of A SP z o.o. According the the provided transfer pricing documentation the company had applied a TNMM and determined remuneration based on cost added a fixed percentage of 4% for the parent company, 8% for other companies ... 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 ... Continue to full case
France vs Office Depot, December 2017, CE, Case No. 387975

France vs Office Depot, December 2017, CE, Case No. 387975

Re-invoicing to a Office Depot France, by the controlling US company Office Depot Inc, of a part of the cost of an audit service, as it related to the internal control procedures of the French company. Office Depot France was audited for the period from 28 December 2003 to 31 December 2005, after which the administration notified it of a VAT reminder and a withholding tax on the re-invoicing by the US company Office Depot Inc. of a portion of the cost of an audit service relating to its own internal control procedures. The cost was not necessary for the operation of Office Depot France and thus not deductible. The charge in question corresponded to an indirect transfer of profits abroad. Click here for translation France vs Office Depot_13_12_2017_387975_Inédit_au_recueil_Lebon ... 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 ... 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 ... 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