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Category: Transfer Pricing Methods

Transfer Pricing Methods are used to establish transfer prices in controlled transactions. Traditional transaction methods and transactional profit methods can be used to establish whether the conditions imposed in the commercial or financial relations between associated enterprises are consistent with the arm’s length principle.

Traditional transaction methods are the comparable uncontrolled price method or CUP method, the resale price method, and the cost plus method.

Transactional profit methods are the transactional net margin method or TNMM and the transactional profit split method.

Russia vs Togliattiazot, September 2018, Russian Arbitration Court, Case No. No. А55-1621 / 2018

A Russian company, Togliattiazot, supplied ammonia to the external market through a Swiss trading hub, Nitrochem Distribution AG. The tax authority found that the selling price of the ammonia to Nitrochem Distribution AG had not been determined by Togliattiazot in accordance with the arm’s length principle but had been to low. Hence, a transfer pricing assessment was issued where the CUP method was applied. At first, the company argued that Togliattiazot and Nitrochem Distribution AG […]

US vs Medtronic, August 2018, U.S. Court of Appeals, Case No: 17-1866

In this case the IRS was of the opinion, that Medtronic erred in allocating the profit earned from its devises and leads between its businesses located in the United States and its device manufacturer in Puerto Rico. To determine the arm’s length price for Medtronic’s intercompany licensing agreements the comparable profits method was therefor applied by the IRS, rather than the comparable uncontrolled transaction (CUT) used by Medtronic. Medtronic brought the case to the Tax […]

Israel vs Kontera and Finisar, April 2018, Supreme Court

In these two cases from Israel the Supreme Court rules on the issue of whether or not companies using the cost plus method must include stock-based compensation in the cost base. The Court concludes that stock-based compensation is an integral part of the compensation package of the Israeli subsidiaries’ employees with the objective of improving the quality of services rendered and strengthening the bond between the companies’ and employees’ cohesive goals. Therefore, such compensation should […]

Denmark vs Microsoft Denmark, March 2018, Danish National Court, SKM2018.416.ØLR

The Danish Tax Ministry and Microsoft meet in Court in a case where the Danish tax authorities had issued an assessment of DKK 308 million. The Danish tax authorities were of the opinion that Microsoft had not been properly remunerated for performing marketing activities due to the fact that OEM sales to Danish customers via MNE OEM’s had not been included in the calculation of local commissions. In court, Microsoft required a dismissal with reference […]

Denmark vs. Danish Production A/S, Feb 2018, Tax Tribunal, SKM2018.62.LSR

In this case, the Danish Tax Tribunal found that the tax administration had been entitled to make an estimated assessment, due to the lack of a comparability analysis in the company’s transfer pricing documentation. The Tax Tribunal also found that the Danish company had correctly been chosen as tested party when applying the TNMM, although the foreign sales companies were the least complex. Information about the foreign sales companies was insufficient and a significant part […]

Sweden vs. Absolut Company AB, Jan 2018, Administrative Court, No. 1610-16

In 2016 the Swedish Tax Tribunal ruled against the tax administration in the case of The Absolut (vodka) Company AB. The Administrative Court of Appeal has now overturned the Tribunal’s ruling and consequently SEK 247 mio. are now added to the taxable income of The Absolut Company AB. The Swedish tax administration found that The Absolut Company AB sold Absolut Vodka below the arm’s length price to a group company – The Absolut Spirit Company Inc. (ASCI). […]

Tokyo District Court, judgment of November 24 2017

In this case a Japanese company had entered into a series of controlled transactions with foreing group companies granting services and licences to use intangibles – know-how related to manufacturing and sales, training, and provided support by sending over technical experts. The company had used a CUP method to price these transactions based on select “internal comparables”. Tax authorities disagreed with the company and found that the residual profit split method should be applied to […]

Japan vs. Publisher Corp, April 2017, Tokyo District Court

A Japanese company entered into a transaction with a foreing group company to import English-language learning materials into Japan. The learning materials were then resold to Japanese customers. The Japanese tax authority found that the resale price method should be used for setting the arm’s-length price for the transaction. The arm’s-length price for the controlled transaction was the price at which the Japanese company resold the English-language learning materials to customers, minus a normal profit […]

US vs. Amazon, March 2017, US Tax Court

In 2005 Amazon US entered into a cost sharing arrangement (CSA) with its Luxembourg subsidiary, Amazon Lux. Pursuant to entering the CSA, Amazon US granted Amazon Lux the right to use certain pre-existing intangible assets in Europe, including the intangibles required to operate Amazon’s European website business. This arrangement required Amazon Lux to make an upfront “buy-in payment” to compensate Amazon US for the value of the intangible assets that were to be transferred to Amazon Lux. As consideration for the transfer of pre-existing intangibles, Amazon Lux […]

Denmark vs. Corp, March 2017, Tax Tribunal, SKM2017.187

In this case the Danish Tax administration had made an estimated assessment due to a insufficient TP documentation. In the assessment goodwill amortizations were included when comparing the operating income of the company to that of independent parties in a database survey. The Tax Tribunal found that the tax administration was not entitled to make an estimated assessment under Article 3B (3) of the current Tax Control Act. 8 (now paragraph 9) and section 5 3, where […]

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