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 (CUP) method, the resale price method, and the cost plus method.

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

South Africa vs ABD Limited, February 2024, Tax Court, Case No IT 14302

South Africa vs ABD Limited, February 2024, Tax Court, Case No IT 14302

ABD Limited is a South African telecommunications company with subsidiaries worldwide. These subsidiaries are operating companies, with local shareholders, but having ABD as a significant shareholder. ABD licences its intellectual property to these operating companies (referred to as Opcos) in return for which they pay ABD a royalty. The present case involves the royalty payments made by fourteen of the Opcos to ABD during the periods 2009 to 2012. ABD charged all of them the same royalty rate of 1% for the right to use its intellectual property. In 2011 ABD retained the services of a consultancy to advise it on what royalty it should charge its various Opcos.The consultancy procured research on the subject and then, informed by that, came up with the recommendation that a royalty of 1% could be justified. The tax authorities (SARS) found that a 1% royalty rate was not ... Continue to full case
Kenya vs Beta Healthcare International Limited, February 2024, Tax Appeals Tribunal, Appeals No 866 of 2022 - [2024] KETAT 143 (KLR)

Kenya vs Beta Healthcare International Limited, February 2024, Tax Appeals Tribunal, Appeals No 866 of 2022 – [2024] KETAT 143 (KLR)

Following an audit of Beta Healthcare International Limited, a Kenyan subsidiary in the Aspen Healthcare Group, the tax authorities issued a notice of additional taxable income relating to controlled transactions, in which they had determined the arm’s length price for controlled transactions using the CUP method instead of the TNM-method as applied by the company. Beta Healthcare International Limited appealed to the Tax Appeals Tribunal, arguing that the tax authorities had failed in its characterisation of the company, failed to consider the comparability factors of the transactions and misapplied the transfer pricing guidelines. Decision of the Tax Appeals Tribunal The Tribunal dismissed the appeal and ruled in favour of the tax authorities. Excerpts “(…) 134. The Tribunal reviewed the parties’ pleadings and established that the Appellant attached the disputed information to its pleadings. However, the Respondent, both in its pleadings and orally at the hearing, ... Continue to full case
Italy vs Terex Italia S.r.l., January 2024, Supreme Court, Cases No 2853/2024

Italy vs Terex Italia S.r.l., January 2024, Supreme Court, Cases No 2853/2024

Terex Italia s.r.l. is a manufacturer of heavy machinery and sold these products to a related distributor in the UK. The remuneration of the distributor had been determined based on application of the TNM-method. Following an audit for FY 2009 and 2010 the tax authorities served Terex a notice of assessment where adjustments was made to the taxable income in respect of a transfer pricing transaction, and in particular contesting the issuance of a credit note, in favour of the English company GENIE UK with the description “sales prices adjustment” recorded in the accounts as a reversal of revenue, in that, according to the Office, as a result of the adjustment made by the note, Terex would have made sales below cost to the English company, carrying out a clearly uneconomic transaction. In the same note, the non-deductibility of costs for transactions with blacklisted countries ... Continue to full case
France vs SAS Itron France, January 2024, Administrative Court of Appeal, Case No. 21PA04452

France vs SAS Itron France, January 2024, Administrative Court of Appeal, Case No. 21PA04452

SAS Itron France (a manufacturer and distributor of water, electricity and gas meters) was the subject of a tax audit for the financial years 2012 and 2013, which resulted in an assessment. The tax authorities considered that the transfer pricing applied by the group had resulted in an understatement of taxable income in France and a transfer of profits to a Hong Kong-based distributor of the group. An appeal was filed by SAS Itron France and in a ruling handed down on 2 December 2021, the Administrative Court annulled the assessment. The tax authorities filed an appeal against this ruling. Judgement of the Court The Administrative Court of Appeal dismissed the appeal and decided in favor of SAS Itron France. Excerpt in English “…In order to calculate the transfer price to be set by SAS Itron France in its relations as a producer with its ... Continue to full case
France vs SAS CFEB Sisley, December 2023, CAA de Paris, Case No. 22PA01528

France vs SAS CFEB Sisley, December 2023, CAA de Paris, Case No. 22PA01528

SAS CFEB Sisley, the head of the Sisley group, which specialises in high-end cosmetic products, was the subject of an accounting audit covering the 2012 and 2013 financial years. At the end of the audit CFEB Sisley was notified of a proposed assessment, as the tax authorities considered that the pricing applied by the group led to a transfer of profits, within the meaning of Article 57 of the General Tax Code, to several of its subsidiaries established in Asia. However, later on the tax authorities limited the assessment to a single subsidiary, based in Hong Kong. A appeal was filed by CFEB Sisley and in a ruling handed down on 2 December 2021, the Montreuil Administrative Court, discharged the taxes resulting from the assessment. According to the court the selection of internal comparables provided by the company showed gross margins equivalent to those achieved ... Continue to full case
European Commission vs Amazon and Luxembourg, December 2023, European Court of Justice, Case No  C‑457/21 P

European Commission vs Amazon and Luxembourg, December 2023, European Court of Justice, Case No C‑457/21 P

In 2017 the European Commission concluded that Luxembourg had granted undue tax benefits to Amazon of around €250 million. According to the Commission, a tax ruling issued by Luxembourg in 2003 – and prolonged in 2011 – lowered the tax paid by Amazon in Luxembourg without any valid justification. The tax ruling enabled Amazon to shift the vast majority of its profits from an Amazon group company that is subject to tax in Luxembourg (Amazon EU) to a company which is not subject to tax (Amazon Europe Holding Technologies). In particular, the tax ruling endorsed the payment of a royalty from Amazon EU to Amazon Europe Holding Technologies, which significantly reduced Amazon EU’s taxable profits. This decision was brought before the European Courts by Luxembourg and Amazon, and in May 2021 the General Court found that Luxembourg’s tax treatment of Amazon was not illegal under ... Continue to full case
Greece vs "Raw Materials Ltd", December 2023, Tax Court, Case No 2129/2023

Greece vs “Raw Materials Ltd”, December 2023, Tax Court, Case No 2129/2023

Following an audit of “Raw Materials Ltd” an assessment was issued by the tax authority regarding pricing of intra-group transactions in FY 2018 and 2019. At issue was the pricing of intra group sales and purschases. A complaint was filed by “Raw Materials Ltd” with the Dispute Resolution Board claming that the tax authority had misapplied the chosen transfer pricing method. Decision of the Board The Board upheld the assessment of the tax authorities and rejected the appeal of “Raw Materials Ltd”. Excerpt in English “Because the tax authority, taking into account the activity, the organisation and the specific characteristics of the audited company itself, chose as more reliable the internal comparables relating to sales to third independent companies, because the internal comparables are more reliable due to their internal nature. In addition, it is ensured that identical accounting practices are followed in relation to ... Continue to full case
France vs (SAS) SKF Holding France, November 2023, CAA de Versailles, Case No. 21VE02781

France vs (SAS) SKF Holding France, November 2023, CAA de Versailles, Case No. 21VE02781

RKS, whose business consists of the manufacture of very large custom bearings for the civil and military industries, is controlled by the Swedish SKF group through (SAS) SKF Holding France. RKS was subject to a tax audit for FY 2009 and 2010, at the end of which the tax authorities took the view that the results reported by SAS RKS (losses since 2005) had not been determined in accordance with the arm’s length principle. It therefore increased SAS RKS’s results from 2006 to 2010 to the median net margin observed in a benchmark of eight comparable companies, equal to 4.17% in 2006, 4.32% in 2007, 3.38% in 2008, 2.33% in 2009 and 2.62% in 2010. SAS SKF France Holding applied to the Administrative Court for a discharge, and in judgment no. 1608939 of April 23, 2018, the Montreuil Administrative Court upheld the claim. In ruling ... Continue to full case
France vs SASU Menarini Diagnostics France, November 2023, CAA de Paris, Case No. 21PA06233

France vs SASU Menarini Diagnostics France, November 2023, CAA de Paris, Case No. 21PA06233

SASU Menarini Diagnostics France (a French subsidiary in the Italian Menarini Group) buys and resells diagnostic equipment and products for self-diagnosis and laboratories. Since its creation it had recurring operating losses, despite the profitability of each business line and irrespective of sales trends, and even though it was no longer in a market penetration phase. An audit was initiated by the tax authorities for fiscal 2011-2013, which revealed that the pricing of intra-group transactions was not at arm’s length and that overpricing of products purchased from two related parties in Italy had resulted in an indirect transfer of profits within the meaning of Article 57 of the French General Tax Code. Menarini Diagnostics France appealed against the assessment with the Montreuil Administrative Court which rejected its request for discharge of these taxes. An appeal was then filed with the Administrative Court of Appeal. Judgement of ... Continue to full case
Portugal vs C... - Sociedade de Investimentos Imobiliários, S.A., November 2023, Tribunal Central Administrativo Sul, Case 541/02.5 BTLRS

Portugal vs C… – Sociedade de Investimentos Imobiliários, S.A., November 2023, Tribunal Central Administrativo Sul, Case 541/02.5 BTLRS

The tax authorities had issued an assessment in which the value of shares transfered between related parties had been adjusted by application of the arm’s length principle. The assessment was appealed to the Administrative Court, which upheld the assessment. An appeal was then filed with the Administrative Court of Appeal. Judgement of the Court The Administrative Court of Appeal upheld the judgement issued by the Administrative Court and decided in favour of the tax authorities. Excerpt “It should be remembered here that at the time of the facts the law did not provide for the use of any method, although there were already some guidelines from the OECD to this effect, and the Tax and Customs Authority researched and used a methodology close to the “comparable price” of the sale of shares closest to a shareholder to the company, making reference to the fact that ... Continue to full case
Ukrain vs PJSC Odesa Port Plant, October 2023, Supreme Court, Case No 826/14873/17

Ukrain vs PJSC Odesa Port Plant, October 2023, Supreme Court, Case No 826/14873/17

Following a tax audit the tax authority conducted a on-site inspection of PJSC Odesa Port Plant on the completeness of tax calculation in respect of controlled transactions on the export of mineral fertilisers to non-resident companies Ameropa AG (Switzerland), “Koch Fertilizer Trading SARL (Switzerland), Nitora Commodities (Malta) Ltd (Malta), Nitora Commodities AG (Switzerland), Trammo AG (Switzerland), Trammo DMCC (United Arab Emirates), NF Trading AG (Switzerland) for FY 2013 and 2014, as well as business transactions on import of natural gas in gaseous form from a non-resident company Ostchem Holding Limited (Republic of Cyprus) for FY 2013. Based on the results of the inspection, an assessment of additional taxable income was issued. The assessment was based on the following considerations of the tax authority: – it is impossible to use the “net profit” method to confirm the compliance of prices in PJSC Odesa Port Plant’s controlled ... Continue to full case
Brazil, October 2023, Superior Tribunal de Justiça (Second Chamber), Case No REsp 1.787.614-SP

Brazil, October 2023, Superior Tribunal de Justiça (Second Chamber), Case No REsp 1.787.614-SP

The Second Chamber of the Supreme Court of Brazil issued an interpretation of Normative Instruction SRF n. 243/2002 concerning the legal basis for application of the sixth method – RPL60 – under the Brazilianarm’s length provision contained in art. 18 of Law no. 9430/1996. The Second Champer of the Supreme Court concluded that the interpretation adopted by the Brazilian Federal Revenue Service through Normative Instruction SRF n. 243/2002 did not violate art. 18 of Law n. 9.430/1996. Excerpts “This is a writ of mandamus filed for the purpose of ensuring the right to calculate transfer prices using the PRL method according to the criteria established by art. 18 of Law no. 9430/1996, excluding those contained in SRF Normative Instruction no. 243/2002. The main objective of the transfer pricing methodology is to ensure that taxable events do not escape the state’s taxing power due to the ... Continue to full case
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
Switzerland vs "A AG", September 2023, Federal Administrative Court, Case No A-4976/2022

Switzerland vs “A AG”, September 2023, Federal Administrative Court, Case No A-4976/2022

A Swiss company, A AG, paid two related parties, B AG and C AG, for services in the financial years 2015 and 2016. These services had been priced using the internal CUP method based on the pricing of services provided by B Ltd to unrelated parties. Following an audit, the tax authorities concluded that the payments made by A AG for the intra-group services were above the arm’s length price and issued a notice of assessment where the price was instead determined using the cost-plus method. According to the tax authorities, the CUP method could not be applied due to a lack of reliable data. Following an appeal the court of first instance ruled mostly in favor of the tax authorities. A AG then appealed to the Federal Administrative Court. Decision of the Court The Federal Administrative Court ruled in favour of A AG. According ... Continue to full case
Germany vs "Cutting Tech GMBH", August 2023, Bundesfinanzhof, Case No I R 54/19 (ECLI:DE:BFH:2023:U.090823.IR54.19.0)

Germany vs “Cutting Tech GMBH”, August 2023, Bundesfinanzhof, Case No I R 54/19 (ECLI:DE:BFH:2023:U.090823.IR54.19.0)

Due to the economic situation of automotive suppliers in Germany in 2006, “Cutting Tech GMBH” established a subsidiary (CB) in Bosnien-Herzegovina which going forward functioned as a contract manufacturer. CB did not develop the products itself, but manufactured them according to specifications provided by “Cutting Tech GMBH”. The majority of “Cutting Tech GMBH”‘s sales articles were subject to multi-stage production, which could include various combinations of production processes. In particular, “Cutting Tech GMBH” was no longer competitive in the labour-intensive manufacturing processes (cut-off grinding, turning, milling) due to the high wage level in Germany. Good contribution margins from the high-tech processes (adiabatic cutting, double face grinding) increasingly had to subsidise the losses of the labour-intensive processes. Individual production stages, however, could not be outsourced to external producers for reasons of certification and secrecy. In addition, if the production had been outsourced, there would have been ... Continue to full case
Poland vs "S." sp. z o.o., August 2023, Supreme Administrative Court, Case No II FSK 1427/21

Poland vs “S.” sp. z o.o., August 2023, Supreme Administrative Court, Case No II FSK 1427/21

“S.” sp. z o.o. had filed a requested a written interpretation (binding ruling) with the tax authorities. The company had asked the following question: when calculating the income ratio to which the tax rate referred to in Article 24d(1) of the A.P.C. may be applied, can the transfer pricing regulations be applied accordingly (mutatis mutandis) by applying the profit split method – residual analysis (the method listed in § 13(3)(2) of the Ordinance). The request was dismissed by the tax authorities, stating that it could not assess the position presented in the application, as this would go beyond the framework of the individual interpretation proceedings defined by the legislator. An appeal was filed by “S” sp. z o.o. with the regional court and the court ruled in favour of the company. An appeal was then filed by the tax authorities with the the Supreme Administrative Court ... Continue to full case
Italy vs Otis Servizi s.r.l., August 2023, Supreme Court, Sez. 5 Num. 23587 Anno 2023

Italy vs Otis Servizi s.r.l., August 2023, Supreme Court, Sez. 5 Num. 23587 Anno 2023

Following an audit of Otis Servizi s.r.l. for FY 2007, 2008 and 2009 an assessment of additional taxable income was issued by the Italian tax authorities. The first part of the assessment related to interest received by OTIS in relation to the contract called “Cash management service for Group Treasury” (hereinafter “Cash Pooling Contract”) signed on 20 March 2001 between OTIS and the company United Technologies Intercompany Lending Ireland Limited (hereinafter “UTILI”) based in Ireland (hereinafter “Cash Pooling Relief”). In particular, the tax authorities reclassified the Cash Pooling Agreement as a financing contract and recalculated the rate of the interest income received by OTIS to be between 5.1 and 6.5 per cent (instead of the rate applied by the Company, which ranged between 3.5 and 4.8 per cent); The second part of the assessment related to of the royalty paid by OTIS to the American ... Continue to full case
Ghana vs Unilever Ghana Limited, July 2023, High Court of Ghana, Case no. CM/TAX/0450/2021

Ghana vs Unilever Ghana Limited, July 2023, High Court of Ghana, Case no. CM/TAX/0450/2021

Unilever Ghana Limited (UKL) filed an appeal with the High Court against an assessment of additional taxabel income issued by the tax authorities in 2019 on the following grounds. a) That the Respondent did not use a transfer pricing method as required by the Transfer Pricing Regulations, 2012 (LI 2188) in examining the Appellant Transfer Pricing Returns. b) That the Respondent misinterpreted, misunderstood and misapplied the OECD Transfer Pricing guidelines to arrive at a liability of Six Million, Two Hundred and Thirty-Six Thousand, Two Hundred Ghana Cedis (GHq:6,236,200.00) on the Advertising, Marketing and Promotion expenses incurred by the Appellant. c) That had the Respondent properly applied the OECD guidelines, the Appellant would not have been liable to pay tax on the Advertising, Marketing and promotion expenses. Judgment of the Court The High Court dismissed the appeal due to lack of statutory jurisdiction. “…I do not ... Continue to full case
Spain vs Tomas Bodero, S.A., July 2023, Tribunal Superior de Justicia, Case No STSJ CL 3218/2023

Spain vs Tomas Bodero, S.A., July 2023, Tribunal Superior de Justicia, Case No STSJ CL 3218/2023

Tomas Bodero S.A. added a 4% fee when re-invoicing goods purchased from unrelated manufacturers to its Panamanian subsidiary. The transfer pricing documentation stated that “this fee (4%) is very similar to the fee that brokers in the sector usually charge for brokering imports of goods, so it can be concluded that a market price is charged for the services that the parent company provides to the subsidiary”. Following an audit, the tax authorities issued a tax assessment which, among other adjustments to the taxable income, also adjusted the fee received from the subsidiary. The arm’s length fee for the service provided was set at approximately 26% of the purchase price. Appeals were filed by Tomas Bodero S.A. which ended up in the High Court. Judgement of the Court In regards of procurement fee, the Court ruled in favor of Tomas Bodero A.S. Excerpts “….the method ... Continue to full case
Germany vs "MEAT PE", July 2023, FG Munich, Case No 7 K 1938/22

Germany vs “MEAT PE”, July 2023, FG Munich, Case No 7 K 1938/22

A Hungarian company had a permanent establishment (PE) in Germany. The PE carried out meat cutting work on the basis of work contracts dated 23 February 2017 with the Hungarian company Z Kft. The PE had concluded a service agreement with A Kft. in which A Kft. undertook to provide administrative services in the area of support for employees posted to Germany and was to receive a fee calculated as a percentage of net sales in return. Following an audit of the PE the German tax authorities issued an assessment of additional taxabel income based on the German ordinance on allocation of profits to permanent establishments. Not satisfied with the assessment a complaint was filed by the PE with the Tax Court. In its complaint the PE argued that the tax authorities corrected all of the PE’s sales in Germany without a corresponding legal basis ... Continue to full case