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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.

Denmark vs Microsoft Denmark, January 2019, Danish Supreme Court

In this case, the Danish tax authorities were of the opinion that Microsoft Denmark 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. According to the Market Development Agreement (MDA agreement) concluded between Microsoft Denmark and MIOL with effect from 1 July 2003, Microsoft Denmark received the largest amount of either a […]

Finland vs A Group, December 2018, Supreme Administrative Court, Case No. KHO:2018:173

During fiscal years 2006–2008, A-Group had been manufacturing and selling products in the construction industry – insulation and other building components. License fees received by the parent company A OY from the manufacturing companies had been determined by application of the CUP method. The remuneration of the sales companies in the group had been determined by application of the resale price method. The Finnish tax administration, tax tribunal and administrative court all found that the […]

Brazil vs Pfizer Ltda, October 2018, CARF, Case No 1201-002.628

A significant issue under dispute between taxpayers and the tax authorities in Brazil relates to the formula for calculating the resale price method (Preço de Revenda Menos Lucros) (PRL) of 60%. The Normative Ruling (NR) No. 243 issued in 2002 introduced significant changes to the calculation of the PRL method, creating controversy as to whether it had expanded beyond the scope of what the law intended. In the case against Pfizer Ltda the tax authorities […]

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 […]

France vs GE Healthcare Clinical Systems, June 2018, CE n° 409645

In this case, the French tax authorities questioned the method implemented by GE Healthcare Clinical Systems to determine the purchase price of the equipment it was purchasing from other General Electric subsidiaries in the United States, Germany and Finland for distribution in France. The method used by the GE Group for determining the transfer prices was to apply a margin of 5% to all direct and indirect production costs borne by the foreign group suppliers. […]

Israel vs Kontera and Finisar, April 2018, Supreme Court, Case No. 943/16

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 […]

India vs Amphenol Interconnect India (Private) Ltd., March 2018, Bombay High Court, case no. 536

In the case of Amphenol Interconnect the issue was whether two transactions – the resale of goods and sales assistance services for a commission – could be aggregated for transfer pricing purposes and whether the CUP or the TNM was the most appropriate transfer pricing method. The court found that that the CUP Method could not be used for the buy/sell transaction because of differences in location, volumes and customisation. The transactions could be aggregated […]

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