TPcases

4.5. Considering the supporting documentation submitted by the applicant, the Board notes that the applicant presented the criteria used to eliminate possible comparables on the basis of the functions performed. To this end, it eliminated companies whose function in addition to coal mining was to carry out other activities such as electricity generation and/or distribution, or gas exploration and/or production, companies whose mining activity corresponded to products other than coal, companies that leased coal mines, or that were active in the oil industry without segmenting their financial statements by activity, companies that were in Chapter 11, and companies that did not have sufficient descriptive information on the business (…). This demonstrates that the plaintiff undertook a functional level analysis to support that, under the TNMM method, the information available and used presented a high level of comparability that was more suited to its particular situation. In the same vein, in its functional analysis, the complainant presented aspects related to the company’s management, production planning, mine contracting services, coal mining operations and the way it transported coal. He further stated that his responsibility was to plan the production of the El Tesoro mine, coordinate the receipt of coal purchased from local suppliers and transport it to Santa Marta, where it was loaded onto vessels contracted by his company. In addition, it included information about the market and sales, where it stated that it had not carried out any marketing, sales or distribution activities in relation to the exported products, given that 100% of the sales were made to its related party abroad, the latter being the one who decided the sales strategy. It added that the distribution and logistics of the delivery from the port in Santa Marta was the responsibility of its related party and the risks related to the coal were transferred to it once the coal was loaded onto the vessels (…).

4.6. On the other hand, as stated in legal basis 3, the CUP method compares the price of goods or services agreed between independent parties in comparable transactions. Its use implies that the economic characteristics of the transactions being compared must be analysed to determine a high degree of comparability. Thus, the CUP method is not the most appropriate when the conditions of the good are not sufficiently similar, or when the functions, including the risks assumed by the parties, cannot be adjusted in the particular case. When using commodity price lists (in a recognised and transparent commodity market), relevant circumstances such as the nature of the commodity, volume discounts, timing of transactions, terms of insurance, terms of delivery, and currency, among others, must be considered. In this case, the agreements and contracts that fix the terms of these factors are contrasted with those of third parties, in order to verify whether they coincide with those that would have been agreed in comparable circumstances. Under these premises, the Court finds that the defendant, through the use of the CUP method, applied a database in which the price, even though it referred to a good similar to the one traded – thermal coal – and to the Btus of this, was not sufficient to prove that the prices set in said database were for transactions in which the parties assumed similar functions, risks and negotiation terms as those of the transaction analysed. Nor is there any analysis of the appropriateness or otherwise of reasonable technical economic adjustments in the application of that method, such as differences in contractual terms, the level of the distribution chain, the geographic market, the date, the associated intangible property, exchange rate risks, realistic buyer alternatives, among others, which could eliminate the differences between the transactions compared, and make the CUP method the most appropriate. All the factors referred to in the previous paragraph had a direct bearing on the price determined in the thermal coal sales transaction between the related parties, since, otherwise, the McCloskey price list would end up setting a price equivalent to that which would have been obtained in sales to final customers, without taking into account that the allocation of functions and risks must attribute a value to the functions performed by Glencore in the controlled transaction. This is because the analysis must be carried out with respect to the price of sale to an entity that then resells the coal to the final customer, which assumes significant risks, not only of invoicing, collection and maintenance of the customer with a low portfolio risk as the defendant claims. Indeed, the Chamber notes that the Defendant assumes the allocation of risks in the coal sales transaction, but in applying the McCloskey price list does not set out the reasons why it considers that the price set therein is the one that effectively reflects the risk allocation raised, and whether it is identified with the conditions fixed between CET and its related party, but merely states that, since it is the plaintiff who bears most of the risks, it should receive a higher remuneration, and that, since the sale price is lower than the price quoted on a public market, the price indicated in the McCloskey database should be used. Furthermore, the Board notes that the defendant did not set out in detail the reasons why it considered that the method selected by the applicant (TNMM) was not the most appropriate for the controlled transaction, but merely stated that this method would be applicable if the market conditions did not match the situation of the product sold, if there were no public prices that could be applied to the product sold, and if the product sold differed significantly from the publicly traded product.