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 comparable license agreements chosen with regard to determining the intercompany license fees had such differences regarding products, contract terms and market areas that they were incomparable. With regard to the sale of the finished products, they found that the resale price method had not been applied on a sufficiently reliable basis. By reference to the 2010 version of the OECD’s Transfer Pricing Guidelines, they considered the best method for determining the arm’s length remuneration of the group companies was the residual profit split method.
The Supreme Administrative Court found that the choice of transfer pricing method constituted the central starting point for the assessment of whether the companies’ tax declarations were to be regarded as incorrect. In this respect special attention should be paid to the version of the OECD Transfer Pricing Guidelines published at the time where the tax return had been submitted. The arm’s length remuneration could be determined by applying the transfer pricing methods used by the companies, and the tax declarations for the years in question were not incorrect in terms of the transfer pricing method applied.
The court further noted that the OECD Transfer Pricing Guidelines act as an important source of interpretation. However, in regard to the choice of transfer pricing method, the court did not approve of using guidance provided in the 2010 for fiscal years 2006 – 2008. The later 2010 version of the guidelines contained fundamentally new interpretative recommendations (best method) compared to the 1995 version, where the traditional methods were considered superior to the transactional profit methods, and where the profit split method was reserved to exceptional circumstances.
Finland vs taxpayer 2018 HFD