Finland vs Corp, Sep. 2017, HFD No. 2017-146

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Ruling by the Finnish Supreme Administrative Court on a service provider’s obligation to add a mark-up on its costs when calculating an arm’s length service charge.

A Plc had provided services to it’s subsidiaryes related to supply chains, marketing and product brand management services, and human resource management services and adb services. Most of A Plc’s income consisted of these service. The amount invoiced corresponded to the servide “production cost”. No mark-up had been added.

The tax administration had set a 7% mark-up determined on the basis on a search of comparative companies.

The Supreme Administrative Court considered that, in order for A Plc’s service charges to be in accordance with the arm’s length principle, a profit margin should be added. However, the mark-up on the service charges should not have been determined on the basis of the level of profits in third-party comparables. Services provided by independent consultancy companies and parent companies in groups differ from each other in ways that significantly affect the amount of profit, and these differences cannot be eliminated by adjustments.

The Court found that the profit should be determined on the basis of the benefits from the services to the service reciving group companies.

The tax assessment of 7% were lowered to a 3% mark-up.

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KHO 2017 146


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