Greece vs “CUP Ltd.”, October 2021, Tax Court, Case No 3495/2021

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This case deals with the choice of transfer pricing method.

Following an audit, an upwards adjustment of the taxable income was issued by the tax authorities. The adjustment was based on application of the cost plus method instead of the CUP method as had been chosen by the company.

The company disagreed with the assessment and filed an appeal with the tax court.

Judgement of the Tax Court

The Tax Court allowed the appeal and set aside the assessment of the tax authorities due to lack of statement of reasons for choosing another transfer pricing method.

“Because the provisions of Article 17 §§§1,2 of the Code of Administrative Procedure (Law 2690/1999) entitled ‘Reasons’ set out the following: “1. The individual administrative act must contain a statement of reasons, which must include a statement of the existence of the legal requirements for its issuance. 2. The statement of reasons must be clear, specific, adequate and must be apparent from the information on the file, unless it is expressly provided by law that it must be contained in the body of the act’. It follows from the combination of the above provisions that the audit report, which constitutes the statement of reasons for the act imposing the tax, must be clear, specific and sufficient. The purpose of the statement of reasons is to enable both the taxpayer and the Court of Justice to verify whether the administrative act was adopted for the benefit of the taxpayer and whether it complies with or is in conformity with the rules of law which define the framework of legality (cf. Epaminondas Spiliotopoulos, Administrative Law Manual, § 5.Reasons for the administrative act).
According to case law, the complete vagueness of the Audit Report is equivalent to its non-existence (see CoE 565/2008, 2054/1995).
Because, as is clear from the relevant Audit Report (pp. 48-49), in this particular case, the audit rejected the method of the comparable uncontrolled price (CUP), without indicating whether it was possible to maintain this method but with reasonable adjustments.
Since in view of the above, the Final Income Tax Adjustment Act No. …………./2020 of the Head of the C.E.M.E.P., for the tax year 2014 is held to be formally defective and therefore void.”

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