Guatemala vs Petrolatin SA, January 2024, Supreme Court, Case No 137-2022

Posted on | By Courts of Guatemala | No comments
Category: Burden of Proof, Legality - Legitimacy - Constitutional, Transfer Pricing Documentation | Tag: , , ,
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Petrolatin S.A. was subject to a tax audit concerning transactions carried out with related parties.

During the audit, the tax authority concluded that the prices applied in these transactions did not comply with Guatemala’s transfer pricing legislation, and increased Petrolatin’s taxable income accordingly. This was based on the view of the administration that Petrolatin had not adequately demonstrated that the prices used reflected arm’s length conditions, as required by domestic legislation.

Petrolatin challenged the assessment through the administrative and judicial appeals process. The company argued that the tax authority had exceeded its legal powers, that the adjustments lacked a proper legal and factual basis, and that the administration had failed to correctly apply the transfer pricing rules in force. Petrolatin also contended that it had provided sufficient documentation and explanations to support the pricing applied in the controlled transactions, and that the burden of proof had wrongly been shifted onto the taxpayer.

Judgment

The Supreme Court rejected Petrolatin’s claims and upheld the reassessment.

It held that the Guatemalan tax authority had acted within the scope of its statutory powers in reviewing and adjusting related party transactions.

It confirmed that, under Guatemalan law, it is the taxpayer’s obligation to demonstrate that the prices applied in transactions with related parties comply with transfer pricing requirements.

The Court found that Petrolatin had not provided sufficient or convincing evidence to refute the tax authority’s conclusions, nor to demonstrate that the contested prices were at arm’s length.

 

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Related Guidelines

TPG2022 Chapter V paragraph 5.2This chapter provides guidance for tax administrations to take into account in developing rules and/or procedures on documentation to be obtained from taxpayers in connection with a transfer pricing enquiry or risk assessment. It also provides guidance to assist taxpayers in identifying documentation that would be most helpful in showing...
TPG2022 Chapter IV paragraph 4.17The Commentary on paragraph 2 of Article 9 of the OECD Model Tax Convention makes clear that the State from which a corresponding adjustment is requested should comply with the request only if that State “considers that the figure of adjusted profits correctly reflects what the profits would have been...
TPG2022 Chapter IV paragraph 4.16In practice, neither countries nor taxpayers should misuse the burden of proof in the manner described above. Because of the difficulties with transfer pricing analyses, it would be appropriate for both taxpayers and tax administrations to take special care and to use restraint in relying on the burden of proof...
TPG2022 Chapter IV paragraph 4.15Consider the same facts as in the example in the preceding paragraph. If the burden of proof is again guiding behaviour, a taxpayer in the first jurisdiction being a subsidiary of a taxpayer in the second jurisdiction (notwithstanding the burden of proof and these Guidelines), may be unable or unwilling...
TPG2022 Chapter IV paragraph 4.14When transfer pricing issues are present, the divergent rules on burden of proof among OECD member countries will present serious problems if the strict legal rights implied by those rules are used as a guide for appropriate behaviour. For example, consider the case where the controlled transaction under examination involves...
TPG2022 Chapter IV paragraph 4.13In jurisdictions where the burden of proof is on the taxpayer, tax administrations are generally not at liberty to raise assessments against taxpayers which are not soundly based in law. A tax administration in an OECD member country that applies the arm’s length principle, for example, could not raise an...
TPG2022 Chapter IV paragraph 4.12The implication for the behaviour of the tax administration and the taxpayer of the rules governing burden of proof should be taken into account. For example, where as a matter of domestic law the burden of proof is on the tax administration, the taxpayer may not have any legal obligation...
TPG2022 Chapter IV paragraph 4.11Like examination practices, the burden of proof rules for tax cases also differ among OECD member countries. In most jurisdictions, the tax administration bears the burden of proof both in its own internal dealings with the taxpayer (e.g. assessment and appeals) and in litigation. In some of these countries, the...
TPG2022 Chapter IV paragraph 4.5This section describes three aspects of transfer pricing compliance that should receive special consideration to help tax jurisdictions administer their transfer pricing rules in a manner that is fair to taxpayers and other jurisdictions. While other tax law compliance practices are in common use in OECD member countries – for...

Supplemental Guidance

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