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Indonesia vs ARPTe Ltd, January 2019, Tax Court, Case No. PUT-108755.15/2013/PP/M.XVIIIA

Posted on January 22, 2019 | By Courts of Indonesia | No comments

Category: Disallowed Deduction, Royalty and License Payments, Services and Fees | Tag: Benefit test, Intra-group services, Management fee, Mining, Royalty, Singapore

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ARPTe Ltd had made payments to its parent company, Archipelago Resource Pte Ltd, for management services and the use of intangible assets.

The deductibility of these payments was disputed by the tax authorities and a notice of assessment was issued disallowing the deductions.

An appeal was lodged with the Tax Court.

Judgment

The court overturned the tax authorities’ assessment and ruled in favour of ARPTe Ltd.

According to the court, ARPTe Ltd had provided sufficient evidence that the management services and intangible assets provided by the subsidiary had actually benefited the company.

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Related Guidelines

TPG2022 Chapter VII paragraph 7.55While low value-adding intra-group services may provide benefits to all recipients of those services, questions may arise about the extent of the benefits and whether independent parties would have been willing to pay for the service or perform it themselves. Where the MNE group has followed the guidance of the...

TPG2022 Chapter VII paragraph 7.54As discussed in paragraph 7.6, under the arm’s length principle an obligation to pay for an intra-group service arises only where the benefits test is satisfied, i.e. the activity must provide the group member expected to pay for the service with economic or commercial value to enhance or maintain its...

TPG2022 Chapter VII paragraph 7.32It may be necessary to perform a functional analysis of the various members of the group to establish the relationship between the relevant services and the members’ activities and performance. In addition, it may be necessary to consider not only the immediate impact of a service, but also its long-term...

TPG2022 Chapter VII paragraph 7.17These services may be available on call and they may vary in amount and importance from year to year. It is unlikely that an independent enterprise would incur stand-by charges where the potential need for the service was remote, where the advantage of having services on-call was negligible, or where...

TPG2022 Chapter VII paragraph 7.11In general, no intra-group service should be found for activities undertaken by one group member that merely duplicate a service that another group member is performing for itself, or that is being performed for such other group member by a third party. An exception may be where the duplication of...

TPG2022 Chapter VII paragraph 7.8Some intra-group services are performed by one member of an MNE group to meet an identified need of one or more specific members of the group. In such a case, it is relatively straightforward to determine whether a service has been provided. Ordinarily an independent enterprise in comparable circumstances would...

TPG2022 Chapter VII paragraph 7.7The analysis described above quite clearly depends on the actual facts and circumstances, and it is not possible in the abstract to set forth categorically the activities that do or do not constitute the rendering of intra-group services. However, some guidance may be given to elucidate how the analysis would...

TPG2022 Chapter VII paragraph 7.6Under the arm’s length principle, the question whether an intra-group service has been rendered when an activity is performed for one or more group members by another group member should depend on whether the activity provides a respective group member with economic or commercial value to enhance or maintain its...

Eswatini vs “Eswatini Distributor Ltd.”, July 2024, Revenue Appeals Tribunal, Case No RATE/IT012/23“Eswatini Distributor Ltd. is a wholly owned subsidiary of a South African multinational. It had paid its South African parent for various intra-group services – management fees – and deducted these payments from its taxable income. According to Eswatini Distributor Ltd, these costs were legitimately claimed and provided and invoiced...

TPG2022 Chapter VII paragraph 7.42Another example of intra-group services is the administration of licences. The administration and enforcement of intangible property rights should be distinguished from the exploitation of those rights for this purpose. The protection of a licence might be handled by a group service centre responsible for monitoring possible licence infringements and...

Supplemental Guidance

Bulgaria vs “B-Production”, August 2017, Supreme Administrative Court, Case No 10185“B-Production” is a subsidiary in a US multinational group and engaged in production and sales. “B-Production” pays services fees and royalties to its US parent. Following an audit, the tax authorities issued an assessment where deductions for these costs had been reduced which in turn resulted in additional taxabel income....

India vs Herbalife International India , April 2017, Income Tax Appellate Tribunal – Bangalore, IT(TP)A No.924/Bang/2012Herbalife International India is a subsidiary of HLI Inc., USA. It is engaged in the business of dealing in weight management, food and dietary supplements and personal care products. The return of income for the assessment year 2006-07 was filed declaring Nil income. The Indian company had paid royalties and...

Romania vs A. S.A, May 2023, Supreme Administrative Court, Case No 2594/2023A. Romania S.R.L. had purchased gas and strategy consulting services from related parties. The tax authorities issued an assessment where part of the deduction for these costs had been denied by application of the arm’s length principle. The court of first instance ruled in favor of A S.A and an...

Italy vs Gru Comedil s.r.l., March 2024, Supreme Court, Case No 6584/2024The tax authorities had issued a tax assessment disallowing the deductibility of intra-group service costs charged to Gru Comedil s.r.l. because, in the opinion of the tax authorities, the company had not provided sufficient documentation and proof of the benefits of the alleged services received (management services). Gru Comedil, and...

India vs Herbalife International India, November 2023, Income Tax Appellate Tribunal – “A’’ BENCH, IT(TP)A No.1406/Bang/2010Herbalife International India is a subsidiary of HLI Inc., USA. It is engaged in the business of dealing in weight management, food and dietary supplements and personal care products. The return of income for the assessment year 2006-07 was filed declaring Nil income. The Indian company had paid royalties and...

France vs Rayonnages de France, February 2022, CAA of Douai, No 19DA01682Rayonnages de France paid royalties and management fees to a related Portuguese company. Following an audit for FY 2010 – 2012 the French tax authorities denied tax deductions for the payments by reference to the the arm’s length principle. The court of first instance decided in favor of the tax...

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Poland vs “W.W.P.H. sp. z o. o”, January 2024, Administrative Court, Case No I SA/Bd 614/23Following an audit the tax authority issued an assessment where they denied deductions of interest paid on an intra group loan and expenses for intra-group services. In the opinion of the tax authorities, the loan was an economically irrational transaction that should not be recognised for tax purposes. With regard...

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Indonesia vs ARPTe Ltd, January 2019, Tax Court, Case No. PUT-108755.15/2013/PP/M.XVIIIA

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