Adobe Systems Co., a Japanese subsidiary of Adobe Systems Inc., received remuneration from Dutch and Irish group companies for promotion and marketing of Adobe software sold in Japan
The remuneration of Adobe Systems Co. was determined as general administrative expenses plus 1.5% of net sales in Japan.
A transfer pricing assessment was issued by the Japanese tax authorities where transfer prices were instead based profit margins derived in comparable transactions.
Adobe Systems filed an appeal seeking revokal of the assessment.
Tokyo High Court held that the tax assessment should be revoked.
The burden of proof in relation to the legitimacy of the transfer pricing method applied was on the tax administration.
The transfer pricing method used by the tax authority was not consistent with the resale price method. The method applied by the tax authorities “…cannot be said to be “a method equivalent to the resale price standard method” prescribed in Article 66-4, Paragraph 2, Item 2, b of the Special Taxation Measures Law. Therefore, in this case, there is illegality in the process of calculating the inter-company price using this calculation method...”
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