“NGK-Insulators” is engaged in manufacturing and selling parts to the automotive industry (Diesel Particulate Filters or DPF’s) and had entered into an agreement with a group company in Poland granting it licenses to use intangibles (know-how and technology) in return for license/royalty payments.
The tax authorities found that the amount of the consideration paid to “NGK-Insulators” for the licenses had not been at arm’s length and issued an assessment of additional taxes.
“NGK-Insulators” filed a complaint and the district court set aside the assessment in a Judgment issued in November 2020.
An appeal was then filed by the authorities with the Tokyo High Court.
Judgment of the Court
The Court found that the original judgment from the Tokyo District Court was appropriate and largely dismissed the appeal of the tax authorities.
Excerpt (in English)
“On the other hand, in this case, as already mentioned above, it is recognised that the important intangible assets and other factors overlap as multiple profit-generating factors and that excess profit (residual profit) was generated in unison while mutually influencing each other, and such circumstances, including the content of the profit-generating factors, do not apply to the comparable corporation in this case. Such circumstances, including the content of the profit-generating factors, do not apply to the comparable corporation in this case, and these profit-generating factors cannot be taken into account in the calculation of basic profit, so the Honda case should also be regarded as a different case.
According to the selection criteria in this case, in selecting the comparable corporation in this case, practically, only the fact that it is an EU member state company listed in ORBIS, its industry code (automotive parts and accessories manufacturing industry), its turnover (business scale), its location, the fact that intangible assets have not been formed, etc. are taken into consideration. However, this does not mean that the comparable corporations in this case do not have comparability in the calculation of basic profit.
The above argument of the respondent cannot be adopted either.
(d) Therefore, without going into the rest of the points, there is no reason for the respondent’s supplementary allegation (2).
…
4 Conclusion
According to the above, the amount of corporation tax and the amount of additional tax for under-declaration to be paid by the appellant for each of the fiscal years in question is as shown in Appendix 7 of the original judgment, and each part of the dispositions in excess of these amounts is illegal, so the appellant’s claims are justified to this extent and the dispositions in question should be revoked to this extent, and the original judgment to the same effect is appropriate. The original judgment is appropriate, and as there is no reason for this appeal and this supplementary appeal, they are dismissed and the judgment is given in the main text.”
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