At issue was whether “Ceramic Tiles Corp” had transferred intangibles (i.e., goodwill) to two related companies, B and C, when certain activities were transferred under a share transfer contract.
The tax authority argued that “Ceramic Tile Corp”‘s wholesale division had significant excess earning capacity which was reflected in profit margins six times higher than industry averages and that the company transferred this valuable goodwill to B and C without receiving any consideration as part of a broader transaction. Based on this, an assessment was issued where additional taxable income had been determined.
“Ceramic Tiles Corp” rebutted that no valuable goodwill was transferred, that its prior earnings were entirely due to support from B and C and the personal business capabilities of the shareholder A, and that no actual business rights or advantages had been passed on from “Ceramic Tiles Corp” to B and C.
Decision
The Tribunal agreed with “Ceramic Tile Corp” and set aside the assessment. It concluded that “Ceramic Tile Corp” did not have any goodwill to transfer.