TPcases

Database of Transfer Pricing Case Laws

Latvia vs SIA „RPM”, May 2013, Administrative District Court, A420496211 (A-00305-13/7)

Posted on May 22, 2013 | By Courts of Latvia | No comments

Category: Benchmark, Range and Median, Comparability Analysis, Transfer Pricing Methods | Tag: Comparability analysis, FAR analysis, Functional analysis, Interquartile range (IQR), Most appropriate method (MAM), Net Profit Indicator/Profit Level Indicator (PLI), Resale Price Method (RPM)

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The tax authority (SRS) had disregarded the TP method chosen by the taxpayer and performed its own TP analysis which showed that the income had been below the 1. quartile, and on that basis an assessment of additional taxable income was issued.

Judgment

The Administrative Court largely annulled the assessment and ruled in favour of the taxpayer.

The court emphasised the need for the tax authority to justify its reasons for rejecting a particular TP method and its choice of criteria in a benchmarking study.

The court found that the tax authority had failed to provide sufficient justification for its choice of TP method, profit level indicator and comparables due to an incorrect comparability analysis.

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Related Guidelines

TPG2022 Chapter III paragraph 3.66A similar investigation should be undertaken for potential comparables returning abnormally large profits relative to other potential comparables....

TPG2022 Chapter III paragraph 3.65Generally speaking, a loss-making uncontrolled transaction should trigger further investigation in order to establish whether or not it can be a comparable. Circumstances in which loss-making transactions/ enterprises should be excluded from the list of comparables include cases where losses do not reflect normal business conditions, and where the losses...

TPG2022 Chapter III paragraph 3.64An independent enterprise would not continue loss-generating activities unless it had reasonable expectations of future profits. See paragraphs 1.149-1.151. Simple or low risk functions in particular are not expected to generate losses for a long period of time. This does not mean however that loss-making transactions can never be comparable....

TPG2022 Chapter III paragraph 3.63Extreme results might consist of losses or unusually high profits. Extreme results can affect the financial indicators that are looked at in the chosen method (e.g. the gross margin when applying a resale price, or a net profit indicator when applying a transactional net margin method). They can also affect...

TPG2022 Chapter III paragraph 3.62In determining this point, where the range comprises results of relatively equal and high reliability, it could be argued that any point in the range satisfies the arm’s length principle. Where comparability defects remain as discussed at paragraph 3.57, it may be appropriate to use measures of central tendency to...

TPG2022 Chapter III paragraph 3.61If the relevant condition of the controlled transaction (e.g. price or margin) falls outside the arm’s length range asserted by the tax administration, the taxpayer should have the opportunity to present arguments that the conditions of the controlled transaction satisfy the arm’s length principle, and that the result falls within...

TPG2022 Chapter III paragraph 3.60If the relevant condition of the controlled transaction (e.g. price or margin) is within the arm’s length range, no adjustment should be made....

TPG2022 Chapter III paragraph 3.57It may also be the case that, while every effort has been made to exclude points that have a lesser degree of comparability, what is arrived at is a range of figures for which it is considered, given the process used for selecting comparables and limitations in information available on...

TPG2022 Chapter III paragraph 3.20In order to select and apply the most appropriate transfer pricing method to the circumstances of the case, information is needed on the comparability factors in relation to the controlled transaction under review and in particular on the functions, assets and risks of all the parties to the controlled transaction,...

TPG2022 Chapter I paragraph 1.85 (Example 3)Company A has acquired ownership of a tangible asset and enters into contracts for the use of the asset with unrelated customers. Under step 1 utilisation of the tangible asset, that is the risk that there will be insufficient demand for the asset to cover the costs Company A has...

Supplemental Guidance

Panama vs Puma Energy Bahamas SA, June 2024, Supreme Court, N° 849112020Puma Energy Bahamas SA, a petroleum products wholesaler in Panama, faced a $39 million taxable income adjustment for FY 2013–2014 after the Tax Administration identified inconsistencies in its transfer pricing documentation. The Administrative Tax Tribunal ruled in favour of the tax authority in 2020, and Panama's Supreme Court upheld that...

Panama vs “Petroleum Wholesale Corp”, September 2020, Administrative Tribunal, Case No TAT-RF-062A Panamanian petroleum wholesale distributor contested a $14 million transfer pricing assessment covering fiscal years 2013 and 2014, after tax authorities identified inconsistencies between its transfer pricing documentation and financial reports. The Panama Administrative Tribunal ruled in favour of the tax authority in September 2020, upholding the assessment with only...

Italy vs Prinoth S.p.A., December 2022, Supreme Administrative Court, Case No 36275/2022An Italian snow groomer manufacturer faced a transfer pricing reassessment after tax authorities rejected the group's cost-plus method and applied a CUP approach, citing a 11% intra-group mark-up against 20–32% charged to independent distributors. After losing at first instance, Prinoth S.p.A. appealed. Italy's Supreme Administrative Court remanded the case for...

Czech Republic vs Futaba Czech s.r.o., September 2024, Regional Court, Case No 31 Af 3/2024A Czech subsidiary of the Japanese Futaba group, operating as an automotive components manufacturer, challenged a transfer pricing assessment covering loss-making years 2016–2017. The tax authority applied TNMM with net cost plus as the profit level indicator, reallocating the functional and risk profile through a value-chain analysis. The Czech Regional...

El Salvador vs “Sales Corp”, December 2020, Tax Court, Case No R1705038.TMA Salvadoran company appealed a tax authority assessment disallowing deductions for intra-group costs of sales. The Tax Court partially upheld the assessment but set aside the portions relying on OECD Transfer Pricing Guidelines, ruling that for the audited fiscal year El Salvador's Tax Code had not yet incorporated those guidelines...

Greece vs “Diary Distributor Ltd.”, November 2021, Administrative Tribunal, Case No 579/2021A Greek dairy distributor was audited by the tax authorities, who determined that prices paid to related parties in FY 2017 exceeded the arm's length range and issued an upward taxable income adjustment. The company appealed, but the Administrative Tribunal dismissed the appeal in November 2021, fully upholding the tax...

Spain vs Delsey España S.A, February 2022, Tribunal Superior de Justicia, Case No 483/2022 (Roj: STSJ CAT 1467/2022 – ECLI:ES:TSJCAT:2022:1467)Delsey España, a Spanish subsidiary of the French Delsey group distributing travel goods, was audited for transfer pricing compliance for FY 2011–2014 after reporting losses from 2005–2010. The Spanish tax authority rejected the taxpayer's CUP and RPM methods and applied TNMM instead, adjusting profits upward. The Tribunal Superior de Justicia...

Chile vs Avery Dennison Chile S.A., May 2022, Court of Appeal, Case N° Rol: 99-2021Avery Dennison Chile S.A. used a full-range resale price minus method to price its distribution activities and placed surplus capital with a Luxembourg group entity at 0.79% interest. Chilean tax authorities challenged both, issuing an assessment. The Tax Tribunal found in the taxpayer's favour in March 2021, and Chile's Court...

TPcases

Latvia vs SIA „RPM”, May 2013, Administrative District Court, A420496211 (A-00305-13/7)

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