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Database of Transfer Pricing Case Laws

Peru vs Empresa Minera Los Quenuales S.A., June 2019, Tax Court, Case No 05826-1-2019

Posted on June 25, 2019 | By Courts of Peru | No comments

Category: Commodity Transactions, Transfer Pricing Methods | Tag: Commodities, Comparable Uncontrolled Price method (CUP), External CUP, Mining, Most appropriate method (MAM), Quoted commodity prices, Transactional net margin method (TNMM)

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Empresa Minera Los Quenuales S.A. had used the transactional net margin method to determine the arm’s length price for its controlled transactions consisting of sales of zinc concentrates to a related party, Glencore International AG, domiciled in Switzerland.

The tax authorities disagreed with the choice of method and instead applied a CUP method, on the basis of which an assessment of additional taxable income was issued.

Not satisfied with the assessment, Empresa Minera Los Quenuales S.A. appealed to the Tax Court.

Decision

The Tax Court ruled mostly in favour of Empresa Minera Los Quenuales S.A.

According to the Tax Court, the tax authorities had not taken into account various comparability factors in determining the arm’s length price of the zinc concentrate under the chosen method – such as weight, percentage of humidity, loss, ore grade, recovery factor, etc.

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Related Guidelines

TPG2022 Chapter II paragraph 2.26As another example, assume a taxpayer sells 1000 tons of a product for $80 per ton to an associated enterprise in its MNE group, and at the same time sells 500 tons of the same product for $100 per ton to an independent enterprise. This case requires an evaluation of...

TPG2022 Chapter II paragraph 2.25One illustrative case where adjustments may be required is where the circumstances surrounding controlled and uncontrolled sales are identical, except for the fact that the controlled sales price is a delivered price and the uncontrolled sales are made f.o.b. factory. The differences in terms of transportation and insurance generally have...

TPG2022 Chapter II paragraph 2.24The CUP method is a particularly reliable method where an independent enterprise sells the same product as is sold between two associated enterprises. For example, an independent enterprise sells unbranded Colombian coffee beans of a similar type, quality, and quantity as those sold between two associated enterprises, assuming that the...

TPG2022 Chapter II paragraph 2.23The following examples illustrate the application of the CUP method, including situations where adjustments may need to be made to uncontrolled transactions to make them comparable uncontrolled transactions....

TPG2022 Chapter II paragraph 2.22A particularly relevant factor for commodity transactions determined by reference to the quoted price is the pricing date, which refers to the specific time, date or time period (e.g. a specified range of dates over which an average price is determined) selected by the parties to determine the price for...

TPG2022 Chapter II paragraph 2.21In order to assist tax administrations in conducting an informed examination of the taxpayer’s transfer pricing practices, taxpayers should provide reliable evidence and document, as part of their transfer pricing documentation, the price-setting policy for commodity transactions, the information needed to justify price adjustments based on the comparable uncontrolled transactions...

TPG2022 Chapter II paragraph 2.20For the CUP method to be reliably applied to commodity transactions, the economically relevant characteristics of the controlled transaction and the uncontrolled transactions or the uncontrolled arrangements represented by the quoted price need to be comparable. For commodities, the economically relevant characteristics include, among others, the physical features and quality...

TPG2022 Chapter II paragraph 2.19Under the CUP method, the arm’s length price for commodity transactions may be determined by reference to comparable uncontrolled transactions and by reference to comparable uncontrolled arrangements represented by the quoted price. Quoted commodity prices generally reflect the agreement between independent buyers and sellers in the market on the price...

TPG2022 Chapter II paragraph 2.18Subject to the guidance in paragraph 2.2 for selecting the most appropriate transfer pricing method in the circumstances of a particular case, the CUP method would generally be an appropriate transfer pricing method for establishing the arm’s length price for the transfer of commodities between associated enterprises. The reference to...

TPG2022 Chapter II paragraph 2.3Traditional transaction methods are regarded as the most direct means of establishing whether conditions in the commercial and financial relations between associated enterprises are arm’s length. This is because any difference in the price of a controlled transaction from the price in a comparable uncontrolled transaction can normally be traced...

Supplemental Guidance

Peru vs Empresa Minera Los Quenuales S.A., April 2024, Supreme Court, CASACIÓN N° 31608-2022A Peruvian mining company used the transactional net margin method to price controlled sales of zinc concentrates to Glencore International AG. The tax authorities rejected this approach and applied the CUP method, issuing an additional income assessment. The Tax Court initially sided with the taxpayer, but Peru's Supreme Court overturned...

Peru vs “Soybean-oil”, March 2023, Tax Court, Case No 02261-3-2023A Peruvian company purchased crude soybean oil from a related party and applied the CUP method to price the controlled transactions. The tax authority rejected this approach, substituting the TNMM and issuing an additional taxable profits assessment. The Peru Tax Court set aside the assessment in March 2023, upholding the...

Colombia vs Carbones El Tesoro S.A., September 2021, Administrative Court, Case No. 22352Carbones El Tesoro S.A. used the TNMM to price coal sales to related party Glencore International AG. Colombian tax authorities challenged this, applying the CUP method using McCloskey quoted commodity prices and disallowing a net loss of approximately COP 30.5 billion. Colombia's Administrative Court set aside the assessment in 2021,...

Indonesia vs PT Pacific Palmindo Industri, May 2023, Supreme Court, Case No. 1396/B/PK/Pjk/2023PT Pacific Palmindo Industri challenged a Tax Court decision upholding a business turnover correction of IDR 97.6 billion on related-party commodity sales. The tax authority applied the CUP method using Malaysian Palm Oil Board market quotations. Indonesia's Supreme Court rejected the taxpayer's review in May 2023, confirming that both CUP...

Latvia vs SIA Severstal Distribution, December 2021, Administrative Court of Appeal, Case No A420576312, SKA-314/2021A Latvian steel distributor was audited for FY 2008–2009, with the Revenue Service finding that metal products were purchased from related companies at above-market prices. The company argued it had applied the TNMM and CUP methods using quoted steel prices, but the Administrative Court of Appeal dismissed its appeal in...

Greece vs “Raw Materials Ltd”, December 2023, Administrative Tribunal, Case No 2129/2023A Greek company challenged a tax authority assessment covering intra-group sales and purchases in FY 2018 and 2019, arguing the transfer pricing method had been misapplied. The Dispute Resolution Board disagreed, upholding the assessment and confirming that internal comparables — transactions with independent third parties — were more reliable than...

Colombia vs Puerto Arturo S.A.S., April 2025, Supreme Administrative Court, Case No. 25000-23-37-000-2021-00357-01 (28256)A Colombian emerald producer used the CUP method to justify related-party sales prices, relying on independent appraiser valuations as comparables. The tax authority rejected this approach and applied TNMM using a cost-based profit level indicator, adjusting income to the benchmarking median. The Council of State upheld the assessment in April...

Zambia vs Mopani Copper Mines Plc., May 2020, Supreme Court of Zambia, Case No 2017/24Mopani Copper Mines Plc. sold copper to related party Glencore International AG at prices significantly below those charged to third parties. The Zambian Revenue Authority issued a transfer pricing assessment concluding prices were not arm's length and tax had been reduced. After the Tax Appeal Tribunal ruled for the ZRA,...

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Peru vs Empresa Minera Los Quenuales S.A., June 2019, Tax Court, Case No 05826-1-2019

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