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Peru vs “Soybean-oil”, March 2023, Tax Court, Case No 02261-3-2023

Posted on March 22, 2023 | By Courts of Peru | No comments

Category: Benchmark, Range and Median, Commodity Transactions, Comparability Analysis, Transfer Pricing Methods | Tag: Cayman Islands, Choice of tested party, Commodities, Comparable Uncontrolled Price method (CUP), External CUP, Return On Sale (ROS), Soybean oil, Tested party, Transactional net margin method (TNMM)

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“Soybean-oil” had purchased crude soybean oil from a related party and used the CUP method to price the controlled transactions.

The tax authorities disagreed with the choice of method and instead applied a TNMM. On that basis an assessment of additional taxable profits was issued.

Not satisfied with the assessment, “Soybean-oil” appealed to the Tax Court.

Decision of the Court

The Court set aside the assessment and ruled in favour of “Soybean-oil”.

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Related Guidelines

TPG2022 Chapter III paragraph 3.19This can be illustrated as follows. Assume that company A manufactures two types of products, P1 and P2, that it sells to company B, an associated enterprise in another country. Assume that A is found to manufacture P1 products using valuable, unique intangibles that belong to B and following technical...

TPG2022 Chapter II paragraph 2.110See in particular paragraphs 3.18-3.19 for guidance on the tested party, paragraphs 3.55-3.66 for guidance on the arm’s length range, and paragraphs 3.75-3.79 for guidance on multiple year data....

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 III paragraph 3.18When applying a cost plus, resale price or transactional net margin method as described in Chapter II, it is necessary to choose the party to the transaction for which a financial indicator (mark-up on costs, gross margin, or net profit indicator) is tested. The choice of the tested party should...

TPG2022 Chapter II paragraph 2.112A similar approach may be required when there are differences in functions performed by the parties being compared. Assume that the facts are the same as in the example at paragraph 2.44 except that it is the comparable independent enterprises that perform the additional function of technical support and not...

TPG2022 Chapter II paragraph 2.111By way of illustration, the example of cost plus at paragraph 2.59 demonstrates the need to adjust the gross mark-up arising from transactions in order to achieve consistent and reliable comparison. Such adjustments may be made without difficulty where the relevant costs can be readily analysed. Where, however, it is...

TPG2022 Chapter II paragraph 2.109While it is not specific to the transactional net margin method, the issue of the use of non-transactional third party data is in practice more acute when applying this method due to the heavy reliance on external comparables. The problem arises because there are often insufficient public data to allow...

TPG2022 Chapter II paragraph 2.108A situation where Berry ratios can prove useful is for intermediary activities where a taxpayer purchases goods from an associated enterprise and on-sells them to other associated enterprises. In such cases, the resale price method may not be applicable given the absence of uncontrolled sales, and a cost plus method...

TPG2022 Chapter II paragraph 2.107The selection of the appropriate financial indicator depends on the facts and circumstances of the case, see paragraph 2.82. Concerns have been expressed that Berry ratios are sometimes used in cases where they are not appropriate without the caution that is necessary in the selection and determination of any transfer...

TPG2022 Chapter II paragraph 2.106“Berry ratios” are defined as ratios of gross profit to operating expenses. Interest and extraneous income are generally excluded from the gross profit determination; depreciation and amortisation may or may not be included in the operating expenses, depending in particular on the possible uncertainties they can create in relation to...

Supplemental Guidance

Kenya vs Beta Healthcare International Limited, February 2024, Tax Appeals Tribunal, Appeals No 866 of 2022 – [2024] KETAT 143 (KLR)Following an audit of Beta Healthcare International Limited, a Kenyan subsidiary of the Aspen Healthcare Group, the Kenya Revenue Authority applied the CUP method rather than the TNMM used by the company to determine arm's length prices. The Tax Appeals Tribunal dismissed the company's appeal in 2024, finding insufficient evidence...

Peru vs Empresa Minera Los Quenuales S.A., June 2019, Tax Court, Case No 05826-1-2019A Peruvian mining company used the transactional net margin method to price controlled sales of zinc concentrates to related party Glencore International AG. The tax authorities rejected this approach and applied a CUP method, issuing an additional tax assessment. Peru's Tax Court ruled mostly in favour of the taxpayer in...

Greece vs “Marine Fuel Ltd”, January 2022, Administrative Tribunal, Case No 36/2022A Greek marine fuel company was audited for FY 2015, with tax authorities rejecting its chosen CUP method and applying TNMM instead, resulting in an upward transfer pricing adjustment. The company challenged the assessment before the Dispute Settlement Board, which dismissed the complaint and upheld the tax authority's position, confirming...

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,...

Italy vs Burckert Contromatic Italiana S.p.A., November 2021, Corte di Cassazione, Sez. 5 Num. 1417 Anno 2022An Italian subsidiary of the German Bürkert Group challenged a 2007 transfer pricing assessment concerning intra-group costs paid to its Swiss parent. The tax authority applied TNMM using three comparables and found a return on sales of 13.35%, disallowing excess costs. After lower courts favoured the taxpayer, Italy's Supreme Court...

Colombia vs SONY Music Entertainment Colombia S.A., July 2021, The Administrative Court, Case No. 20641Sony Music Entertainment Colombia had paid administrative service fees to a related US entity. Colombian tax authorities disallowed deductions after rejecting revised transfer pricing documentation that changed the tested party to the US company. The Administrative Court ruled in favour of Sony in 2021, accepting the corrected documentation and finding...

Kenya vs Oracle Technology Systems (Kenya) Limited, June 2021, Tax Appeals Tribunal, Appeals No 149 of 2019Oracle Technology Systems (Kenya) Limited, a distributor of Oracle products, challenged a transfer pricing assessment for FY2015–2017 in which the Kenya tax authority applied the CUP method rather than the TNMM. The taxpayer argued its controlled transactions were at arm's length. The Tax Appeals Tribunal found the method selection inadequately...

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...

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Peru vs “Soybean-oil”, March 2023, Tax Court, Case No 02261-3-2023

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