Following an audit, the tax authorities determined that the price paid by “Tech-distributor” for products purchased from its related party had been above the interquartile range, and therefore it determined the median value of said price range as the market value. On this basis an assessment of additional taxable income of S/3,685,918.00 was issued.
A complaint was filed by “Tech-distributor” with the Tax Court.
Decision of the Court
The Tax Court dismissed the complaint and upheld the assessment issued by the tax authorities.
Excerpts in English
“That from the evaluation carried out in aulos, it can be concluded that the CUP method is the one that best suits the reality of the appellant. The appellant is a company whose line of business consists of importing computer products and accessories, for which it is possible to have information on product sales operations and their characteristics: it is possible to identify comparable operations with which to establish market values; and it is possible to have reliable public information, which allows identifying and detailing the prices agreed both in the analyzed operations and in the comparable ones.
(…)
Regarding the appellant’s argument in the sense that the 75th percentile range has not been calculated correctly, pointing out that the Administration has determined that there are products above the 75 percentile range, the appellant points out that the Administration has determined that there are products above the 75 percentile range, having taken as a basis the median when it should have taken the 75th percentile rates, it should be noted that in accordance with article 114 of the Regulations of the Income Tax Law, according to the law in force at the date of the facts, for the determination of the price, amount of the consideration or profit margin that would have been used between independent parties in comparable transactions and that results from the application of any of the methods indicated in paragraph e) of Article 32-A of the Law, a range of prices, amounts of consideration or profit margins must be obtained when there are two or more comparable transactions and when the determination of the price used by independent parties does not result in an exact price or margin but only in an approximation to those comparable transactions and circumstances. The aforementioned article adds that if the value agreed between the related parties is within the aforementioned range, it will be considered as agreed at market value. If, on the contrary, the agreed value is outside the range and, as a consequence, a lower income tax is determined in the country and in the respective fiscal year, the market value will be the median of such range. Consequently, it is unlawful for the Administration to have taken as market value the median of the range, in such sense, the appellant’s allegation that it should have taken the 75 percentile is not valid.
(…)
That additionally, as indicated, the Technical Study of Transfer Pricing itself indicates that in the case of the units that exceed the amount of the determined range, there is a risk of eventual payment of Income Tax, due to the fact that when the appellant considers a higher value for the acquisition of its products, it would have determined a lower profit and, therefore, a lower payment of Income Tax for the period (page 5081), in this sense, contrary to what the appellant indicated in this instance. The same Technical Study of Transfer Pricing presented, warns about the incidence of a lower payment of Income Tax in the observed period.
Consequently, in accordance with the rules and facts set forth above, the assessment for undeclared income determined by application of the transfer prices should be maintained and the appealed decision should be upheld in this respect”
Click here for English Translation