Toyota del Perú S.A. applied the transactional net margin method (TNMM) to determine the arm’s length price for its controlled transactions involving the import of vehicles. The company made comparability adjustments and based its benchmarking analysis on multi-year data covering 2007 to 2009.
The tax authorities rejected both the comparability adjustments and the use of multi-year data, relying instead solely on financial data from 2009 without adjustments. As a result, Toyota’s margins fell outside the interquartile range, leading to an assessment based on the median.
Toyota appealed to the Tax Court, which held that since the multi-year data had been rejected, the tax authorities were required to carry out a new comparability analysis using only 2009 data.
The tax authorities challenged this decision, and the case ultimately reached the Supreme Court.
Judgment
The Supreme Court overturned the Tax Court’s ruling and remanded the case for a new decision. It instructed the Tax Court to address the core issue: whether the comparability adjustments made by Toyota were appropriate and, if not, whether the use of multi-year data was justified in determining the operating margin.
Paragraph d) of Article 32-A of the Consolidated Text of the Peruvian Income Tax Law provides that the transactions referred to in paragraph 4 of Article 32 are comparable to those carried out between independent parties, under the same or similar conditions. In the present case, the tax administration – despite having already determined the three-year period (2007 to 2009) for analysing the financial information of the six companies selected as comparables – used only the financial information for the 2009 financial year of the six comparable companies, stating that this period is the most representative of the sector’s profitability in the context of the economic crisis, without first carrying out the comparability analysis again from the first step, where the time frame to be applied was established, which is important given that it is up to the tax administration to determine that the comparable transactions of the selected companies reflect the economic reality of such transactions to a greater extent.
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