TPcases

Database of Transfer Pricing Case Laws

Poland vs “I VAT Sp. z o.o.”, September 2021, Administrative Court, Case No III SA/Wa 15/21

Posted on September 2, 2021 | By Courts of Poland | No comments

Category: Benchmark, Range and Median, Royalty and License Payments, Transfer Pricing Methods, VAT and Customs Valuation | Tag: License fee, Transactional net margin method (TNMM), Value Added Tax (VAT), VAT treatment of transfer pricing adjustments, Year-end adjustment

« Prev | Next »

“I VAT Sp. z o.o.” was a local distributor of ERP software within an international corporate group. Under a group license agreement, it paid monthly fees for software licenses in a way intended to maintain a specific operating margin. When that margin fell below the agreed target, it received compensating payments and when the margin was higher, it was charged additional fees.

The tax authority partly agreed that the monthly license fees and certain corrective invoices (those adjusting previous license payments) should be treated as remuneration for imported services. However, the authority concluded that the compensation payments received constituted payment for a service subject to VAT.

“I VAT Sp. z o.o.” appealed, challenging, inter alia, the VAT aspect of the assessment, arguing that the compensation payments were not related to a specific service provided by it.

Judgment

The Court found that the authority’s conclusion about treating the compensation payments as VAT-remuneration was incorrect. In all other respects, including the treatment of actual license fees and the timing of VAT obligations on those fees, the complaint was dismissed.

Click here for English Translation

Click here for other translation

Related Guidelines

TPG2022 Chapter II paragraph 2.87In those cases where there is a correlation between the credit terms and the sales prices, it could be appropriate to reflect interest income in respect of short-term working capital within the calculation of the net profit indicator and/or to proceed with a working capital adjustment, see paragraphs 3.47-3.54. An...

TPG2022 Chapter II paragraph 2.86Non-operating items such as interest income and expenses and income taxes should be excluded from the determination of the net profit indicator. Exceptional and extraordinary items of a non-recurring nature should generally also be excluded. This however is not always the case as there may be situations where it would...

TPG2022 Chapter II paragraph 2.85Similarly, when analysing the transactions between the independent enterprises to the extent they are needed, profits attributable to transactions that are not similar to the controlled transactions under examination should be excluded from the comparison. Finally, when net profit indicators of an independent enterprise are used, the profits attributable to...

TPG2022 Chapter II paragraph 2.84Costs and revenues that are not related to the controlled transaction under review should be excluded where they materially affect comparability with uncontrolled transactions. An appropriate level of segmentation of the taxpayer’s financial data is needed when determining or testing the net profit it earns from a controlled transaction (or...

TPG2022 Chapter II paragraph 2.83As a matter of principle, only those items that (a) directly or indirectly relate to the controlled transaction at hand and (b) are of an operating nature should be taken into account in the determination of the net profit indicator for the application of the transactional net margin method....

TPG2022 Chapter II paragraph 2.82In applying the transactional net margin method, the selection of the most appropriate net profit indicator should follow the guidance at paragraphs 2.2 and 2.8 in relation to the selection of the most appropriate method to the circumstances of the case. It should take account of the respective strengths and...

TPG2022 Chapter II paragraph 2.81Another important aspect of comparability is measurement consistency. The net profit indicators must be measured consistently between the associated enterprise and the independent enterprise. In addition, there may be differences in the treatment across enterprises of operating expenses and non-operating expenses affecting the net profits such as depreciation and reserves...

TPG2022 Chapter II paragraph 2.80The transactional net margin method may afford a practical solution to otherwise insoluble transfer pricing problems if it is used sensibly and with appropriate adjustments to account for differences of the type referred to above. The transactional net margin method should not be used unless the net profit indicators are...

TPG2022 Chapter II paragraph 2.79It might be argued that the potential inaccuracies resulting from the above types of factors can be reflected in the size of the arm’s length range. The use of a range may to some extent mitigate the level of inaccuracy, but may not account for situations where a taxpayer’s profits...

TPG2022 Chapter II paragraph 2.74A comparability analysis must be performed in all cases in order to select and apply the most appropriate transfer pricing method, and the process for selecting and applying a transactional net margin method should not be less reliable than for other methods. As a matter of good practice, the typical...

Supplemental Guidance

Leave a Reply

Poland vs “I VAT Sp. z o.o.”, February 2025, Supreme Administrative Court, Case No I FSK 2452/21A Polish ERP software distributor made year-end licence fee adjustments under a group agreement to maintain an arm's length operating margin. The tax authority treated compensation payments received as VAT-liable services. The Supreme Administrative Court dismissed the authority's appeal in February 2025, confirming that such payments did not constitute remuneration...

Italy vs “VAT Group X”, November 2018, Tax Ruling of the Italian Revenue Agency, Case No 60A VAT group sought guidance from the Italian Revenue Agency on whether year-end transfer pricing adjustments in a contract manufacturing arrangement affected the VAT taxable base. The structure involved a non-EU principal owning intangibles, an Italian coordinator, and a contract manufacturer. The 2018 ruling addressed the VAT treatment of intra-group...

Chile vs Yura Chile SpA, October 2023, Court of Appeal, Case N° ROL: 18-2022A Chilean importer of cement sought to have customs value determined in line with its arm's length transfer pricing analysis under the TNMM method. Tax authorities rejected the declared transaction value, and the tax court dismissed the complaint. The Court of Appeal reversed this outcome in 2023, finding that the...

Romania vs SC Arcomet Towercranes SRL, April 2025, European Court of Justice – AG Opinion, Case No C‑726/23A Romanian subsidiary of Arcomet Belgium received invoices under a transfer pricing agreement designed to keep profits within an agreed TNMM margin. Romanian tax authorities denied corporate tax and VAT deductions, citing lack of proof of service necessity. The Romanian Court of Appeal referred questions to the ECJ, prompting a...

Romania vs SC Arcomet Towercranes SRL, September 2025, European Court of Justice, Case No C‑726/23A Romanian subsidiary of a Belgian parent received invoices under a transfer pricing agreement to align profits within an agreed margin. Romanian tax authorities disallowed CIT and VAT deductions, citing insufficient proof of services rendered. The Romanian Court of Appeal referred questions to the European Court of Justice, which issued...

Europe vs Hamamatsu, Dec 2017, European Court of Justice, Case No C-529-16A German subsidiary of Hamamatsu Photonics sought customs duty refunds after a year-end downward transfer pricing adjustment under an APA reduced its effective purchase price. German customs refused, citing no allocation to individual goods. The European Court of Justice, ruling in 2017, held that an agreed transfer price composed of...

Germany vs “Import GmbH”, July 2025, Bundesfinanzhof, Case No VII R 36/22A German importer declared customs values for goods purchased from related foreign entities under a distribution agreement targeting an arm's length return on sales. Following a customs audit, the tax authority challenged the declared values, arguing year-end debit adjustments should increase the customs value. The Bundesfinanzhof decided in favour of...

Italy vs “VAT ALFA S.p.A.”, December 2021, Tax Ruling of the Italian Revenue Agency, Case No 884/2021An Italian company applied an internal CUP methodology to price goods supplied to EU affiliates, with a year-end TNMM sanity check to verify affiliate margins. The Italian Revenue Agency issued a preliminary ruling in December 2021 addressing the VAT treatment of transfer pricing adjustments arising from these intra-group transactions, clarifying...