“Cork Portugal SA” is engaged in the production and marketing of natural wine corks and is part of a Multinational group operating in the sector of closures for the wine industry.
The Portuguese tax administration issued an adjustment of EUR 337,493.97 to the taxable income for 2010 on the basis that, its sales of cork to a related company in the US – via an Irish trading company B within the group – had not been at arm’s length.
Portuguese provisions of Article 63(1) of the CIRC, provides
“In commercial transactions […] carried out between a taxable person and any other entity, whether or not subject to IRC, with which he is in a situation of special relations, terms or conditions substantially identical to those that would normally be contracted, accepted and practised between independent entities in comparable transactions must be contracted, accepted and practised”.
The adjustment was based on a benchmark study provided by the company.
Net cost plus margin of comparables (average 2007-2009)
3rd Quartile: 6.82%
1st Quartile: 4,60%,
In 2010, the net cost plus margin of “Cork Portugal SA” on sales to B… was 2.91% – a figure that falls within the identified full range – but outside the interquartile range.
Judgement of the Court
The Arbitration Tribunal upheld the transfer pricing adjustment issued by the tax authority.
“The profit sharing [between Portugal and Ireland] that is concretely presented to us does not reflect the activities / responsibilities of each entity in the group, and the reasons why such a differentiated allocation of margins over operating costs, which is only 2.91% for the Applicant, is not demonstrated, while B…(which carries out an activity of “management assistance”) obtains a marketing margin of 12.4%, with its participations and responsibilities in the process being as proven to be so different.
And where, as a result, in addition to the arguments already summoned, it seems to us based on the facts and the best prudence that the application of the clause in concrete advises, the choice of the median as the point that best reflects the arm’s length behaviour between comparable independent entities, in this specific case and according to the proven circumstances of the same.”
P609_2015T - 2016-05-02 - JURISPRUDENCIA Decisao Arbitral