“A Bottler S.R.L.” carried out intra-group transactions in two main areas: producing (bottling) soft drinks and purchasing finished products for local distribution. In its transfer pricing file, it had used the transactional net margin method (TNMM) and analyzed data on a multi-year basis. It also adjusted certain large, one-off expenses (such as revaluation of land and buildings and reorganization costs) on grounds they were non-recurring items that should be excluded to ensure a proper like-for-like comparison.
During the tax audit, however, the authorities recalculated the company’s results using annual figures (instead of multi-year averages) and reversed A. S.R.L.’s exclusion of those one-off expenses. They also changed how certain comparables were included or excluded in the benchmarking sample. The audit concluded that A. S.R.L.’s profits in the bottling and distribution segments were below the arm’s length range, leading to significant upward adjustments for corporate income tax.
A. S.R.L. challenged these adjustments, arguing that the multi-year approach was justified under the OECD Guidelines, particularly given the timing for publicly available comparable data. It also maintained that treating the revaluation and reorganization costs as non-recurring was valid, because such expenses did not reflect its ordinary, year-to-year operating performance. Finally, it objected to the tax authority’s decision to introduce certain companies in the comparability sample that did not meet the independence criterion, while simultaneously excluding other companies that the taxpayer considered valid comparables.
Judgment
The Supreme Administrative Court sided largely with A. S.R.L., ruling that the authorities had overstepped by automatically favoring an annual approach without adequately considering the taxpayer’s multi-year rationale. It further held that big, isolated revaluation/reorganization expenses could indeed be set aside for transfer pricing margin calculations if they were truly exceptional and did not recur in ordinary operations. Lastly, the court found the tax authority had incorrectly included or excluded specific comparables—for instance, it added companies whose ownership structures likely made them ineligible and dismissed others despite those entities having valid data for the relevant years. Consequently, the High Court significantly reduced the transfer pricing adjustment and allowed most of A. S.R.L.’s original methodology, while confirming only a limited additional tax liability.
Click here for English translation
Click here for other translation