Acer Computer Ibérica S.A. (ACI) is part of the multinational ACER group, which manufactures and distributes personal computers and other electronic devices.
Acer Europe AG (AEAG), a group entity in Switzerland, centralises the procurement of the subsidiaries established in Europe, the Middle East and Africa, and acts as the regional management centre for that geographical area.
ACI is responsible for the wholesale marketing of electronic equipment and material, as well as in the provision of technical service related to these products in Spain and Portugal. ACI is characterized as a limited risk distributor by the group.
At issue was deductibility of payments resulting from factoring agreements undertaken ACI with unrelated banks, adopted to manage liquidity risks arising from timing mismatches between its accounts payable and accounts receivable.
Based on an interpretation of the limited risk agreement signed between ACI and its principal AEAG, the tax authorities disregarded the allocation of the risk – and hence allocation of the relevant costs – to ACI. The tax authorities considered that the financial costs arising from the relocation of cancelled orders, those arising from differences in the criteria for calculating collection and payment deadlines and those arising from delays in shipments are due to the application of incorrect criteria for the accounting and invoicing of certain transactions. It also considers that the assumption of those costs by ACI is in contradiction with its classification as a low-risk distributor and does not comply with the distribution of functions and risks between ACI and AEAG, which results from the distribution contract and the transfer pricing report. An assessment for FY 2006 – 2008 where the costs were added back to the taxable income of Acer Computer Ibérica S.A. was issued.
Judgement of the Federal Court
The court dismissed the appeal of Acer and upheld the tax assessment in which deductions for the costs in question had been disallowed.
“The interpretation of the contract terms which we uphold follows the above mentioned OECD Guidelines: In arm’s length transactions, the contract terms generally define, expressly or implicitly, how responsibilities, risks and results are allocated between the parties.”
“However, it is irrelevant, in view of the foregoing on the assumption of risk, that ACI’s financing costs are higher than those of comparable undertakings (as the tax authorities maintain), since the refusal of deductibility is based on the fact that the costs claimed to be deductible are not borne by the appellant in accordance with the terms of the contract.”Spain vs Acer March 2019 AN ORG