Following an audit the tax administration had adjusted the margin obtained by the taxpayer to the median, as it was below the interquartile range of the benchmark analysis.
An appeal was filed by the taxpayer with the TEAC.
Judgement of the TEAC
The TEAC upheld the taxpayer’s appeal and annulled the decision of the tax authorities.
In the present case, the inspectorate has accepted the comparability study of the company without noting any shortcomings in the study. It only notes, perhaps as a justification for the unreliability of the company’s information, that:
It should be clear, therefore, that, according to the background information in the file, at no time has group X commissioned or agreed to have its costs and other elements determining the group’s internal data, including its own costs, verified by an independent third party, prior to their provision to the entity responsible (…) for preparing the documentation on related-party transactions, provided in the course of this verification.
This observation, in any event, referring to the entity’s costs, does not constitute a defect in the comparability of the study carried out by the taxpayer, since, as we have seen, the method and the search for comparable companies have been admitted by the inspection, as have the interquartile ranges resulting from this selected sample.
In conclusion, once it has been established that the appellant’s margins in the years under discussion are outside the lowest interquartile range, the corresponding adjustment should indeed be made. However, the fact that this is the case does not, without more, allow the median to be applied in the terms provided for in Rule 3.62, since the application of that rule is not justified by the fact of being outside the arm’s length range, but by the existence of ‘shortcomings in comparability’, which have not been explained by the inspectorate, so that the application of the median is not justified.
This is in line with what is stated in the Judgment of the Audiencia Nacional of 06-03-2019 (appeal number 353/2015), which, after some illustrative reasoning in this regard, concludes (only this conclusion is extracted, without prejudice to the interest of the full Judgment, to which we refer):
“Now, in our opinion, it is clear that, if the ROS is outside the limits of the inter-quantile range, the corresponding adjustment must be made, since only from 2.1% is the company within the comparable market margins. In order for the median to be applied, however, there must also be ‘comparability defects’.
In the present case, no defects of comparability have been revealed in the study carried out by the taxpayer, which, as we have said, has been accepted by the inspectorate, so that the application of the median is not in accordance with the law and, consequently, we must uphold the claimant’s claims and annul the settlement.