The tax authorities had disallowed deductions for purported administrative services paid for by Akzo Nobel India to a group company in Singapore. The Income Tax Appellate Tribunal upheld the assessment in a Judgement issued in February 2022. An appeal was then filed by Akzo Nobel India with the High Court. Judgement of the High Court The High Court dismissed the Appeal of Akzo Nobel India and upheld the judgement of the Income Tax Appellate Tribunal. Excerpt “…this Court finds that all the three authorities below have given concurrent findings of fact that the Appellant had failed to furnish evidence to demonstrate that administrative services were actually rendered by the AE and the assessee had received such services. In fact, the ITAT has noted in the impugned order “….On a specific query made by the Bench to demonstrate the receipt of services from AE through cogent evidence, including, any communication with the AE, learned counsel for the assessee expressed his inability ... Read more

In 2009-2011 Fortis Petroleum Norway AS (FPN) bought seismic data related to oil exploration in the North Sea from a related party, Petroleum GeoServices AS (PGS), for NKR 95.000.000. FBN paid the amount by way of a convertible intra-group loan from PGS in the same amount. FPN also purchased administrative services from another related party, Consema, and later paid a substantial termination fee when the service contract was terminated. The acquisition costs, interest on the loan, costs for services and termination fees had all been deducted in the taxable income of the company for the years in question. Central to this case is the exploration refund scheme on the Norwegian shelf. This essentially means that exploration companies can demand cash payment of the tax value of exploration costs, cf. the Petroleum Tax Act § 3 letter c) fifth paragraph. If the taxpayer does not have income to cover an exploration cost, the company receives payment / refund of the tax ... Read more

A S.A. is 51% owned by B SA and 49% by C Corp. A S.A is active in development of energy efficiency projects. In 2015 A S.A took out loans from B and C at an annual interest rate of 3.22xEuribor 12 months, plus a spread of 14%. A S.A had also paid for services to related party D. The tax authorities issued an assessment related to the interest rate on the loan and the service purportedly received and paid for. A complaint was filed by A S.A. with the Administrative Tribunal (CAAD). Judgement of the CAAD The complaint of A S.A was dismissed and the assessment upheld. Excerpts regarding the interest rate “Now, regarding the first argument, it falls immediately by the base, since the Applicant has not proved that it had made any effort to finance itself with the bank and that this effort was unsuccessful. On the contrary, it seems to result from the request for arbitration ... Read more

A SGPS S.A. is the parent company of Group A. In 2016, a subsidiary, B S.A., took a loan in a bank, amounting to 1,950,000.00 Euros, and incurred interest costs and Stamp Tax. However, the majority of the loan, an amount of €1,716,256.60, was transferred as an interest free loan to A SGPS S.A. The tax authorities issued an assessment related to costs incurred on the loan and deducted by B S.A. The tax authorities disallowed B S.A.’s deduction of the costs as they were not intended to protect or obtain income, and therefore did not meet the requirements for deductibility under the general provisions of the Tax Code; A complaint was filed by A SGPS S.A. with the Administrative Tribunal. According to A SGPS SA the tax authorities did not justify why it considered that the expenses incurred by B S.A. to an independent bank for a loan that was passed on to the parent company were not deductible ... Read more

Akzo Nobel India Pvt – a subsidiary of Akzo Nobel Coatings International BV – had paid for administrative services purportedly rendered form a group company in Singapore and had claimed a deduction of INR 19,465 250. The price paid for these services had been determined by the group on an aggregate basis using the transactional net margin method to establish that all controlled transactions in Akzo Nobel India had been at arm’s length. During the audit, the tax authority requested Akzo Nobel India to justify the arm’s length nature of the payment for these administrative services. To that end Akzo Nobel India submitted a copy of the agreement and the allocations keys used. Akzo Nobel India also submitted that the group company in Singapore had provided administrative support services like supply chain management support, marketing and commercial service support, commercial vehicle support, automotive after-market support, supporting R&D, human resource, finance management and general management support. However, according to the tax ... Read more

Interoil Colombia Exploration and Production S.A. paid it foreign parent for cost related to exploration and administrative services, and for tax purposes these costs had been deducted in the taxable income. In total $3,571,353,600 had been declared as operating expenses for geological and geophysical studies carried out in the exploratory phase of an oil project and $5.548.680.347 had been declared for administrative services rendered from its parent company abroad Following an audit the tax authorities issued an assessment where these deductions was denied. In regards of cost related to exploration, these should have been recorded as a deferred charge amortisable over up to five years, according to articles 142 and 143 of the Tax Statute. In accordance with Article 142, these investments are recorded as deferred assets and are also declared for tax purposes. (…) According to the general accounting regulations – Decree 2649 of 1993 – deferred assets are part of the company’s assets, and correspond to anticipated expenses ... Read more

SONY Music Entertainment Colombia S.A. had filed transfer pricing information and documentation, on the basis of which the Colombian tax authorities concluded that payments for administrative services provided by a related party in the US had not been at arm’s length. SONY Colombia then filed new transfer pricing information and documentation covering the same years, but where the tested party had been changed to the US company. Under this new approach, the remuneration of the US service provider was determined to be within the arm’s length range. The tax authorities upheld the assessment issued based on the original documentation. A complaint was filed by SONY and later an appeal. Judgement of the Administrative Court The court allowed the appeal and issued a decision in favor of SONY. Excerpts “The legal problem is to determine, for the tax return of the taxable period 2007 of the plaintiff: (i) Whether it is appropriate to take into account the correction of the transfer ... Read more

By judgment of 19 January 2021, the Administrative Court upheld an assessment for FY 2012-2017 issued by the tax authorities on the determination of the arm’s length income resulting from related party transactions. The tax assessment resulted from disallowed deductions for Intra group services provided under a general administrative, legal and financial assistance contract of 22 October 2012 Costs invoiced for the preparation of consolidated accounts Expenses related to “Technical services” for which no explanations had been provided An appeal was filed by Central Hydroelectric de Bulgari EOOD with the Supreme Administrative Court in which the company stated that the decision of the Administrative Court was incorrect. Judgement of the Supreme Administrative Court The Supreme Administrative Court partially upheld the decision of the Administrative Court. Excerpts “The present Court of Cassation finds the judgment of the ACGC valid and admissible. The argument of the applicant that the same is inadmissible is unfounded in the part in which the RA was ... Read more

Montupet EOOD is a Bulgarian subsidiary in the French Montupet Group which specializes in the production of aluminum components for the automotive industry. In February 2016, the French Group became part of the Canadian LINAMAR Group, which specializes in the manufacture and assembly of components for the automotive industry. The French group and its production facilities (plants in France, Bulgaria, Northern Ireland, Mexico and Spain) retained their core business as part of one of LINAMAR’s five main business areas – light metal casting. Effective 01.01.2017, Montupet SAS and Montupet EOOD entered into a Services Agreement, which canceled a previous agreement of 21.12.2009 in the part concerning the corporate and management services provided. Pursuant to the new agreement, Montupet SAS undertakes to provide Montupet EOOD with business advisory services in various areas such as business strategy and development advice; financial strategy advice; legal advice; human resources strategy advice; pricing advice and price negotiations with global customers; supply chain management assistance and ... Read more

In december 2020 the tax authorities in Peru issued a new administrative ordinance related to use of the most appropriate method to determine the market value of services. Click here for English translation PERU-i135-2020-7T0000 ... Read more