Prinoth S.p.A. is an Italian manufacturer of snow groomers and tracked vehicles. For a number of years the parent company had been suffering losses while the distribution subsidiaries in the group had substantial profits. Following an audit the tax authorities concluded that the transfer prices applied between the parent company and the distributors in the group had been incorrect. An assessment was issued where the transfer pricing method applied by the group (cost +) was rejected and replaced with a CUP/RPM approach based on the pricing applied when selling to independent distributors. An appeal was filed by Prinoth S.p.A. which was rejected by the Court of first instance. The Court considered “the assessment based on the price comparison method to be well-founded, from which it emerged that in the three-year period from 2006 to 2008 the company had sold to its subsidiaries with a constant mark-up of 11.11 per cent, while in direct sales to end customers it had applied ... Read more

In the course of the income tax audit conducted on Hanácká, the tax authorities found that interest expenses had been in its calculation of taxable income, corresponding to a rate of 8.5%. The tax authorities determined the arm’s length interest rate to be 2.46% and an adjustment was issued amounting to the difference between the interest deducted (8,5%) and the interest calculated (2,46%). The adjustment was later upheld in court where the court agreed with the tax authority’s conclusion – Hanácká had not discharged the burden of proof under Article 92(3) of the Tax Code by failing to prove, in response to a request for the removal of doubts, that the interest in the two tax periods in question, amounting to CZK 6 040 000, which represented the difference between the interest on the 8,5 % bonds subscribed by persons associated with the applicant within the meaning of Article 23(3) of the Tax Code and the interest on the bonds ... Read more

In February 2016 the Regional Tax Commission rejected an appeal filed by the Revenue Agency against the first instance judgment, which had upheld an appeal brought by Italian car manufacturer, Ferrari S.p.A. against a notice of assessment issued by the Revenue Agency in which the company was accused of having applied prices lower than the ‘normal value’ in transactions with its foreign subsidiaries, in particular with the US company Ferrari NA (North America). In determining the arm’s length price of the relevant controlled transactions Ferrari had applied the CUP method. The Revenue Agency considered the TNMM to be the most appropriate method. The Regional Tax Commission observed that “for verifying the “normal value”, the Revenue Agency itself, in Circular No. 32 of 22/09/1980, had suggested the use of the CUP method instead of the less reliable TNMM method “which is not advisable due to its considerable approximation and arbitrariness’ for which reason the Office’s objection must be considered inadmissible”. On ... Read more

Enoplastic SpA is engaged in production of closures for vine, spirits, oil and vinegars. Following an audit an assessment was issued by the tax authorities regarding transfer pricing. An appeal was filed by Enoplastic and the Regional Court later set aside the assessment stating that the tax authorities had not proved the existence of a tax advantage nor that the pricing determined by Enoplastic had not been at arm’s length. An appeal was then filed by the tax authorities claiming that the burden of proof was on Enoplastic due to the principle of proximity of evidence and that transfer pricing adjustments was not premised on proof of an intention to obtain tax savings. Judgment of the Supreme Court The Supreme Court upheld the decision to set aside the tax assessment. However, the basis on which the decision of Regional Court had been issued was incorrect. According to the Supreme Court transfer pricing adjustments should not be confused with tax fraud ... Read more

The regional court had set aside an assessment issued by the tax authorities concerning controlled transaction between P.V. s.r.l. and related parties. An appeal was filed by the tax authorities with the Supreme Administrative Court. Judgment of the Court The Supreme Administrative Court set aside the decision of regional court and referred the case back to the regional court in a different composition. Excerpts “Equally well-founded are the fourth and fifth pleas, which can be dealt with together because, under the different headings of infringement of the law and defective reasoning, they focus on the same issue, namely on the fact that the judgment of the regional court wrongly ruled out that the transactions involving the sale of goods by the taxpayer to foreign companies controlled by it could be classified as transfer pricing, instead framing them as part of a tax planning programme. The Office had identified two anomalies in the aforesaid transactions, namely the application of prices lower ... Read more

Sogefi Filtration S.p.A. received a notice of assessment for the 2003 financial year concerning various issues, including the deduction of royalties paid for the use of a trademark, interest income on a loan granted to a foreign subsidiary and the denial of a tax credit for dividends received by a French subsidiary. Sogefi appealed to the Regional Court, which ruled largely in its favour. Not satisfied with the decision, the tax authorities appealed to the Supreme Court. Judgment of the Supreme Court On the issue of transfer pricing the Supreme Court clarified, that the French arm’s length provision is not an anti-avoidance rule. Excerpt “4.1. The plea – admissible as it does not concern questions of merit but the correct application of the rule – is well founded. 4.2. It should be noted, in fact, that Art. 76 (now 110) tuir does not incorporate an anti-avoidance regulation in the strict sense, but is aimed at repressing the economic phenomenon of ... Read more

Haier Europe Trading Srl, an Italien subsidiary of the Chinese Haier group (active within home appliances and consumer electronics), challenged an assessment for FY 2007, with which the tax authorities had recovered for taxation the difference with respect to the normal value in relation to transactions of goods with other companies of the group not resident in Italy. An appeal was filed by Haier with the Tax commission which was considered well-founded. The tax authorities then filed an appeal with the Supreme Administrative Court. Judgment of the Supreme Administrative Court The Court found that the appeal in regards of transfer pricing was well founded and set aside the Judgment of the Tax Commission. Excerpt “3.2 Now, in the case at hand, the CTR affirms that “in the case at hand, as demonstrated, the prices paid are correct and in line with (i.e. lower than) those of the domestic market”. This ruling, moreover, is followed by the observation that the payment ... Read more

I. S.p.A. had received a tax assessment in which the tax authorities had corrected various items, including the inclusion of interest on an intra-group loan and the disallowance of tax deductions for the cost of intra-group services. The Provincial Tax Commission had cancelled the assessment, but following an appeal by the tax authorities, the Regional Court partially confirmed the assessment. Judgment of the Supreme Court The Supreme Court set aside the judgment of the Regional Court and refered the case back to the Court, in a different composition. Excerpts Controlled transactions “Correctly, therefore, the CTR has independently appreciated the notion of parent (or subsidiary) company provided for by the tax law. This solution is also consistent with the provisions of the OECD Transfer Pricing Guidelines of 1995 (but also with the previous and subsequent ones), which inspire the national regulations, which are not binding but relevant in terms of interpretation (Article 9 of the OECD Model, in particular, takes into ... Read more

Judgment on application of the Polish arm’s length provisions in Article 11 of the Corporate Income Tax Act. Excerpts from the Supreme Court Judgment “The provisions of Articles 11(3) and 11(4) of the Corporate Income Tax Act do not introduce a requirement for the tax authority to prove the fault (collusion) of the seller and the buyer of goods consisting in deliberate under- or overpricing in order to achieve favourable tax consequences. The extraordinary revision’s suggestions that the establishment of the relationship referred to in Article 11(4) of that law, without the simultaneous establishment of intentional conduct, is insufficient for the application of assessed prices to the contractor, as they are contrary to the linguistic (basic) interpretation of that provision, are erroneous. Also, the claim in the extraordinary revision that it is up to the court to prove that the relationship set out in sections 11(3) and 11(4) of the said law influenced the determination of lower prices is not ... Read more