Tag: Best Method Rule  

Transfer pricing rule requiring that a taxpayer use the transfer pricing method that results in the most reliable measure of an arm’s length price. This rule doesn’t prescribe priorities between various methods.

South Africa vs ABC (PTY) LTD, January 2021, Tax Court of Johannesburg, Case No IT 14305

South Africa vs ABC (PTY) LTD, January 2021, Tax Court of Johannesburg, Case No IT 14305

ABC Ltd is in the business of manufacturing, importing, and selling chemical products. It has a catalyst division that is focused on manufacturing and selling catalytic converters (catalysts) which is used in the abatement of harmful exhaust emissions from motor vehicles. To produce the catalysts, applicant requires, inter alia, some metals known as the Precious Group of Metals (PGMs). It purchases the PGMs from a Swiss entity (“the Swiss Entity”). The PGMs are liquified and mixed with other chemicals to create coating for substrates, all being part of the manufacturing process. Once the manufacturing is complete, the catalysts are sold to customers in South Africa known as the original equipment manufacturers (OEMs). ABC Ltd and the Swiss Entity are connected parties as defined in section 1 of the ITA. Following an audit carried out in 2014 the revenue service issued an assessment for FY 2011 by an amount of R114 157 077. According to the revenue service the prices paid ... Continue to full case
Czech Republic vs. AZETKO s.r.o., September 2019, Supreme Court, No. 5 Afs 341/2017 - 47

Czech Republic vs. AZETKO s.r.o., September 2019, Supreme Court, No. 5 Afs 341/2017 – 47

The tax authorities of the Czech Republic issued an assessment of additional income taxes and penalties for FY 2010 and 2011, because AZETKO s.r.o. according to the tax authorities did not receive an arm’s length remuneration for administration and operation of a website and e-shop on behalf on a related party, Quantus Consulting s.r.o. AZETKO disagreed with the assessment and brought the case to court. The regional court ruled in favor of AZETKO, but the tax administration appealed the decision to the Supreme Administrative Court. Judgement of the Supreme Court The Supreme Court found the tax administrations change in pricing method under the appeal of the case unsubstantiated. The tax administration had originally applied the CUP method, but in the appeal proceedings instead used the net margin transaction method (TNMM). On that basis, the appeal was dismissed by the Court. The conditions for application of the transfer pricing provisions in Section 23(7) of the Czech Income Tax Act was summarised ... Continue to full case
Russia vs PJSC Uralkali, April 2019, Court of Appeal, Case No. А40-29025/2017

Russia vs PJSC Uralkali, April 2019, Court of Appeal, Case No. А40-29025/2017

PJSC Uralkali, produced and sold fertilizers (“potassium chloride”) through a related Swiss trader. Uralkali had informed the authorities about the controlled transaction and submitted the required TP documentation. To substantiate the pricing of the transaction they had applied the transactional net margin method (TNMM) with the Swiss trader as the tested party. The Russian tax authorities disapproved of the choice of method and the way the method had been applied. They conducted an analysis, using the CUP method, and determined the the prices used in the controlled transaction deviated from price quotations of an independent pricing agency (Argus). Hence a tax assessment was issued. PJSC Uralkali disapproved of the assessment and brought the case to court. The court of first instance supported Uralkali’s position, and argued that the tax authority should have applied the same TP method as the Taxpayer. Failure of the tax authority to apply the same TP method or to provide sufficient evidence to justify use of ... Continue to full case
Spain vs. Zeraim Iberica SA, June 2018, Audiencia Nacional, Case No. ES:AN:2018:2856

Spain vs. Zeraim Iberica SA, June 2018, Audiencia Nacional, Case No. ES:AN:2018:2856

ZERAIM IBERICA SA, a Spanish subsidiary in the Swiss Syngenta Group (that produces seeds and agrochemicals), had first been issued a tax assessment relating to fiscal years 2006 and 2007 and later another assessment for FY 2008 and 2009 related to the arm’s length price of seeds acquired from Zeraim Gedera (Israel) and thus the profitability of the distribution activities in Spain. The company held that new evidence – an advance pricing agreement (APA) between France and Switzerland – demonstrated that the comparability analysis carried out by the Spanish tax authorities suffered from significant deficiencies and resulted in at totally irrational result, intending to allocate a net operating result or net margin of 32.79% in fiscal year 2008 and 30.81% in 2009 to ZERAIM IBERICA SA when the profitability of distribution companies in the sector had average net margins of 1.59%. The tax authorities on there side argued that the best method for pricing the transactions was the Resale Price ... Continue to full case