Tag: Burden of proof (Onus)

Obligation to persuade a court or other entity of the validity of a factual assertion.

France vs SA Tropicana Europe Hermes, August 2022, CAA of DOUAI, Case No. 20DA01106

France vs SA Tropicana Europe Hermes, August 2022, CAA of DOUAI, Case No. 20DA01106

SA Tropicana Europe Hermes is a French permanent establishment of SA Tropicana Europe, located in Belgium. The French PE carried out the business of bottling fruit juice-based drinks. In 2009, a new distribution contract was concluded with the Swiss company FLTCE, which was accompanied by a restructuring of its business. Before 1 July 2009, Tropicana was engaged in the manufacture of fresh fruit juices in cardboard packs and purchased fresh fruit juices which it pasteurised. As of 1 July 2009, its activity was reduced to that of a contract manufacturer on behalf of FLTCE, which became the owner of the technology and intellectual property rights as well as the stocks. The re-organisation led to a significant reduction in the company’s turnover and profits. Tropicana Europe was subject to two audits, at the end of which the tax authorities notified it of tax reassessments in respect of corporate income tax, withholding tax and business value added contribution (CVAE) for the years ... Read more
Italy vs BASF Italia s.p.a., June 2022, Supreme Court, Cases No 19728/2022

Italy vs BASF Italia s.p.a., June 2022, Supreme Court, Cases No 19728/2022

The German BASF group is active in the chemical industry and has subsidiaries all over the world including Italy. In FY 2006 BASF Italia s.p.a. was served with two notices of assessment by the tax authorities. The tax assessments formulated three findings. 1. non-deductibility of the cancellation deficit – arising from the merger by incorporation of Basf Agro s.p.a. into Basf Italia s.p.a., resolved on 27 April 2004 – which the acquiring company had allocated to goodwill, the amortisation portions of which had been deducted in tenths and then, from 2005, in eighteenths. The Office had denied the deductibility on the ground that the company, in the declaration submitted electronically, had not expressly requested, as required by Article 6(4) of Legislative Decree No. 358 of 8 October 1997, the tax recognition of the greater value of goodwill recorded in the balance sheet to offset the loss from cancellation, as allowed by paragraphs 1 and 2 of the same provision. Moreover, ... Read more
Italy vs SKECHERS USA ITALIA SRL, January 2022, Supreme Court, Case No 02908/2022

Italy vs SKECHERS USA ITALIA SRL, January 2022, Supreme Court, Case No 02908/2022

Skechers USA ITALIA SRL – a company operating in the sector of the marketing of footwear and accessories – challenged a notice of assessment, relating to FY 2004, by which, at the outcome of a tax audit, its business income was adjusted as a result of the ascertained inconsistency of the transfer prices relating to purchases of goods from the parent company (and sole shareholder) resident in Switzerland. The tax authorities had contested the uneconomic nature of the taxpayer company’s operations, given the losses recognised in various financial years, attributing the uneconomic nature to the artificial manipulation of the transfer prices of the purchases of goods and recalculating, consequently, the negative income component constituted by the aforesaid costs pursuant to Article 110, paragraph 7 of the TUIR, with the consequent non-deductibility of the same to the extent exceeding the normal value of the price of the goods in question. Skechers held that the losses did not derive from the costs ... Read more

TPG2022 Chapter V paragraph 5.2

This chapter provides guidance for tax administrations to take into account in developing rules and/or procedures on documentation to be obtained from taxpayers in connection with a transfer pricing enquiry or risk assessment. It also provides guidance to assist taxpayers in identifying documentation that would be most helpful in showing that their transactions satisfy the arm’s length principle and hence in resolving transfer pricing issues and facilitating tax examinations ... Read more

TPG2022 Chapter IV paragraph 4.17

The Commentary on paragraph 2 of Article 9 of the OECD Model Tax Convention makes clear that the State from which a corresponding adjustment is requested should comply with the request only if that State “considers that the figure of adjusted profits correctly reflects what the profits would have been if the transactions had been at arm’s length”. This means that in competent authority proceedings the State that has proposed the primary adjustment bears the burden of demonstrating to the other State that the adjustment “is justified both in principle and as regards the amount.” Both competent authorities are expected to take a cooperative approach in resolving mutual agreement cases ... Read more

TPG2022 Chapter IV paragraph 4.16

In practice, neither countries nor taxpayers should misuse the burden of proof in the manner described above. Because of the difficulties with transfer pricing analyses, it would be appropriate for both taxpayers and tax administrations to take special care and to use restraint in relying on the burden of proof in the course of the examination of a transfer pricing case. More particularly, as a matter of good practice, the burden of proof should not be misused by tax administrations or taxpayers as a justification for making groundless or unverifiable assertions about transfer pricing. A tax administration should be prepared to make a good faith showing that its determination of transfer pricing is consistent with the arm’s length principle even where the burden of proof is on the taxpayer, and taxpayers similarly should be prepared to make a good faith showing that their transfer pricing is consistent with the arm’s length principle regardless of where the burden of proof lies ... Read more

TPG2022 Chapter IV paragraph 4.15

Consider the same facts as in the example in the preceding paragraph. If the burden of proof is again guiding behaviour, a taxpayer in the first jurisdiction being a subsidiary of a taxpayer in the second jurisdiction (notwithstanding the burden of proof and these Guidelines), may be unable or unwilling to show that its transfer prices are arm’s length. The tax administration in the first jurisdiction after examination makes an adjustment in good faith based on the information available to it. The parent company in the second jurisdiction is not obliged to provide to its tax administration any information to show that the transfer pricing was arm’s length as the burden of proof rests with the tax administration. This will make it difficult for the two tax administrations to reach agreement in competent authority proceedings ... Read more

TPG2022 Chapter IV paragraph 4.14

When transfer pricing issues are present, the divergent rules on burden of proof among OECD member countries will present serious problems if the strict legal rights implied by those rules are used as a guide for appropriate behaviour. For example, consider the case where the controlled transaction under examination involves one jurisdiction in which the burden of proof is on the taxpayer and a second jurisdiction in which the burden of proof is on the tax administration. If the burden of proof is guiding behaviour, the tax administration in the first jurisdiction might make an unsubstantiated assertion about the transfer pricing, which the taxpayer might accept, and the tax administration in the second jurisdiction would have the burden of disproving the pricing. It could be that neither the taxpayer in the second jurisdiction nor the tax administration in the first jurisdiction would be making efforts to establish an acceptable arm’s length price. This type of behaviour would set the stage ... Read more

TPG2022 Chapter IV paragraph 4.13

In jurisdictions where the burden of proof is on the taxpayer, tax administrations are generally not at liberty to raise assessments against taxpayers which are not soundly based in law. A tax administration in an OECD member country that applies the arm’s length principle, for example, could not raise an assessment based on a taxable income calculated as a fixed percentage of turnover and simply ignore the arm’s length principle. In the context of litigation in countries where the burden of proof is on the taxpayer, the burden of proof is often seen as a shifting burden. Where the taxpayer presents to a court a reasonable argument and evidence to suggest that its transfer pricing was arm’s length, the burden of proof may legally or de facto shift to the tax administration to counter the taxpayer’s position and to present argument and evidence as to why the taxpayer’s transfer pricing was not arm’s length and why the assessment is correct ... Read more

TPG2022 Chapter IV paragraph 4.12

The implication for the behaviour of the tax administration and the taxpayer of the rules governing burden of proof should be taken into account. For example, where as a matter of domestic law the burden of proof is on the tax administration, the taxpayer may not have any legal obligation to prove the correctness of its transfer pricing unless the tax administration makes a prima facie showing that the pricing is inconsistent with the arm’s length principle. Even in such a case, of course, the tax administration might still reasonably oblige the taxpayer to produce its records that would enable the tax administration to undertake its examination. In some countries, taxpayers have a duty to cooperate with the tax administration imposed on them by law. In the event that a taxpayer fails to cooperate, the tax administration may be given the authority to estimate the taxpayer’s income and to assume relevant facts based on experience. In these cases, tax administrations ... Read more

TPG2022 Chapter IV paragraph 4.11

Like examination practices, the burden of proof rules for tax cases also differ among OECD member countries. In most jurisdictions, the tax administration bears the burden of proof both in its own internal dealings with the taxpayer (e.g. assessment and appeals) and in litigation. In some of these countries, the burden of proof can be reversed, allowing the tax administration to estimate taxable income, if the taxpayer is found not to have acted in good faith, for example, by not cooperating or complying with reasonable documentation requests or by filing false or misleading returns. In other countries, the burden of proof is on the taxpayer. In this respect, however, the conclusions of paragraphs 4.16 and 4.17 should be noted ... Read more

TPG2022 Chapter IV paragraph 4.5

This section describes three aspects of transfer pricing compliance that should receive special consideration to help tax jurisdictions administer their transfer pricing rules in a manner that is fair to taxpayers and other jurisdictions. While other tax law compliance practices are in common use in OECD member countries – for example, the use of litigation and evidentiary sanctions where information may be sought by a tax administration but is not provided – these three aspects will often impact on how tax administrations in other jurisdictions approach the mutual agreement procedure process and determine their administrative response to ensuring compliance with their own transfer pricing rules. The three aspects are: examination practices, the burden of proof, and penalty systems. The evaluation of these three aspects will necessarily differ depending on the characteristics of the tax system involved, and so it is not possible to describe a uniform set of principles or issues that will be relevant in all cases. Instead, this ... Read more
Italy vs BenQ Italy SRL, March 2021, Corte di Cassazione, Sez. 5 Num. 1374 Anno 2022

Italy vs BenQ Italy SRL, March 2021, Corte di Cassazione, Sez. 5 Num. 1374 Anno 2022

BenQ Italy SRL is part of a multinational group headed by the Taiwanese company BenQ Corporation that sells and markets technology products, consumer electronics, computing and communications devices. BenQ Italy’s immediate parent company was a Dutch company, BenQ Europe PV. Following an audit the tax authorities issued a notice of assessment for FY 2003 in which the taxpayer was accused of having procured goods from companies operating in countries with privileged taxation through the fictitious interposition of a Dutch company (BenQ Europe BV), the parent company of the taxpayer, whose intervention in the distribution chain was deemed uneconomic. On the basis of these assumptions, the tax authorities found that the recharge of costs made by the interposed company, were non-deductible. The tax authorities also considered that, through the interposition of BenQ BV, the prices charged by the taxpayer were aimed at transferring most of the taxable income to the manufacturing companies of the BenQ Group located in countries with privileged ... Read more
Greece vs "CUP Ltd.", October 2021, Tax Court, Case No 3495/2021

Greece vs “CUP Ltd.”, October 2021, Tax Court, Case No 3495/2021

This case deals with the choice of transfer pricing method. Following an audit, an upwards adjustment of the taxable income was issued by the tax authorities. The adjustment was based on application of the cost plus method instead of the CUP method as had been chosen by the company. The company disagreed with the assessment and filed an appeal with the tax court. Judgement of the Tax Court The Tax Court allowed the appeal and set aside the assessment of the tax authorities due to lack of statement of reasons for choosing another transfer pricing method. Excerpt “Because the provisions of Article 17 §§§1,2 of the Code of Administrative Procedure (Law 2690/1999) entitled ‘Reasons’ set out the following: “1. The individual administrative act must contain a statement of reasons, which must include a statement of the existence of the legal requirements for its issuance. 2. The statement of reasons must be clear, specific, adequate and must be apparent from the ... Read more
Italy vs Pompea S.p.A., October 2021, Supreme Court, Case No 27636/2021

Italy vs Pompea S.p.A., October 2021, Supreme Court, Case No 27636/2021

This case deals with a non-interest bearing intragroup loan granted by Pompea S.p.A. to a foreign subsidiary and deductibility of interest expenses incurred by Pompea S.p.A. to obtain the funding needed to grant this loan to the subsidiary. The company was of the opinion that interest free inter-company loans were not covered by the Italien arm’s length provision at the time where the loan in question was established. The Italien tax authorities claimed that the arrangement was covered by the transfer pricing regulations art. 110 paragraph 7, and that an arm’s length interest had to be paid on the loan. They also found that interest on the bank loan was not deductible. Judgement of the Supreme Court The Court found that non-interest-bearing loan, was covered by the rules laid down in Article 110(7) of the TUIR (the Italien arm’s length provisions). Furthermore, the court found that the OECD 2010 TP Guidelines were unambiguous in clarifying (Chapter VII of the 2010 Guidelines, paras. 7.14 ... Read more
Greece vs Cypriot company Ltd., September 2021, Tax Court, Case No 2940/2021

Greece vs Cypriot company Ltd., September 2021, Tax Court, Case No 2940/2021

This case deals with arm’s length pricing of various inter-company loans which had been granted – free of interest – by Cypriot company Ltd. to an affiliate group company. Following an audit of Cypriot company Ltd, an upwards adjustment of the taxable income was issued. The adjustment was based on a comparison of the terms of the controlled transaction and the terms prevailing in transactions between independent parties. The lack of interest on the funds provided (deposit of a remittance minus acceptance of a remittance) was not considered in accordance with the arm’s length principle. Cypriot company Ltd disagreed with the assessment and filed an appeal with the tax court. Judgement of the Tax Court The Tax Court dismissed the appeal of Cypriot company Ltd. in regards of the arm’s length pricing of the loans. Excerpt “It is evident from the above that the bond loan taken is related to the outstanding balance of the debt as at 31/12/2014 and ... Read more
El Salvador vs Corp, June 2021, Tax Court, Case No 096-2021

El Salvador vs Corp, June 2021, Tax Court, Case No 096-2021

Following an audit the tax authorities issued an assessment regarding interest payments on intra group loans and tax deductions for the costs for various services. An appeal was filed by the company. Judgement of the Tax Court The court upheld the assessment and decided in favour of the tax authorities. Click here for English translation TAIIA-R1704012TM ... Read more
Kenya vs PE of Man Diesel, August 2021, High Court of Kenya, Income Tax Appeal No. E125 OF 2020

Kenya vs PE of Man Diesel, August 2021, High Court of Kenya, Income Tax Appeal No. E125 OF 2020

A Permanent Establishment (PE) in Kenya of MAN Diesel and Turbo SE Germany (MAN) entered into a consortium with a firm called MPG Services to engineer, procure and construct an 87 MW generating capacity thermal power plant on behalf of Thika Power Ltd. The role of MAN’s Kenyan PE in the project was mobilization, engineering and design, reservation of the diesel sets, and steam turbine and other start-up costs associated with its part of the works which included supervision of the assembly and installation of engines and commissioning the engines. MAN Germany was to provide for the materials up to the port of export and the PE was to assist in the onshore part which included supervision of the assembly and installation work as well as commissioning the work but did not include supply of equipment. In 2015, the tax authorities initiated an audit which resulted in a final tax assessment issued in 2017. According to the assessment MAN’s Kenyan ... Read more
Italy vs INTERVET PRODUCTIONS SRL, January 2021, Corte di Cassazione, Case No 22539/2021

Italy vs INTERVET PRODUCTIONS SRL, January 2021, Corte di Cassazione, Case No 22539/2021

Intervet Productions SRL, a company resident in Italy, manufactures veterinary medicines and supplements. The Italian tax authorities issued a notice of assessment, relating to the 2004 tax year. In that notice, the tax authorities ascertained the inconsistency of the transfer prices concerning the sale of certain goods to a related party in Germany. For the determination of the transfer prices, the taxpayer had used two methods: the resale price method, for products subject to mere marketing, and the cost-plus method, for products subject to further processing by Intervet. The tax authorities had used the CUP method for the purpose of the adjustment. Intervet appealed against the assessment, contesting the comparability of the products compared by the tax authorities but lost in the proceedings on the merits An appeal was then filed with the Supreme Administrative Court. Judgement of the Supreme Administrative Court The Court set aside the assessment. The Court stated that the tax authorities has to prove that the ... Read more
Colombia vs SONY Music Entertainment Colombia S.A., July 2021, The Administrative Court, Case No. 20641

Colombia vs SONY Music Entertainment Colombia S.A., July 2021, The Administrative Court, Case No. 20641

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