Tag: Business strategies

Business strategy is a comparability factor in setting transfer prices

Italy vs Lossmaking SpA, September 2019, Lombardi Regional Tribunal, Case No 928/20/2019

Italy vs Lossmaking SpA, September 2019, Lombardi Regional Tribunal, Case No 928/20/2019

An Italian company belonging to a multinational group operating in the pharmaceutical sector, had recorded operating losses for fiscal years 1997 to 2013, while at a consolidated level the Group showed positive results. According to the Italian tax authorities, the reason why the Italian company was still in operation was due to the fact that the group had an interest in keeping an international profile and to that end the Italian company performed marketing activities benefiting the Group. Assessment was issued where the taxable income of the Italian company was added compensation for inter-company marketing services carried out by the Italian company on behalf of the group. The company argued that the pharmaceutical market and the governmental policy on the prices of medicines in Italy was the reason for the losses. In support of this claim the company submitted broad documentary evidence during the audit. The Court held in favor of the taxpayer. The company had demonstrated the reasons for ... Continue to full case
India vs. L’oreal India Pvt. Ltd. May 2016, Income Tax Appellate Tribunal

India vs. L’oreal India Pvt. Ltd. May 2016, Income Tax Appellate Tribunal

L’oreal in India is engaged in manufacturing and distribution of cosmetics and beauty products. In respect of the distribution L’oreal had applied the RPM by benchmarking the gross margin of at 4o.80% against that of comparables at 14.85%. The tax administration rejected the RPM method on the basis that the L’oreal India was consistently incurring losses and the gross margins cannot be relied upon because of product differences in comparables. Accordingly, the tax administration applied Transactional Net Margin Method. L’oreal argued that the years of losses was due to a market penetration strategy in India – not non-arm’s-length pricing of transactions. The comparables had been on the Indian market much longer than L’oreal and had established themselves firmly in the Indian market. The Appellate Tribunal observed that L’oreal India buys products from its parent and sells to unrelated parties without any further processing. According to the OECD TPG, in such a situation, RPM is the most appropriate transfer pricing method. L’oreal India had also produced evidence from its parent that margin earned by the ... Continue to full case