Software A/S was a fully fledged Danish distributor of software an related services up until 2010 where the company was converted into a commissionaire dealing on behalf of a newly established sales and marketing hub in Switzerland. Following an audit, the Danish tax authorities issued a assessment where additional taxable income from the transfer of intangibles to Switzerland in 2010 had been determined by application of the DCF valuation model. As no transfer pricing documentation had been prepared on the transfer, the assessment was issued on a discretionary basis. Software A/S filed a complaint to the Danish Tax Court. The Tax Court found that the tax authorities did not have the authority to make a discretionary assessment. It was emphasized that the company in its transfer pricing documentation had described the relevant circumstances for the restructuring. Furthermore, the company had analyzed functions and risks and prepared comparability analyzes for transactions before and after the restructuring. However, the Tax Court found ... Read more

The Guideline outlines ATO’s compliance approach to the transfer pricing outcomes associated with the following activities of inbound distributors: distributing goods purchased from related foreign entities for resale, and distributing digital products or services where the intellectual property in those products or services is owned by related foreign entities Such activities, together with any related activities involving the provision of ancillary services, are referred to in this Guideline as ‘inbound distribution arrangements’. This Guideline applies to inbound distribution arrangements of any scale. The framework in the Guideline is used to assess the transfer pricing risk of inbound distribution arrangements and tailor our engagement with you. Where this Guideline applies, we rate the transfer pricing risk of your inbound distribution arrangements having regard to a combination of quantitative and qualitative factors. If an inbound distribution arrangements fall outside the low transfer pricing risk category, the transfer pricing outcomes of the arrangements can be expected to be monitor, tested and/or verified. The ... Read more

The Danish tax authorities were of the opinion that Microsoft Denmark had not been properly remunerated for performing marketing activities due to the fact that OEM sales to Danish customers via MNE OEM’s had not been included in the calculation of local commissions. According to the Market Development Agreement (MDA agreement) concluded between Microsoft Denmark and MIOL with effect from 1 July 2003, Microsoft Denmark received the largest amount of either a commission based on sales invoiced in Denmark or a markup on it’s costs. Microsoft Denmark’s commission did not take into account the sale of Microsoft products that occurred through the sale of computers by multinational computer manufacturers with pre-installed Microsoft software to end users in Denmark – (OEM sales). In court, Microsoft required a dismissal. In a narrow 3:2 decision the Danish Supreme Court found in favor of Microsoft. “…Microsoft Denmark’s marketing may have had some derivative effect, especially in the period around the launch in 2007 of ... Read more

The French Supreme Court issued a decision on 4 April 2018, concluding that a permanent establishment (PE) existed in France for purposes of determining nonresident companies’ exposure to French VAT in a case involving a transport commissionaire arrangement. The decisions clarify the criteria for determining whether a service provider will be considered to have sufficient substance in France to enable the services to be performed in an independent manner, and thus constitute a PE. A UK sea carriage commissionaire signed a client assignment contract with a French company carrying out the same activity, as well as a contract for the French company to organize and provide transport services. The UK company was required to approve any new clients or suppliers. The UK company also managed the reservation systems for clients to book the transport and communicated with the clients regarding the transport and the insurance linked to the business. The French company was responsible for the overall development of the ... Read more

The Danish Tax Ministry and Microsoft meet in Court in a case where the Danish tax authorities had issued an assessment of DKK 308 million. The Danish tax authorities were of the opinion that Microsoft had not been properly remunerated for performing marketing activities due to the fact that OEM sales to Danish customers via MNE OEM’s had not been included in the calculation of local commissions. In court, Microsoft required a dismissal with reference to the fact that Sweden, Norway and Finland had either lost or resigned similar tax cases against Micorosoft. The National Court ruled in favor of Microsoft. The decision was later confirmed by the Supreme Court. Click here for translation ... Read more

Dell Spain is part of a multinational group (Dell) that manufactures and sells computers. Dell Ireland, operates as distribution hub for most of Europe. Dell Ireland has appointed related entities to operate as its commissionaires in several countries; Dell Spain and Dell France are part of this commissionaire network. The group operates through a direct sales model and sales to private customers in Spain are conducted by Dell France, through a call centre and a web page. Dell Spain use to operate as a full-fledged distributor, but after entering into a commissionaire agreement Dell Spain now served large customers on behalf of Dell Ireland. A tax assessment was issued by the tax authorities. According to the assessment the activities in Spain constituted a Permanent Establishment of Dell Ireland to which profits had to allocated for FY 2001-2003. Judgement of the Supreme Court The Supreme Court concludes that the activities of Dell Spain constitutes a Permanent Establishment of Dell Ireland under ... Read more

Gap International Sourcing was engaged in sourcing products from India to other group companies. The activity comprised of assistance in identification of vendors, provision of assistance to vendors in procurement of apparel, inspection and quality control and coordination with vendors to ensure delivery of goods to group companies. The necessary technical and intellectual basis for provision of these services were provided by the group companies. The Indian company used TNMM to benchmark the service fee at full cost plus 15%. The tax administration disregarded the functional profile and characterisation of Gap International Sourcing by assuming that the functional profile was substantially higher than those of limited risk support service providers. The tax administration found that a cost plus form of remuneration did not take into account substantial intangible assets owned by the taxpayer. Intangibles were identified to be human asset intangibles, supply chain intangibles and location savings. Based on above, the tax administration set the arm’s length remuneration at a ... Read more

In the Microsoft case, the distribution activity of a French subsidiary of an American group was transferred to its Irish sister company. The French subsidiary was then converted into a sales agent of the Irish subsidiary. The Commission rate earned by the French subsidiary was reduced from 25% to 18%. The French tax authorities, taking into account the previous 25% commission rate, considered that it should not have been reduced and reinstated the corresponding income into the French company’s taxable income. To support their position, the French tax authorities conducted a benchmarking study. However, the Court of Appeals ruled that the mere fact that the commission rate has been reduced does not demonstrate the transfer of profits abroad. Moreover, the Court confirmed that the transfer of profits abroad was not proved due to the irrelevance of the methods used and of the comparables found by the French tax authorities. The companies were not suitable for comparison because they were not ... Read more

Prior to a business restructuring in 1999, the Spanish subsidiary, Roche Vitaminas S.A., was a full-fledged distributor, involved in manufacturing, importing, and selling the pharmaceutical products in the Spanish and Portuguese markets. In 1999 the Spanish subsidiary and the Swiss parent, Roche Vitamins Europe Ltd., entered into a manufacturing agreement and a distribution agreement. Under the manufacturing agreement, the Spanish subsidiary manufactured products  according to directions and using formulas, know-how, patents, and trademarks from the Swiss parent. These manufacturing activities were remunerated at cost plus 3.3 percent. Under the distribution (agency) agreement, the Spanish subsidiary would “represent, protect and promote” the products. These activities were remunerated at 2 percent of sales. The Spanish subsidiary was now characterized as a contract manufacturer and commission agent and the taxable profits in Spain were much lower than before the business restructuring. The Spanish tax authorities argued that the activities constituted a PE in Spain according to article 5 of DTT between Spain and ... Read more

The Irish company Dell Products was taxable in Norway for years 2003-2006. The issue was whether Dell Products had a permenent establishment in Norway, cf. Article 5. 5 in the tax treaty between Ireland and Norway from 2000. Dell Products sold PC’s and equipment by a commission agreement in which the Irish company was Principal and the Norwegian company Dell AS was commissioner. Both the companies are part of the Dell group. Dell AS sold to customers who were large enterprises and the public sector. It was not disputed that the agreement was not legally binding on Dell Products in relation to customers. Dell Products would have a permanent establishment in Norway and may be taxable Norway, if Dell Norway had acted “on behalf of” and had the “authority to conclude contracts on behalf of the” Dell, ref. Tax Treaty Article 5. 5. Unlike the District Court and the Court of Appeal the Supreme Court did not wote in favor of the tax authorities. The ... Read more

The French company, Zimmer SAS, distributed products for Zimmer Limited. In 1995 the company was converted into a commissionaire (acting in its own name but on behalf of Zimmer Ltd.). The French tax authorities argued that the commissionaire was taxable as a permanent establishment of the principal, because the commissionaire could bind the principal. The Court ruled that the commissionaire could not bind the principal. Therefore, the French commissionaire could not be a permanent establishment of the principal. Click here for English translation ... Read more