Tag: Comparability adjustment
Adjustments made to improve the accuracy and reliability of the comparables to ensure that the financial results of the comparables are stated on the same basis as those of the tested party.
/ Comparability, Comparability adjustment, Denmark, Goodwill amortization, Intangibles - Goodwill Know-how Patents, Interquartile range, TNMM, Transfer Pricing Methods
Results in a Danish company engaged in distribution of pharmaceuticals were significantly below the arm’s length range of net profit according to the benchmark study, but by disregarding annual goodwill amortization of DKK 57.1 million, the results were within the arm’s length range. The goodwill being amortized in Pharma Distributor A A/S had been determined under a prior acquisition of the company, and later – due to a merger with the acquiring danish company – booked in Pharma Distributor A A/S. The main question in the case was whether Pharma Distributor A A/S were entitled to disregard the goodwill amortization in the comparability analysis. The national tax court had ruled in favor of the company, but the national court reached the opposite result. Thus, the National Court found that the goodwill in question had to be regarded as an operating asset, and therefore the depreciation had to be regarded as operating expenses when calculating the net profit (EBIT margin). In ... Continue to full case
A Japanese company entered into a transaction with a foreing group company to import English-language learning materials into Japan. The learning materials were then resold to Japanese customers. The Japanese tax authority found that the resale price method should be used for setting the arm’s-length price for the transaction. The arm’s-length price for the controlled transaction was the price at which the Japanese company resold the English-language learning materials to customers, minus a normal profit margin multiplied by the price. The “normal profit margin” in this case was found to be the weighted average ratio of gross margin to the total revenue for multiple transactions, where unrelated parties imported the same as the English-language learning materials, or goods of a similar sort, and then resold them to customers. The tax authority held that unrelated parties importing and selling learning materials should be considered comparable transactions, and appropriate adjustments could be made to account for difference. However, an important difference between ... Continue to full case
/ Active Pharmaceutical Ingredient (API), Comparability adjustment, CUP method, Generic ingredience, Korea, Pharmaceutical, Transfer Pricing Methods
A Korean pharma corporation produced and sold finished pharmaceuticals. Active ingredients were imported from foreign related parties in the United States and Ireland. The Korean pharma corporation produced and sold the original finished products by importing the five original patented raw materials that had expired from the patent period in each business period from December 1, 2001 to November 30. The tax authorities calculated the normal price of the original raw materials by a comparable third party pricing method. As for the specific methodology, the median price of imported generic raw materials for other domestic pharmaceutical companies was calculated by multiplying the ratio between the original product and the medical insurance price of the drug (generic finished product) produced by the domestic generic raw material by other domestic pharmaceutical companies. After calculating the normal price of the raw materials, the difference between the original price of the original raw materials and the difference between the original price and the normal ... Continue to full case
In Korea the tax authorities usually regarded domestic transactions as better comparables and there were only few cases where transfer pricing had been applied based on foreign transactions. In this case, the Korean Supreme Court confirms that international transactions can be used as comparables for the pricing of domestic transaktions. Click here for English Translation 99두3423 ... Continue to full case