Tag: Compensating adjustment
A compensating adjustment is an adjustment in which the taxpayer reports a transfer price for tax purposes that is, in the taxpayer’s opinion, an arm’s length price for a controlled transaction, even though this price differs from the amount actually charged between the associated enterprises. This adjustment would be made before the tax return is filed.
Norway vs A/S Norske Shell, September 2019, Borgarting lagmannsrett, Case No LB-2018-79168 – UTV-2019-807
A/S Norske Shell with operations on the Norwegian continental shelf, which formed part of the Shell group, conducted research and development (R&D) through a subsidiary. All R&D costs were deducted. The tax authority applied the arms length principle and issued a tax assessment. It was assumed that the R&D expense was due to a joint interest with the other upstream companies in the Shell group. The Court of Appeal found that the R&D conducted in Norway also constituted an advantage for the foreign part of the group for which an independent company would demand compensation. Therefore, there was a revenue reduction that provided the basis for determining the company’s income by discretion in accordance with section 13-1 of the Tax Act. The determination of the size of the income reduction in the tax assessment had not based on an incorrect or incomplete fact, nor did the result appear arbitrary or unreasonable. The Court of Appeal concluded that the decision was ... Continue to full case
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