Tag: Contract manufacturing

A manufacturer, in most cases, located in a low-cost jurisdiction, which has a license to use an intangible property developed by its parent company. The manufacturer uses the intangible property to produce tangible property which is then resold to the parent for distribution to ultimate customers.

Norway vs Cytec, March 2019, Borgarting Lagmannsrett, Case No 2017-90184

Norway vs Cytec, March 2019, Borgarting Lagmannsrett, Case No 2017-90184

The question in the case was whether Cytec Norway KS (now Allnex Norway A/S) had paid an arm’s length price for an intra-group transfer of intangible assets in 2010. Cytec Norway KS had set the price for the accquired intangibles at NOK 210 million and calculated tax depreciations on that basis. The Norwegian tax authorities found that no intangibles had actually been transferred. The tax Appeals Committee determined that intangibles had been transferred but only at a total value of NOK 45 million. The Court of appeal upheld the dicision of the Tax Appeals Committee, where the price for tax purposes was estimated at NOK 44.9 million. Click here for translation Norway vs Cytec 19 March 2019, Borgarting Lagmannsrett Case No 2017-90184 ... Continue to full case
Spain vs. Schwepps (Citresa), February 2017, Spanish Supreme Court, case nr. 293/2017

Spain vs. Schwepps (Citresa), February 2017, Spanish Supreme Court, case nr. 293/2017

The Spanish Tax administration made an income adjustment of Citresa (a Spanish subsidiary of the Schweeps Group) Corporate Income Tax for FY 2003, 2004, 2005 and 2006, resulting in a tax liability of €38.6 millon. Citresa entered into a franchise agreement and a contract manufacturing agreement with Schweppes International Limited (a related party resident in the Netherlands). The transactions between the two group companies were not found to be in accordance with the arm’s length principle. The issue under dispute was the use of TNMM introduced in Spain in 2006. The taxpayer had used the CUP method to verify the arm’s length nature of the transaction while the Spanish Tax administration found it more appropriate to use the TNMM. Prior to 1 December 2006, the Spanish Corporate Income Tax Act (CIT) established three methods of pricing related transactions (the “Comparable Uncontrolled Price Method”, the “Cost Plus Method” and the “Resale Price Method”) and if none were applicable it established the application of the “Transactional Profit Split Method” ... Continue to full case
Italy vs GE TRANSPORTATION SYSTEMS SPA, December 2014, Supreme Court 27296

Italy vs GE TRANSPORTATION SYSTEMS SPA, December 2014, Supreme Court 27296

In this case the Italien tax administration concluded that transactions between an Italien company an a German sister company had been priced lower than the “normal value”. The Court found that in relation to intercompany transactions GE Transportation Systems S.p.A. was a contract manufacturer. The German company owned the intellectual property. In relation to transactions with independent companies, GE Transportation Systems S.p.A. assumed the risks of the transaction and had the rights to manufacture and sell the products. These differences justified the different price and led to the incomparability of them. The Court concluded that a contract manufacturer cannot be compared to full-fledged manufacturers. The former is in a weak barganing position compared to the German principal. The principal is in fact the owner of all of the intangibles, and this puts the Italien contract manufacturer in a weaker barganing position compared to a full-fledged manufacturer that owns the relevant intangibles. The Court ruled in favor of the GE Transportation ... Continue to full case
Spain vs. Roche, January 2012, Supreme Court case nr. 1626/2008

Spain vs. Roche, January 2012, Supreme Court case nr. 1626/2008

This case is about the consequences of converting a manufacturer and full-fledged distributor into a toll manufacturer and commissionaire, without actually changing the underlying operations. The Supreme Court decided that the restructured Spanish entity acted as a manufacturing agent that created a PE. The profits attributed to the PE included not only the manufacturing profits but also the profits from the distribution activity on behalf of Roche Vitamins Europe Ltd. in Switzerland. Prior to a business restructuring in 1999, the Spanish subsidiary 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 entered into two agreements. Under the manufacturing agreement, the Spanish subsidiary manufactored 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 (agancy) agreement, the Spanish subsidiary would “represent, protect and promote” the products. These activities were remunerated at 2 percent of sales. After entering the ... Continue to full case
India vs. Fulford (India) Limited, July 2011, Income Tax Appellate Tribunal

India vs. Fulford (India) Limited, July 2011, Income Tax Appellate Tribunal

Fulford India Ltd. imported active pharmaceutical ingredients (APIs) from related group companies and sold them in India. The TNM method was used for determening transfer prices. The tax administration found the CUP method to be the most appropriate. Fulford India argued that the CUP method requires stringent comparability and any differences which could materially affect the price in the open market should be taken into consideration. In the pharmaceutical world, APIs whith similar properties may still be different in relation to quality, efficiancy, impurities etc. Therefore, the two products cannot be compared. In court, it was further explained that Fulford also performed secondary manufacturing functions, converting the APIs into formulations. Hence, Fulford could be descriped as a value added distributor. The Court concluded that the selection of the best method should be based on functional analysis and the characterisation of the transactions and the entities. The fact that Fulford had secondary manufacturing activities had not previously been explained to the ... Continue to full case
Spain vs. Borex, February 2011, National Court case nr. 80-2008

Spain vs. Borex, February 2011, National Court case nr. 80-2008

A Spanish subsidiary of a UK Group (Borex), which imported, processed and sold the materials to third parties, was transformed into a a contract manufacturer. The Spanish subsidiary signed two separate contracts with the UK parent, one for warehousing and the provision of services and the other in respect of an sales agency. Under the first contract, the minerals purchased by the parent would be stored and processed by the subsidiary, which would also provide other relevant services. Under the second contract, the Spanish subsidiary would promote sales of the minerals in Spain, but, as the prices and conditions were fixed by the UK parent, the subsidiary would only send orders to the parent, which was not bound to accept them. The subsidiary could not accept orders in the name of the parent or receive payment. The tax administration argued that there was a high degree of overlapping between the activities carried out by the parent and the subsidiary. Warehousing, service and promotion of ... Continue to full case