A Czech manufacturer of electronic components disputed a transfer pricing adjustment for 2015, arguing the tax authority misclassified its functional and risk profile and applied an inappropriate profit mark-up on material costs. The Regional Court upheld the assessment of approximately CZK 28 million in additional corporate income tax, confirming the authority's FAR analysis, its characterisation of the company as a risk-bearing manufacturer, and the use of return on total costs as the profit level indicator ... Read more

A Spanish subsidiary of a multinational consumer goods group was audited for 2015–17 over contract manufacturing services, intra-group loans, and cash pooling arrangements. The tax authority rejected part of the taxpayer's comparable set and adjusted margins to the median, also applying group credit ratings and substituting Euribor with Eonia. Spain's TEAC largely upheld the authority's position in its October 2025 ruling ... Read more

A Czech electronics contract manufacturer used ROVAC as its profit level indicator, excluding material costs on the basis that it bore no material risk. The tax authority argued ROTC was more appropriate. The Supreme Administrative Court dismissed the taxpayer's appeal in June 2025, confirming that return on total costs better reflected the company's functions, assets, and risks as a manufacturer holding formal title to raw materials ... Read more

A Czech electronics contract manufacturer used ROVAC as its profit level indicator, excluding material costs on the basis that it bore no material risk. The tax authority argued ROTC was more appropriate. The Supreme Administrative Court dismissed the taxpayer's appeal in June 2025, confirming that return on total costs better reflected the company's functions, assets, and risks as a manufacturer holding formal title to raw materials ... Read more

A Hungarian automotive electronics contract manufacturer reported a loss of minus 14.7% for FY 2018. The tax authority rejected the company's benchmark study, conducted its own comparable screening, and set a minimum arm's length return of 4.79%, increasing the corporate tax base by HUF 49.8 billion. The Regional Court remanded the case for re-examination in May 2025 ... Read more

A Czech electronics contract manufacturer used ROVAC as its profit level indicator, excluding material costs from its transfer pricing analysis on the basis that it bore no material risk. The tax authority substituted ROTC, covering total costs. After earlier remittal by the Regional Court for inadequate FAR analysis, the tax authority conducted a revised FAR assessment. The Supreme Administrative Court dismissed the taxpayer's appeal in May 2025, confirming the revised ROTC-based assessment ... Read more

A Costa Rican company providing maquila and marketing services to a tax-exempt related party, Coopeliberia, was audited for booking losses while shifting profits to the exempt entity. The tax authority imposed adjustments, which the Supreme Court upheld in 2024, affirming the administration's right to intervene in abusive pricing arrangements. The Court nonetheless annulled the lower court judgment and remanded the case due to procedural deficiencies in prior reasoning ... Read more

A Czech electronics contract manufacturer used ROVAC as its profit level indicator, arguing it bore no material risk. The tax authority substituted ROTC, including material costs. After a prior remittal requiring a proper FAR analysis, the Regional Court in 2024 upheld the revised tax assessment, accepting that the authority's updated FAR profile sufficiently justified selecting ROTC as the most appropriate profit level indicator ... Read more

A Hungarian metal parts manufacturer for the automotive industry had reported continuous losses since 2012 while its parent group remained profitable. The tax authority reclassified it as a low-risk contract manufacturer and issued an adjustment treating the losses as a hidden service to the parent. The Supreme Administrative Court ruled predominantly in favour of the taxpayer in October 2024 and remanded the case for reconsideration ... Read more

An Italian packaging machine manufacturer applied the CUP method to its intra-group transactions, but tax authorities substituted the TNMM following an audit of FY 2008. The Italian Supreme Court dismissed the company's appeal in October 2024, confirming that OECD Transfer Pricing Guidelines are non-binding guidance and that the TNMM was the most appropriate method given the company's limited-risk, pre-confirmed-order manufacturing profile ... Read more

A Czech subsidiary of the Japanese Futaba group, operating as an automotive components manufacturer, challenged a transfer pricing assessment covering loss-making years 2016–2017. The tax authority applied TNMM with net cost plus as the profit level indicator, reallocating the functional and risk profile through a value-chain analysis. The Czech Regional Court upheld the assessment in September 2024, confirming the method selection, comparables range, and risk allocation applied by the tax authority ... Read more

A Slovak contract manufacturer within the Valeo group was subject to a transfer pricing adjustment by the tax authorities, who applied TNMM with an interquartile range and median benchmark and disallowed deductions for intra-group management and technical service fees. The Administrative Court rejected the company's appeal, and the Supreme Administrative Court dismissed the further appeal in September 2024, fully upholding the tax authority's assessment ... Read more

IKEA Industry Slovakia, a contract furniture manufacturer within the Swedwood group, was assessed additional corporate income tax after Slovak tax authorities rejected its CUP method and applied TNMM, finding its reported losses fell outside the arm's length range. The Slovak Administrative Court ruled in favour of the taxpayer in September 2024, finding flaws in the benchmarking comparability analysis conducted by the tax authorities ... Read more

A Slovak aluminium castings manufacturer within the Alicon Group used the profit-split method and reported a loss in 2012/2013. Tax authorities reclassified the company as a limited-risk manufacturer and applied TNMM, rejecting the reported loss. The Administrative Court ruled largely in the taxpayer's favour in 2024, finding authorities failed to prove limited-risk entities cannot incur losses and identified flaws in the benchmark study, including improper exclusion of loss-making comparables ... Read more

Samsung India paid 8% royalties to its Korean parent under a technology licence agreement. Indian tax authorities disallowed the deductions, classifying Samsung India as a contract manufacturer. The Income Tax Appellate Tribunal overturned the assessment, and the Delhi High Court upheld that decision in 2024, confirming Samsung India operated as a full-fledged licensed manufacturer and that the royalty payments were at arm's length ... Read more

Avago Technologies Trading Ltd paid royalties to a related Singapore entity, GEN IP, under a licence agreement covering semiconductor intellectual property. The Mauritius tax authority rejected Avago's TNMM approach and applied the CUP method, issuing an assessment of additional taxable income. The Assessment Review Committee upheld the assessment in 2024, dismissing Avago's appeal and confirming the CUP method as the most appropriate method for determining the arm's length royalty ... Read more

A Czech contract manufacturer excluded an accounting write-off of a valuation difference from its TNMM cost base, reducing its taxable income. The tax authority issued an assessment reinstating those costs. The Regional Court dismissed the taxpayer's appeal, and the Czech Supreme Administrative Court upheld that decision in 2024, confirming the write-off must be included in the arm's length cost base for controlled manufacturing transactions ... Read more

A Slovak Administrative Court ruled in favour of Marelli Slovakia in a 2024 transfer pricing case concerning intra-group sales of automotive components for FY 2012. The tax authority applied the TNMM and argued the company bore risks without control or decision-making power. The court sided with the taxpayer, addressing comparability analysis, risk allocation, and the legal status of the OECD Transfer Pricing Guidelines ... Read more

A Polish contract manufacturer of electrical harnesses made a year-end price adjustment to achieve a target operating margin of 1.25% under the TNMM method. The tax authority disallowed the deduction, finding no causal link to revenues earned. The Provincial Administrative Court in 2024 ruled in favour of the taxpayer, accepting the legitimacy of the arm's length adjustment under the agreed intercompany pricing arrangement ... Read more

Tiger Flex, restructured as a contract manufacturer within the Gucci Group, claimed tax deductions on acquired goodwill amortisation, producing continuous losses. Italy's tax authority disallowed the deductions, finding the goodwill benefited the group as a whole. The Regional Tax Commission initially ruled for the taxpayer, but Italy's Supreme Court reversed that decision in 2023 and remanded the case to a differently composed Regional Tax Commission for re-examination ... Read more

A German automotive parts supplier transferred labour-intensive manufacturing to a wholly owned Bosnian subsidiary to reduce wage costs, retaining high-tech processes in Germany. The German tax authority challenged the transfer pricing arrangements, including royalty payments and location savings allocation. The Bundesfinanzhof ruled mostly in favour of the tax authority in August 2023, finding the taxpayer's documentation insufficient and upholding adjustments to the cross-border restructuring arrangements ... Read more

Four German operating companies manufactured and sold products under a group licence before the group relocated these activities to Switzerland. The German tax authority argued a taxable transfer of functions had occurred. The Finanzgericht ruled in favour of the taxpayer in August 2023, finding no assets, business opportunities, or functions were transferred, and no causal link existed between any transfer and the ability to exercise a function. An appeal is pending before the BFH ... Read more

A Czech automotive subcontractor was assessed additional corporate income tax after the tax authority argued its intra-group wage labour prices were below arm's length. The company challenged the comparability of the tax authority's analysis, arguing subcontractor and final supplier activities were incomparable. The Czech Supreme Administrative Court sided with the taxpayer in June 2023, finding the CUP method was applied with material comparability defects ... Read more

ESAB CZ, a contract manufacturer for ESAB Europe, disputed a transfer pricing adjustment by Czech tax authorities requiring that depreciation and amortisation be included in the cost base used to calculate its target profit margin for 2014 and 2015. The Czech Regional Court ruled in favour of the tax authority in May 2023, finding that ESAB CZ failed to demonstrate the asset write-downs were unrelated to its contract manufacturing activities ... Read more

A Polish salmon processing subsidiary within a Netherlands-headquartered group had its operating expenses disallowed by tax authorities, who found the cost plus method was incorrectly applied and accounting records unreliable. The Administrative Court sided with the authorities, and the Supreme Administrative Court dismissed the company's appeal in April 2023, confirming the PLN 29.6 million adjustment to inflated related-party costs ... Read more

Following an audit, Spanish tax authorities adjusted Electrolux España's taxable income across manufacturing margins, distribution profits, restructuring cost deductions, and warehouse rental pricing. The company appealed to the National Court after the TEAC upheld the assessment. The court ruled partially in favour of the tax authorities, finding that restructuring losses could not be attributed solely to the contract manufacturer given its exclusive dependence on a single related-party principal ... Read more

A German group company sought to deduct start-up losses and compensation payments assumed on behalf of its sister partnership following planning errors at a new production plant. No written contract governed the arrangement. The German Supreme Administrative Court upheld the tax authority's denial of the deductions in 2023, finding that related-party expenses require clear, contemporaneous, arm's length agreements to qualify as deductible operating costs ... Read more

Following a business restructuring, a Hungarian contract manufacturer deducted four invoices as transfer pricing adjustments. The tax authority disallowed the deductions, finding no actual material purchases underpinned the invoices. The Court of First Instance upheld the assessment, and Hungary's Supreme Court confirmed that ruling in November 2022, rejecting the taxpayer's procedural appeal and affirming the accounting treatment was incorrect ... Read more

An electronics contract manufacturer used ROVAC as its profit level indicator, arguing its role was limited to assembly without bearing material risk. Czech tax authorities substituted ROTC, including material costs. The Regional Court ruled in 2022 that authorities had not adequately considered the taxpayer's FAR profile to justify the alternative PLI, quashed the assessment, and remitted the case for reconsideration ... Read more

Amgen, in its quarterly report for the period ended March 31, 2022, disclosed that, not only has the group been issued a notice of assessments from the IRS for FY 2010-2012 resulting in additional taxes of approximately $3.6 billion plus interest – as previously reported – it has also received a Revenue Agent Reports (RAR) for 2013-2015 resulting in additional taxes of approximately $5.1 billion, plus interest and penalties of approximately $2.0 billion. Furthermore, it is disclosed that Amgen is currently under examination by the IRS for the years 2016, 2017 and 2018 and by a number of state and foreign tax jurisdictions The main dispute relates to the allocation of profits between Amgen group entities in the United States and the U.S. territory of Puerto Rico. Excerpt from Amgen’s quarterly report for the period ended March 31, 2022 4. Income taxes The effective tax rates for the three months ended March 31, 2022 and 2021, were 11.9% and 11.4%, ... Read more

A Czech subsidiary of the Japanese Aisan Industry Group, classified as a limited-risk contract manufacturer, reported operating losses for several years. The tax authority applied the TNMM method and issued a corporate income tax assessment for FY 2011. The Regional Court dismissed the taxpayer's appeal, and the Czech Supreme Administrative Court confirmed that the subsidiary should have been compensated by the group for its manufacturing services ... Read more

A German partnership acting as group head office bore start-up losses and paid damages to its sister manufacturing entity following planning errors at a new production plant. No written contract governed the arrangement. The German Finance Court upheld the tax authority's refusal to allow deductions, finding that without clear, contemporaneous written agreements comparable to third-party contracts, the expenses could not be treated as deductible business costs ... Read more

38. Company A is the parent company of M Group, an MNE group engaged in the manufacturing and distribution of electronic devices. Company A has the exclusive right to sell the devices in all territories. 39. Company A decides to subcontract the manufacturing of the electronic devices to Company B, another member of M Group. Under the terms of the contract, Company B will follow the directions of Company A to produce the devices. Company B will source and supply the materials necessary to produce the different parts of the final products. A key component in the manufacturing process is sourced from Company A. Company B sells the finished goods to Company A, which in turn will market and distribute the product to unrelated customers. 40. To perform the manufacturing activities, Company B has invested in machinery and tooling that is specifically adapted to the production of the electronic devices sold by M Group. Company B has no other customer ... Read more

In such an example, given that the relocated activity is a highly competitive one, it is likely that the enterprise in Country A has the option realistically available to it to use either the affiliate in Country B or a third party manufacturer. As a consequence, it should be possible to find comparables data to determine the conditions in which a third party would be willing at arm’s length to manufacture the clothes for the enterprise. In such a situation, a contract manufacturer at arm’s length would generally be attributed very little, if any, part of the location savings. Doing otherwise would put the associated manufacturer in a situation different from the situation of an independent manufacturer, and would be contrary to the arm’s length principle ... Read more

Another example of an activity that may involve intra-group services is manufacturing or assembly operations. The activities can take a variety of forms including what is commonly referred to as contract manufacturing. In some cases of contract manufacturing the producer may operate under extensive instruction from the counterparty about what to produce, in what quantity and of what quality. In some cases, raw materials or components may be made available to the producer by the counterparty. The production company may be assured that its entire output will be purchased, assuming quality requirements are met. In such a case the production company could be considered as performing a low-risk service to the counterparty, and the cost plus method could be the most appropriate transfer pricing method, subject to the principles in Chapter II ... Read more

It may also be the case that the acquiring business will leverage the existing position of the acquired business to expand the business of the acquirer in the territory of operation of the acquired business by causing the acquired business to use the acquirer’s branding. In that case, consideration should be given to whether the acquirer should make a payment to or otherwise compensate the acquired business for the functions performed, risks assumed, and assets used (including its market position) in connection with expanded use of the acquirer’s name ... Read more

Where an existing successful business is acquired by another successful business and the acquired business begins to use a name, trademark or other branding indicative of the acquiring business, there should be no automatic assumption that a payment should be made in respect of such use. If there is a reasonable expectation of financial benefit to the acquired company from using the acquiring company’s branding, then the amount of any payment should be informed by the level of that anticipated benefit ... Read more

In determining the amount of payment with respect to a group name, it is important to consider the amount of the financial benefit to the user of the name attributable to use of that name, the costs and benefits associated with other alternatives, and the relative contributions to the value of the name made by the legal owner, and the entity using the name in the form of functions performed, assets used and risks assumed. Careful consideration should be given to the functions performed, assets used, and risks assumed by the user of the name in creating or enhancing the value of the name in its jurisdiction. Factors that would be important in a licence of the name to an independent enterprise under comparable circumstances applying the principles of Chapters I – III should be taken into account ... Read more

Where one member of the group is the owner of a trademark or other intangible for the group name, and where use of the name provides a financial benefit to members of the group other than the member legally owning such intangible, it is reasonable to conclude that a payment for use would have been made in arm’s length transactions. Similarly, such payments may be appropriate where a group member owns goodwill in respect of the business represented by an unregistered trademark, use of that trademark by another party would constitute misrepresentation, and the use of the trademark provides a clear financial benefit to a group member other than that owning the goodwill and unregistered trademark ... Read more

Questions often arise regarding the arm’s length compensation for the use of group names, trade names and similar intangibles. Resolution of such questions should be based on the principles of this Section B and on the commercial and legal factors involved. As a general rule, no payment should be recognised for transfer pricing purposes for simple recognition of group membership or the use of the group name merely to reflect the fact of group membership. See paragraph 7.12 ... Read more

The principles set out in this section similarly apply in situations where a member of an MNE group provides manufacturing services that may lead to process or product improvements on behalf of an associated enterprise that will assume legal ownership of such process or product improvements. Examples 14 to 17 in the Annex I to Chapter VI illustrate in greater detail the application of this Section B in the context of research and development arrangements ... Read more

Company C in country D is a 100% subsidiary of company E, located in country F. In comparison with country F, wages are very low in country D. At the expense and risk of company E, television sets are assembled by company C. All the necessary components, know-how, etc. are provided by company E. The purchase of the assembled product is guaranteed by company E in case the television sets fail to meet a certain quality standard. After the quality check, the television sets are brought – at the expense and risk of company E – to distribution centres company E has in several countries. The function of company C can be described as a purely contract manufacturing function. The risks company C could bear are eventual differences in the agreed quality and quantity. The basis for applying the cost plus method will be formed by all the costs connected to the assembling activities ... Read more

In the circumstances of Example 2 in paragraph 1.84, the significant risks associated with generating a return from the manufacturing activities are controlled by Company A, and the upside and downside consequences of those risks should therefore be allocated to Company A. Company B controls the risk that it fails to competently deliver services, and its remuneration should take into account that risk, as well as its funding costs for the acquisition of the manufacturing plant. Since the risks in relation to the capacity utilisation of the asset are controlled by Company A, Company A should be allocated the risk of under-utilisation. This means that the financial consequences related to the materialisation of that risk including failure to cover fixed costs, write-downs, or closure costs should be allocated to Company A ... Read more

Company B manufactures products for Company A. Under step 1 capacity utilisation risk and supply chain risk have been identified as economically significant in this transaction, and under step 2 it has been established that under the contract Company A assumes these risks. The functional analysis under step 3 provides evidence that Company B built and equipped its plant to Company A’s specifications, that products are manufactured to technical requirements and designs provided by Company A, that volume levels are determined by Company A, and that Company A runs the supply chain, including the procurement of components and raw materials. Company A also performs regular quality checks of the manufacturing process. Company B builds the plant, employs and trains competent manufacturing personnel, and determines production scheduling based on volume levels determined by Company A. Although Company B has incurred fixed costs, it has no ability to manage the risk associated with the recovery of those costs through determining the production ... Read more

A Slovak contract manufacturer within the FIVAC Group had trademark royalty payments partially disallowed by tax authorities, who argued no royalty was justified on products sold to related parties. A 10% profit margin on recharged ORACLE software licences was also rejected. The Administrative, Regional, and Supreme Courts all dismissed the taxpayer's appeals. In 2021, the Slovak Constitutional Court confirmed those decisions, ruling in favour of the tax authority ... Read more

A Portuguese tobacco group subsidiary operating as a toll manufacturer received adjustments from tax authorities challenging its 2009 production cost calculations and ROCE-based capital return under an intra-group manufacturing agreement. The Lisbon tax tribunal upheld the assessment, but Portugal's Supreme Administrative Court remanded the case for reexamination in May 2021, finding issues with how contractual terms and arm's length pricing had been applied ... Read more

A Japanese-owned contract manufacturer in Indonesia paid royalties to its parent for use of intellectual property but failed to document IP ownership or demonstrate economic benefit. The tax authority disallowed the deductions, and the Tax Court agreed. In March 2021, the Indonesian Supreme Court dismissed the taxpayer's review request, confirming that the royalty payments lacked sufficient substantiation and upheld the assessment ... Read more

A Slovak contract manufacturer paid trademark royalties and charged-on Oracle software licence fees with a 10% markup to related parties. The tax authority disallowed 90% of the royalties, attributable to intra-group sales, and rejected the software licence markup as unjustified. The Administrative Court, Regional Court, and ultimately the Supreme Court in January 2021 all upheld the tax authority's position, confirming no deduction was warranted ... Read more

A Portuguese contract manufacturer producing coffee machines and irons for its German parent was audited by the tax authority, which found its results fell below arm's length and issued an adjustment using interquartile range and median statistical tools. The taxpayer challenged the assessment before Portugal's CAAD arbitration tribunal in 2020, which upheld the tax authority's benchmarking approach as fully consistent with OECD guidelines ... Read more

A Polish contract manufacturing subsidiary applied year-end profitability corrections to align its operating margin with arm's length benchmarks. The tax authority disputed the timing of these adjustments. Poland's Supreme Administrative Court ruled mostly in favour of the tax authority in August 2020, clarifying which accounting period should reflect the correcting invoices under the accrual principle ... Read more