The case concerned the income tax return of Monómeros Colombo Venezolanos, a company based in Colombia. Following an audit the tax authorities had increased its reported income and disallowed deductions for interest on loans from its related company, Monómeros International Ltd., located in the British Virgin Islands. The authorities argued that Monómeros’ transfer pricing documentation was deficient because it relied exclusively on foreign comparables and disregarded domestic comparables, which they considered more appropriate. They also rejected the comparables used to support the intercompany financing, which had been based on United States corporate bonds, finding them not sufficiently similar to the actual transactions. In an appeal Monómeros argued that the adjustments ignored OECD guidelines, did not include proper comparability adjustments, and failed to account for market conditions and risks. The company maintained that its documentation proved that the transactions were consistent with the arm’s length principle, and that it had neither omitted income nor claimed improper deductions. Judgment The Supreme Administrative ... Read more

In the course of the income tax audit conducted on Hanácká, the tax authorities found that interest expenses had been in its calculation of taxable income, corresponding to a rate of 8.5%. The tax authorities determined the arm’s length interest rate to be 2.46% and an adjustment was issued amounting to the difference between the interest deducted (8,5%) and the interest calculated (2,46%). The adjustment was later upheld in court where the court agreed with the tax authority’s conclusion – Hanácká had not discharged the burden of proof under Article 92(3) of the Tax Code by failing to prove, in response to a request for the removal of doubts, that the interest in the two tax periods in question, amounting to CZK 6 040 000, which represented the difference between the interest on the 8,5 % bonds subscribed by persons associated with the applicant within the meaning of Article 23(3) of the Tax Code and the interest on the bonds ... Read more

For instance, consider the same fact pattern as described in paragraph 1.114 but, in this particular scenario, assume that Company A is found to be entitled to a risk-adjusted rate of return under this chapter. To determine that return, the tax administration of Country X considers adding a risk premium to the risk- free rate of return, i.e. the security issued by the government in Country Z with a term of one year. To estimate the risk-adjusted return, Country X’s tax administration considers that corporate bonds issued by independent parties resident in Country X operating in the same industry as Company B yield a return comparable to the one that an independent party would have expected had it invested its funds in Company B under comparable circumstances ... Read more

For instance, consider the same fact pattern as described in paragraph 1.114 but, in this particular scenario, assume that Company A is found to be entitled to a risk-adjusted rate of return under this chapter. To determine that return, the tax administration of Country X considers adding a risk premium to the risk- free rate of return, i.e. the security issued by the government in Country Z with a term of one year. To estimate the risk-adjusted return, Country X’s tax administration considers that corporate bonds issued by independent parties resident in Country X operating in the same industry as Company B yield a return comparable to the one that an independent party would have expected had it invested its funds in Company B under comparable circumstances ... Read more

In 2014, the tax authorities issued the Italien Bank a notice of assessment with which it reclaimed for taxation IRAP for 2009 part of the interest expense paid by the bank to a company incorporated under Irish law, belonging to the same group which, according to the tax authorities, it also controlled. In particular, the tax authorities noted that the spread on the bond was two points higher than the normal market spread. The Bank appealed the assessment, arguing that there was no subjective requirement, because at the time of the issue of the debenture loan it had not yet become part of the group of which the company that had subscribed to the loan belonged. It also pleaded that the assessment was unlawful because it applied a provision, Article 11(7) TUIR, provided for IRES purposes, the extension of which to IRAP purposes was provided for by Article 1(281) of Law 147/13, a provision, however, of an innovative nature, the ... Read more