Amadeus Global Travel Distribution Limited is a Tanzanian branch of a Kenya-resident entity, itself a wholly owned subsidiary of Amadeus ITG based in Madrid, Spain. The appellant's business consists of commercialising the Amadeus GDS system in Tanzania. The dispute concerned the income year 2015 and ... Read more

KAI S.r.l. (formerly Shell Italia Aviazione s.r.l.) is an Italian company operating in the oil sector, specifically in the marketing of aviation fuel (jet fuel) for the Shell Italia group. It was wholly owned by Shell Italia Holding S.p.A. The dispute concerned the deductibility of intra-group costs ... Read more

Íslenska kalkþörungafélagið ehf. ("the Icelandic Limestone Algae Company") operated a calcified algae factory in Iceland, harvesting seaweed from the seabed, cleaning, drying and exporting it almost entirely to its Irish parent company, Marigot Ltd. Marigot Ltd. further processed the raw material in ... Read more

A Tanzanian branch of UK-incorporated Aggreko International Projects Limited claimed deductions for head office and Dubai regional hub costs allocated on a pro rata revenue basis for 2018 and 2019. The Tanzania Revenue Authority disallowed the expenses citing insufficient documentation and failure to prove costs were wholly and exclusively for Tanzanian income production. The Tax Revenue Appeals Board and the Court of Appeal both upheld the disallowance, along with associated interest and penalties ... Read more

31 May 2025 the Dutch tax authorities issued guidance on the application of the cost-plus method, and specifically the cost basis used. The cost-plus method is one of the methods used to determine arm’s-length prices for mutual supplies of goods and services between affiliated entities. The memorandum focuses on the gross cost-plus method and, in particular, the more commonly used in practice net cost-plus method. The memorandum focuses specifically on the basis on which the cost-plus margin is calculated. The inclusion or exclusion of raw materials from the basis is a particular point of attention. Click here for Unofficial English translation Click here for other translation ... Read more

A Polish subsidiary corrected its 2015 tax return, reducing its declared revenue by applying a revised 6.5% cost-plus margin aligned with group-wide policy. Tax authorities rejected the correction, conducted their own comparability analysis, and issued a revised assessment disallowing certain pass-through costs. The Supreme Administrative Court upheld the lower court's decision in favour of the taxpayer, finding authorities had failed to properly evaluate evidence and justify rejection of the taxpayer's comparability analyses ... Read more

An Icelandic producer of calcareous algae sold its production to its Irish parent company using a cost-plus method that excluded payroll expenses and depreciation from the cost base. The Icelandic tax authorities rejected the approach as non-compliant with OECD guidelines and found the transfer pricing documentation insufficient. The District Court ruled in favour of the tax authorities in February 2025, upholding the assessments covering tax years 2016 to 2020 ... Read more

A Portuguese software company applied the TNMM with a 4.1% return on total cost for intra-group services, within the benchmarked arm's length range of 3.4% to 13%. The tax authority added employee bonuses to the cost base, raising additional taxable profit. The CAAD arbitration tribunal ruled in favour of the taxpayer in 2024, finding the authority had not demonstrated a deviation from the arm's length principle and annulled the assessment ... 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 Swiss hydropower company applied the cost-plus method to invoice services to its shareholder partners. The tax authority disputed whether profit taxes should form part of the cost base. The Federal Supreme Court ruled in 2024 that taxes constitute actual costs borne by the entity and must be included in the full cost base when applying the cost-plus method under Art. 58 para. 3 DBG, deciding in favour of the taxpayer ... Read more

Mercer Consulting India paid a related party for administrative services, which were included in the cost base used to calculate its cost-plus remuneration for IT-enabled services. The Indian tax authorities disallowed these deductions, but the Income Tax Appellate Tribunal and the High Court of New Delhi ruled in 2024 that removing costs from the base without adjusting the recoverable amount would erode the tax base, deciding in favour of the taxpayer ... Read more

A Korean subsidiary of a French luxury goods group applied the resale price method to verify transfer prices on imports from a Singaporean affiliate for FY 2014–2018. The tax authority rejected the taxpayer's brand value adjustment and revised its comparability analysis. The Korea Tax Tribunal upheld the RPM approach and ruled mostly in favour of the tax authority, finding the revised cost-base adjustments for sales-related expenses largely compliant with its prior instructions ... Read more

An Irish subsidiary providing services to its US parent challenged a Revenue assessment arguing that employee share option costs should be included in the TNMM cost base for FY2015–FY2018. The Tax Appeals Commission ruled in favour of the taxpayer in February 2024, overturning the assessment and finding that the comparability analysis did not require stock-based compensation to be included in the cost base ... Read more

A Tanzanian subsidiary of UK-based Aggreko International Projects Limited deducted allocated head office costs in FY2011–2012 for temporary power generation services. The Tanzania Revenue Authority adjusted the allocation, raising additional taxable income. The Tax Revenue Appeals Tribunal upheld the assessment, and the Court of Appeal dismissed the taxpayer's further appeal in September 2023, finding the deductions were insufficiently documented and the cost allocation unjustified ... Read more

A Polish company selling metal enclosures and boxes to related parties used the cost-plus method in its transfer pricing documentation. The tax authority rejected this approach and applied TNMM, benchmarking EBIT margins over three years to establish additional taxable income of PLN 1.8 million. Poland's Supreme Administrative Court largely upheld the authority's position in 2022, but found the income adjustment incorrectly included transactions not subject to arm's length rules ... Read more

For example, it may be the case that the market value of intra-group services is not greater than the costs incurred by the service provider. This could occur where, for example, the service is not an ordinary or recurrent activity of the service provider but is offered incidentally as a convenience to the MNE group. In determining whether the intra-group services represent the same value for money as could be obtained from an independent enterprise, a comparison of functions and expected benefits would be relevant to assessing comparability of the transactions. An MNE group may still determine to provide the service intra-group rather than using a third party for a variety of reasons, perhaps because of other intra-group benefits (for which arm’s length compensation may be appropriate). It would not be appropriate in such a case to increase the price for the service above what would be established by the CUP method just to make sure the associated enterprise makes ... Read more

Depending on the method being used to establish an arm’s length charge for intra-group services, the issue may arise whether it is necessary that the charge be such that it results in a profit for the service provider. In an arm’s length transaction, an independent enterprise normally would seek to charge for services in such a way as to generate profit, rather than providing the services merely at cost. The economic alternatives available to the recipient of the service also need to be taken into account in determining the arm’s length charge. However, there are circumstances (e.g. as outlined in the discussion on business strategies in Chapter I) in which an independent enterprise may not realise a profit from the performance of services alone, for example where a supplier’s costs (anticipated or actual) exceed market price but the supplier agrees to provide the service to increase its profitability, perhaps by complementing its range of activities. Therefore, it need not always ... Read more

When an associated enterprise is acting only as an agent or intermediary in the provision of services, it is important in applying a cost based method that the return or mark-up is appropriate for the performance of an agency function rather than for the performance of the services themselves. In such a case, it may not be appropriate to determine arm’s length pricing as a mark-up on the cost of the services but rather on the costs of the agency function itself. For example, an associated enterprise may incur the costs of renting advertising space on behalf of group members, costs that the group members would have incurred directly had they been independent. In such a case, it may well be appropriate to pass on these costs to the group recipients without a mark-up, and to apply a mark-up only to the costs incurred by the intermediary in performing its agency function ... Read more

“Berry ratios” are defined as ratios of gross profit to operating expenses. Interest and extraneous income are generally excluded from the gross profit determination; depreciation and amortisation may or may not be included in the operating expenses, depending in particular on the possible uncertainties they can create in relation to valuation and comparability ... Read more

SAP Labs France SAS provided IT services to its German parent SAP AG under a cost-plus 6% arrangement but excluded the French CVAE tax from its cost base. The French tax administration issued a reassessment, arguing this omission constituted an indirect profit transfer abroad. The Administrative Tribunal of Montreuil ruled in favour of the tax authority in February 2019, finding that excluding CVAE from the cost base was sufficient to presume a profit transfer under Article 57 of the General Tax Code ... Read more

The French tax authorities assessed GE Medical Systems for underpricing goods and services sold to foreign affiliates and disallowed full factoring cost deductions in the minimum business tax base. The Administrative Court of Appeal partly sided with the taxpayer on factoring costs. The Conseil d'État denied both appeals in 2018, upholding the arm's length adjustment methodology and the authority's discretionary assessment approach ... Read more

Philips France SAS provided contract R&D services to its Dutch parent at cost plus 10%, deducting government subsidies from the cost base before calculating remuneration. The French tax authorities denied the deduction and assessed tax on the full cost base. The Conseil d'État ruled in 2018 that excluding subsidies from the cost base did not constitute a transfer of profits abroad, finding in favour of the taxpayer ... Read more

GE Healthcare Clinical Systems applied a 5% cost-plus margin on purchases from related General Electric entities in the US, Germany and Finland. French tax authorities rejected this approach and applied a TNMM benchmark of 26 comparables, identifying an indirect profit transfer. The Conseil d'État, upholding lower court decisions, confirmed in June 2018 that the administration had sufficiently established the existence of a benefit constituting a transfer of profits abroad ... Read more

Two Israeli subsidiaries challenged tax authority assessments requiring stock-based compensation to be included in the cost base under the cost plus transfer pricing method. The Israel Supreme Court ruled in 2018 that stock-based compensation forms an integral part of employee remuneration and must be included in the cost base. The court also clarified that the burden of proof shifts to the tax authority where adequate transfer pricing documentation has been submitted ... Read more

Microsoft Ibérica, a limited risk distributor of Microsoft products in Spain, was challenged by Spanish tax authorities over its transfer pricing remuneration arrangement with the Irish hub MIOL. Authorities found that excluding goodwill amortisation from the TNMM analysis placed results below the interquartile range and that comparables had fewer functions and risks. Spain's Audiencia Nacional overturned the first instance ruling, deciding in favour of the tax authorities and adjusting results to the upper quartile ... Read more

Samsung Electronics Baltic Ltd, a Latvian subsidiary of Samsung Electronics Co. Ltd, was challenged by the tax authority over its transfer pricing for distribution and warranty services in the Baltic States. The court, ruling mostly in favour of the tax authority, examined the cost base and most appropriate method for intra-group distribution activities, including pass-through warranty costs assumed from a Dutch Samsung sister company ... Read more

For example, it may be the case that the market value of intra-group services is not greater than the costs incurred by the service provider. This could occur where, for example, the service is not an ordinary or recurrent activity of the service provider but is offered incidentally as a convenience to the MNE group. In determining whether the intra-group services represent the same value for money as could be obtained from an independent enterprise, a comparison of functions and expected benefits would be relevant to assessing comparability of the transactions. An MNE group may still determine to provide the service intra-group rather than using a third party for a variety of reasons, perhaps because of other intra-group benefits (for which arm’s length compensation may be appropriate). It would not be appropriate in such a case to increase the price for the service above what would be established by the CUP method just to make sure the associated enterprise makes ... Read more

Depending on the method being used to establish an arm’s length charge for intra-group services, the issue may arise whether it is necessary that the charge be such that it results in a profit for the service provider. In an arm’s length transaction, an independent enterprise normally would seek to charge for services in such a way as to generate profit, rather than providing the services merely at cost. The economic alternatives available to the recipient of the service also need to be taken into account in determining the arm’s length charge. However, there are circumstances (e.g. as outlined in the discussion on business strategies in Chapter I) in which an independent enterprise may not realise a profit from the performance of services alone, for example where a supplier’s costs (anticipated or actual) exceed market price but the supplier agrees to provide the service to increase its profitability, perhaps by complementing its range of activities. Therefore, it need not always ... Read more

When an associated enterprise is acting only as an agent or intermediary in the provision of services, it is important in applying a cost based method that the return or mark-up is appropriate for the performance of an agency function rather than for the performance of the services themselves. In such a case, it may not be appropriate to determine arm’s length pricing as a mark-up on the cost of the services but rather on the costs of the agency function itself. For example, an associated enterprise may incur the costs of renting advertising space on behalf of group members, costs that the group members would have incurred directly had they been independent. In such a case, it may well be appropriate to pass on these costs to the group recipients without a mark-up, and to apply a mark-up only to the costs incurred by the intermediary in performing its agency function ... Read more

“Berry ratios” are defined as ratios of gross profit to operating expenses. Interest and extraneous income are generally excluded from the gross profit determination; depreciation and amortisation may or may not be included in the operating expenses, depending in particular on the possible uncertainties they can create in relation to valuation and comparability ... Read more

A Croatian company paid a related German party for consultant services and received payments from its US parent for software sales services. The tax authority found insufficient documentation and non-arm's length pricing, issuing additional CIT and VAT assessments. Both the Administrative Court and the High Administrative Court upheld the authority's position, confirming the taxpayer had failed to justify the pricing of its intra-group transactions ... Read more

An Indian subsidiary of a Korean advertising agency excluded pass-through costs from its transfer pricing cost base when calculating arm's length remuneration. The tax authority included these costs and applied a markup, issuing an amended assessment for FY 2005-06. The Income Tax Appellate Tribunal annulled the assessment, finding the subsidiary acted as an intermediary and was not the economic owner of the pass-through advertising expenditure ... Read more

Employee stock option plans have become a common component of remuneration packages in multinational enterprises. The report published by the OECD presents and examines the many important tax issues that arise for beneficiaries and companies. In chapter 4 (page 115 – 170) of the OECD report different transfer pricing issues related to stock option plans are analysed. The focus is on stock option plans in listed companies. It starts with the premise that employee stock options are remuneration. It is concerned with the question of whether any conditions made or imposed between two associated enterprises in their commercial or financial relations resulting from or affected by the existence of an employee stock option plan differ from those which would be made between independent enterprises. Three main situations are identified where transfer pricing issues potentially arise. The first is where one enterprise grants stock options to employees of an associated enterprise resident in another tax jurisdiction. The second situation addresses two ... Read more