Tag: CUP

India vs. M/s Redington (India) Limited, December 2020, High Court of Madras, Case No. T.C.A.Nos.590 & 591 of 2019

India vs. M/s Redington (India) Limited, December 2020, High Court of Madras, Case No. T.C.A.Nos.590 & 591 of 2019

Redington India Limited (RIL) established a wholly-owned subsidiary Redington Gulf (RG) in the Jebel Ali Free Zone of the UAE in 2004. The subsidiary was responsible for the Redington group’s business in the Middle East and Africa. Four years later in July 2008, RIL set up a wholly-owned subsidiary company in Mauritius, RM. In turn, this company set up its wholly-owned subsidiary in the Cayman Islands (RC) – a step-down subsidiary of RIL. On 13 November 2008, RIL transferred its entire shareholding in RG to RC without consideration, and within a week after the transfer, a 27% shareholding in RC was sold by RG to a private equity fund Investcorp, headquartered in Cayman Islands for a price of Rs.325.78 Crores. RIL claimed that the transfer of its shares in RG to RC was a gift and therefore, exempt from capital gains taxation in India. It was also claimed that transfer pricing provisions were not applicable as income was exempt from ... Continue to full case
Russia vs ViciunaiRus LLC, April 2020, Supreme Court, Case No. A21-133/2018

Russia vs ViciunaiRus LLC, April 2020, Supreme Court, Case No. A21-133/2018

ViciunaiRus LLC was engaged in production and wholesale distribution of its products. During the inspection, the inspection concluded that the chain of contractual relations between the Company and its sole official distributor in the Russian Federation artificially had established intermediates that do not have assets and personnel. At the same time, the price of products increased by more than 20% in the course of movement along the chain of counter parties. During the period from 2012 to 2014, the tax authorities considered the inclusion of intermediaries in the sales structure to be of a artificial nature and aimed at understating the sales revenue. The taxpayer was additionally charged profit tax and VAT, and the additional tax was calculated based on the resale price at which the goods were received by the distributor. In 2012 and 2013 the transactions between the taxpayer and distributor were controlled. In 2014 they were not. The taxpayer objected to the tax authority’s decision; among other ... Continue to full case
Russia vs PJSC Uralkali, November 2019, Supreme Court Review Panel, Case No. А40-29025/2017

Russia vs PJSC Uralkali, November 2019, Supreme Court Review Panel, Case No. А40-29025/2017

PJSC Uralkali, produced and sold fertilizers (“potassium chloride”) through a related Swiss trader. Uralkali had informed the authorities about the controlled transaction and submitted the required TP documentation. To substantiate the pricing of the transaction they had applied the transactional net margin method (TNMM) with the Swiss trader as the tested party. The Russian tax authorities disapproved of the choice of method and the way the method had been applied. They conducted an analysis, using the CUP method, and determined the the prices used in the controlled transaction deviated from price quotations of an independent pricing agency (Argus). Hence a tax assessment was issued. PJSC Uralkali disapproved of the assessment and brought the case to court. The court of first instance supported Uralkali’s position, and argued that the tax authority should have applied the same TP method as the Taxpayer. Failure of the tax authority to apply the same TP method or to provide sufficient evidence to justify use of ... Continue to full case
Russia vs PJSC Uralkali, April 2019, Court of Appeal, Case No. А40-29025/2017

Russia vs PJSC Uralkali, April 2019, Court of Appeal, Case No. А40-29025/2017

PJSC Uralkali, produced and sold fertilizers (“potassium chloride”) through a related Swiss trader. Uralkali had informed the authorities about the controlled transaction and submitted the required TP documentation. To substantiate the pricing of the transaction they had applied the transactional net margin method (TNMM) with the Swiss trader as the tested party. The Russian tax authorities disapproved of the choice of method and the way the method had been applied. They conducted an analysis, using the CUP method, and determined the the prices used in the controlled transaction deviated from price quotations of an independent pricing agency (Argus). Hence a tax assessment was issued. PJSC Uralkali disapproved of the assessment and brought the case to court. The court of first instance supported Uralkali’s position, and argued that the tax authority should have applied the same TP method as the Taxpayer. Failure of the tax authority to apply the same TP method or to provide sufficient evidence to justify use of ... Continue to full case
Norway vs Normet Norway AS, March 2019, Borgarting Lagmannsrett, Case No 2017-202539

Norway vs Normet Norway AS, March 2019, Borgarting Lagmannsrett, Case No 2017-202539

In January 2013 the Swiss company Normet International Ltd acquired all the shares in the Norwegian company Dynamic Rock Support AS (now Normet Norway AS) for a price of NOK 78 million. In February 2013 all intangibles in Dynamic Rock Support AS was transfered to Normet International Ltd for a total sum of NOK 3.666.140. The Norwegian tax authorities issued an assessment where the arm’s length value of the intangibles was set at NOK 58.2 million. The Court of Appeal upheld the tax assessment issued by the tax authorities and rejected the appeal. Click here for translation Norway vs Normet 190319 ... Continue to full case
Russia vs ViciunaiRus LLC, December 2018, Court of Appeal, Case No. A21-133/2018

Russia vs ViciunaiRus LLC, December 2018, Court of Appeal, Case No. A21-133/2018

ViciunaiRus LLC was engaged in production and wholesale distribution of its products. During the inspection, the inspection concluded that the chain of contractual relations between the Company and its sole official distributor in the Russian Federation artificially had established intermediates that do not have assets and personnel. At the same time, the price of products increased by more than 20% in the course of movement along the chain of counter parties. During the period from 2012 to 2014, the tax authorities considered the inclusion of intermediaries in the sales structure to be of a artificial nature and aimed at understating the sales revenue. The taxpayer was additionally charged profit tax and VAT, and the additional tax was calculated based on the resale price at which the goods were received by the distributor. In 2012 and 2013 the transactions between the taxpayer and distributor were controlled. In 2014 they were not. The taxpayer objected to the tax authority’s decision; among other ... Continue to full case
Russia vs LLC "Bulatovskiy Basalt", November 2018, Court of Appeal, Case No. A05-5548/2018

Russia vs LLC “Bulatovskiy Basalt”, November 2018, Court of Appeal, Case No. A05-5548/2018

Bulatovskiy Basalt LLC extracted and sold basalt rubble. The rubble was sold to three related intermediaries, whom in turn, resold the rubble to the final buyers. The resale price was on average double the transfer price. The tax authorities considered that the sole purpose of incorporating intermediaries into the sales structure was to obtain an unreasonable tax benefit in the form of underestimation of the profits from the sale of rubble and the tax base. According to the tax authorities, Bulatovskiy Basalt LLC could instead have enter into contracts with the final buyers directly. The tax authorities issued an assessment of income based on the resale of the rubble to the final Consumers. Bulatovskiy Basalt LLC brought the case to Court. The courts of the first and second instance ruled in favor of Bulatovskiy Basalt LLC. The courts took into account the existence of reasonable reasons for the involvement of intermediaries, including the presence of real functions. The first instance ... Continue to full case
Russia vs LLC "Scientific and Production Association", October 2018, Supreme Court, Case No. А05-7708/2017

Russia vs LLC “Scientific and Production Association”, October 2018, Supreme Court, Case No. А05-7708/2017

Since 2012, the Company had rented out premises in its administrative building. Among the tenants were both independent parties, and a related party. For the related party, the rent were 10-20 times lower than for the independents parties. The related party tenant subleased, more than 97% of the space it had rented. Furthermore, the cost of operating the building and utility payments were more than 4 times the rental income received. Following an audit for FY 20XX-20XX the tax authority issued a tax assessment on the basis that the Company had received an unjustified tax benefit as a result of price manipulation in a transaction with an related party. The income adjustment had been determined based on the cost plus method, as the tax authority claimed to have been unable to obtain information on rental prices of similar buildings The Courts agreed that the lease agreement was concluded between related parties on non-arm’s length terms and that the Company had ... Continue to full case
Russia vs Togliattiazot, September 2018, Russian Arbitration Court, Case No. No. А55-1621 / 2018

Russia vs Togliattiazot, September 2018, Russian Arbitration Court, Case No. No. А55-1621 / 2018

A Russian company, Togliattiazot, supplied ammonia to the external market through a Swiss trading hub, Nitrochem Distribution AG. The tax authority found that the selling price of the ammonia to Nitrochem Distribution AG had not been determined by Togliattiazot in accordance with the arm’s length principle but had been to low. Hence, a transfer pricing assessment was issued where the CUP method was applied. At first, the company argued that Togliattiazot and Nitrochem Distribution AG were not even affiliates. Later, the company argued that transfer prices had been determined in accordance with the TNM-method. The court ruled in favor of the Russian tax authority. Based on information gathered by the tax authorities – SPARK-Interfax and Orbis Bureau Van Djik bases, Switzerland’s trade register, Internet sites, and e-mail correspondence etc – the tax authorities were able to prove in court, the presence of actual control between Togliattiazot and Nitrochem. The TNMM method applied by Togliattiazot was rejected by the court because ... Continue to full case
Russia vs Burdinsky A.V., March 2018, Supreme Court, Case No. No. А04-9989/2016

Russia vs Burdinsky A.V., March 2018, Supreme Court, Case No. No. А04-9989/2016

Burdinsky A.V. sold building products to both related and unrelated parties. Following an audit of FY 2012-2014, the tax authorities concluded that Burdinsky had understated the price of goods in transactions with related parties in order to save on taxes and obtain unjustified tax benefits. Price discrepancies were in the range of 11% to 52%. Due to lack of information the tax authorities did not apply the CUP method method. Instead prices ware determined based on the gross markup. The Courts of first and second instances found the assessment of the tax authorities lawful and reasonable. The application of the inspection’s own method of determining whether prices had been at arm’s length (which implies the determination of the minimum trade mark-up at the subsequent sale) was not in conflict with the tax legislation, did not violate the rights of IEs. The Supreme Court cancelled the decision of the lower courts and ruled in favor of Burdinsky A.V. The difference between ... Continue to full case
India vs Amphenol Interconnect India (Private) Ltd., March 2018, Bombay High Court, case no. 536

India vs Amphenol Interconnect India (Private) Ltd., March 2018, Bombay High Court, case no. 536

In the case of Amphenol Interconnect the issue was whether two transactions – the resale of goods and sales assistance services for a commission – could be aggregated for transfer pricing purposes and whether the CUP or the TNM was the most appropriate transfer pricing method. The court found that that the CUP Method could not be used for the buy/sell transaction because of differences in location, volumes and customisation. The transactions could be aggregated and benchmarked together using the TNM Method. India vs Amphenol-Transfer-Pricing-CUP-TNMM ... Continue to full case
Japan vs C Uyemura & Co, Ltd, November 2017, Tokyo District Court, Case No. 267-141 (Order No. 13090)

Japan vs C Uyemura & Co, Ltd, November 2017, Tokyo District Court, Case No. 267-141 (Order No. 13090)

C Uyemura & Co, Ltd. is engaged in the business of manufacturing and selling plating chemicals and had entered into a series of controlled transactions with foreign group companies granting licenses to use intangibles (know-how related to technology and sales) – and provided technical support services by sending over technical experts. The company had used a CUP method to price these transactions based on “internal comparables”. The tax authorities found that the amount of the consideration paid to C Uyemura & Co, Ltd for the licenses and services had not been at arm’s length and issued an assessment where the residual profit split method was applied to determine the taxable profit for the fiscal years 2000 – 2004. C Uyemura & Co, Ltd disapproved of the assessment. The company held that it was inappropriate to use a residual profit split method and that there were errors in the calculations performed by the tax authorities. Judgement of the Court The Court ... Continue to full case
Russia vs Uralkaliy PAO, July 2017, Moscow Arbitration Court, Case No. A40-29025/17-75-227

Russia vs Uralkaliy PAO, July 2017, Moscow Arbitration Court, Case No. A40-29025/17-75-227

A Russian company, Uralkaliy PAO, sold potassium chloride to a related trading company in Switzerland , Uralkali Trading SA. Following an audit, the Russian tax authority concluded that Uralkaliy PAO had set the prices at an artificially low level. A decision was therefore issued, ordering the taxpayer to pay an additional tax of 980 million roubles and a penalty of 3 million roubles. Uralkaly PAO had used the transactional net margin method (TNMM). The reasons given for not using the CUP method was that no publicly accessible sources of information on comparable transactions between independent parties existed. The range of return on sales for 2012 under the TNMM was 1.83% – 5.59%, while Uralkali Trading SA’s actual profit margin was 1.81%. The court supported the taxpayer’s choice of pricing method (TNMM), and since the Swiss trader’s actual profit margin did not exceed the upper limit of the range, it was concluded that the controlled transactions were priced at arm’s length.  The court rejected ... Continue to full case
Russia vs ZAO NK Dulisma, January 2017, Court of Appeal, Case No. А40-123426/2016

Russia vs ZAO NK Dulisma, January 2017, Court of Appeal, Case No. А40-123426/2016

In 2012, ZAO NK Dulisma, a Russian oil and gas company, sold crude oil via an unrelated Hong Kong-based trader. In Russia, transactions with unrelated parties may be deemed controlled transactions for Transfer Pricing purposes, provided certain conditions are met. The Russian Tax Authorities audited the transactions with the Hong Kong trader and found that the price had been understated. The arm’s length price was determined using a CUP method, based on data from Platts quote for Dubai grade oil, adjusted for quality and terms of delivery etc. The court ruled in favor of the tax authorities, confirming that the application of the CUP method and the use of Platts data was justified. Click here for translation A40-123426-2016 ... Continue to full case
Korea vs Defence Corp, March 2006, Supreme Court, Case No 2004두4239

Korea vs Defence Corp, March 2006, Supreme Court, Case No 2004두4239

In this case the Korean Supreme Court concluded that the tax authorities had used transactions with different terms and conditions to price the controlled transactions. According to Article 5 (1) of the National Development and Reform Act in Korea, the TNM method can be applied only when the normal price can not be calculated by a conventional transfer pricing method, e.g. due to lack of comparable transactions. In addition, there was no proper way to adjust for the significant differences between the controlled transaction and transaction. Taxation based on the conventional transfer pricing methods may later be performed by the tax referee or the court. In fact, some cases have admitted the unlawfulness of tax disposition on the grounds of unreasonable selection of comparable transactions or lack of rational adjustment. However, if the tax assesssment is canceled in court, there will be cases where the taxation can no longer be carried out due to statues of limitations. Click here for ... Continue to full case
Korea vs Corp, October 2001, Supreme Court, Case No 99두3423

Korea vs Corp, October 2001, Supreme Court, Case No 99두3423

In Korea the tax authorities usually regarded domestic transactions as better comparables and there were only few cases where transfer pricing had been applied based on foreign transactions. In this case, the Korean Supreme Court confirms that international transactions can be used as comparables for the pricing of domestic transaktions. Click here for English Translation 99두3423 ... Continue to full case