Tag: Difference in volumes

§ 1.482-1(d)(3)(ii)(C) Example 2.

Reliability of adjustment for differences in volume. (i) FS manufactures product XX and sells that product to its parent corporation, P. FS also sells product XX to uncontrolled taxpayers at a price of $100 per unit. Except for the volume of each transaction, the sales to P and to uncontrolled taxpayers take place under substantially the same economic conditions and contractual terms. In uncontrolled transactions, FS offers a 2% discount for quantities of 20 per order, and a 5% discount for quantities of 100 per order. If P purchases product XX in quantities of 60 per order, in the absence of other reliable information, it may reasonably be concluded that the arm’s length price to P would be $100, less a discount of 3.5%. (ii) If P purchases product XX in quantities of 1,000 per order, a reliable estimate of the appropriate volume discount must be based on proper economic or statistical analysis, not necessarily a linear extrapolation from the ... Read more

§ 1.482-1(d)(3)(ii)(C) Example 1.

Differences in volume. USP, a United States agricultural exporter, regularly buys transportation services from FSub, its foreign subsidiary, to ship its products from the United States to overseas markets. Although FSub occasionally provides transportation services to URA, an unrelated domestic corporation, URA accounts for only 10% of the gross revenues of FSub, and the remaining 90% of FSub’s gross revenues are attributable to FSub’s transactions with USP. In determining the degree of comparability between FSub’s uncontrolled transaction with URA and its controlled transaction with USP, the difference in volumes involved in the two transactions and the regularity with which these services are provided must be taken into account if such difference would have a material effect on the price charged. Inability to make reliable adjustments for these differences would affect the reliability of the results derived from the uncontrolled transaction as a measure of the arm’s length result ... Read more

TPG2022 Chapter III paragraph 3.28

On the other hand, internal comparables are not always more reliable and it is not the case that any transaction between a taxpayer and an independent party can be regarded as a reliable comparable for controlled transactions carried on by the same taxpayer. Internal comparables where they exist must satisfy the five comparability factors in the same way as external comparables, see paragraphs 1.33-1.138. Guidance on comparability adjustments also applies to internal comparables, see paragraphs 3.47-3.54. Assume for instance that a taxpayer manufactures a particular product, sells a significant volume thereof to its foreign associated retailer and a marginal volume of the same product to an independent party. In such a case, the difference in volumes is likely to materially affect the comparability of the two transactions. If it is not possible to make a reasonably accurate adjustment to eliminate the effects of such difference, the transaction between the taxpayer and its independent customer is unlikely to be a reliable ... Read more
Spain vs MAHOU (SAN MIGUEL) S.A., December 2021, Audiencia Nacional, Case No SAN 5537/2021 - ECLI:ES:AN:2021:5537

Spain vs MAHOU (SAN MIGUEL) S.A., December 2021, Audiencia Nacional, Case No SAN 5537/2021 – ECLI:ES:AN:2021:5537

The Mahou (SAN MIGUEL) S.A Group is active in brewing and sale of beers. Penibética de cervezas y bebidas SL and Andaluza de cervezas y bebidas SL are wholly owned by Cervezas Alhambra SL, which again is owned by MAHOU (SAN MIGUEL) S.A. The main activity of Cervezas Alhambra SL is the distribution and marketing under its own brands of the beer produced by its subsidiaries; that of Penibética de Cervezas y Bebidas SL is the production of beers which, without its own brand, are mainly distributed and marketed by Alhambra and the core activity of Andaluza de Cervezas y Bebidas S.L. is the manufacture of beers which, without its own brand, are distributed and marketed by Alhambra. In 2014, the tax authorities issued two tax assessments to the group: one in relation to FY 2008 and 2009, in the amount of €12,303,526.50 an another in relation to FY 2010, 2011, in the amount of €4,951,701.39. Among the issues raised ... Read more
Italy vs E.I. S.r.l., February 2021, Regional Tax Commission, Case No 12/02/2021 n. 546/9

Italy vs E.I. S.r.l., February 2021, Regional Tax Commission, Case No 12/02/2021 n. 546/9

Transactions had taken place between E.I. S.r.l. and a related Spanish company, S. SA, where the pricing had been determined based on the cost plus method. An assessment was issued by the tax authorities on the basis of a “comparable” transactions (internal CUP) between the E.I. S.r.l. and an independent third company where the price had been higher. An appeal was filed by E.I. S.r.l. with the Provincial Tax Commission where E.I S.r.l. argued that the price difference was due to volume discounts. The Provincial Tax Commission held in favour of E.I S.r.l. An appeal was then filed by the tax authorities with the Regional Tax Commission. Judgement of the Regional Tax Commission The Regional Commission dismissed the appeal of the tax authorities and decided in favour of E.I. S.r.l. Excerpts: “The Commission observes that the judges at first instance correctly and in detail reasoned their decisions, with a wealth of detail and a careful examination of all the circumstances ... Read more

TPG2017 Chapter III paragraph 3.28

On the other hand, internal comparables are not always more reliable and it is not the case that any transaction between a taxpayer and an independent party can be regarded as a reliable comparable for controlled transactions carried on by the same taxpayer. Internal comparables where they exist must satisfy the five comparability factors in the same way as external comparables, see paragraphs 1.33-1.118. Guidance on comparability adjustments also applies to internal comparables, see paragraphs 3.47-3.54. Assume for instance that a taxpayer manufactures a particular product, sells a significant volume thereof to its foreign associated retailer and a marginal volume of the same product to an independent party. In such a case, the difference in volumes is likely to materially affect the comparability of the two transactions. If it is not possible to make a reasonably accurate adjustment to eliminate the effects of such difference, the transaction between the taxpayer and its independent customer is unlikely to be a reliable ... Read more
El Salvador vs Distribuidora Salvadorena de Petroleo S.A. DE C.V., September 2013, Supreme Court, Case No 386-2010

El Salvador vs Distribuidora Salvadorena de Petroleo S.A. DE C.V., September 2013, Supreme Court, Case No 386-2010

Distribuidora Salvadorena de Petroleo S.A. DE C.V. (DSP), is active in “the wholesale and retail marketing of oil, derivatives, gas, lubricants, additives and energy in general. Following an audit the tax authorities issued an assessment regarding sale of oil. According to the authorities the prices determined by DSP for oil sold to a related party – Nejapa Power Company L.L.C. – had not been at arm’s length. An appeal was filed by the DSP. Judgement of the Supreme Court The court set aside the assessment and decided in favour of DSP. “The method of estimated, indexed or presumptive base is constructed through the use of indications, its application becomes indispensable when the Tax Administration does not have the direct means to provide it with certain data, the failure to file returns or those filed by the taxpayers do not allow the knowledge of the data necessary for the complete estimation of the taxable bases or income, or when the taxpayers ... Read more