In 2008 and 2009, French subsidiaries Industeel Creusot and Industeel Loire, which are part of the ArcelorMittal France tax group, paid royalties to their Luxembourg parent company, ArcelorMittal SA, under trademark licence agreements. The royalty was set at 1 percent of third-party turnover for the use of the ArcelorMittal brand and logo. The tax authorities challenged the deductibility of the royalties, arguing that they were paid without real economic consideration, constituting an abnormal management act and a transfer of profits under Article 57 of the General Tax Code. However, the tax authorities accepted a symbolic royalty of 0.1 percent of turnover. ArcelorMittal argued that the 1 percent royalty was justified by the use of a genuine group trademark that provided the Industeel subsidiaries with commercial and reputational benefits, and that the tax authorities had failed to prove the absence of consideration. Judgment The Court of Appeal of Paris dismissed the appeal and it upheld the tax assessment. The Court held ... Read more

Aufeer Design s.r.o. is a Czech company that provides design and engineering services, primarily to the automotive industry. The taxable event was the deduction of substantial advertising expenditure incurred in 2015 and 2016 and paid to the advertising agency HERA s.r.o. for displaying Aufeer’s banners at sporting, cultural and social events. Following an audit, the tax authorities questioned the commercial rationale and pricing of these services, treating the relationship with HERA as that between ‘related parties’ under section 23(7)(b)(5) of the Income Tax Act. This was primarily aimed at reducing Aufeer’s corporate income tax base. Additional corporate income tax assessments were issued for 2015 and 2016 after it was determined that the prices agreed with HERA for advertising were many times higher than those charged by event organisers to independent customers. Using prices obtained directly from the organisers and adding what it considered to be a reasonable agency margin, the administration set a reference price and adjusted Aufeer’s tax base ... Read more

A Czech distributor within the Eli Lilly group provided marketing services to a related company via a service agreement, applying a cost-plus five per cent remuneration model. For financial years 2013 and 2014, the tax authority refused to allow various costs to be deducted from taxable income on the grounds that the taxpayer had not proven a direct connection between each cost item and the revenues from the service agreement, despite the fact that the company was being remunerated on the basis of its costs. The taxpayer filed a complaint, which was dismissed by the Administrative Court in Prague. An appeal was then filed with the Supreme Administrative Court. Judgment of the Court The Supreme Administrative Court dismissed the appeal and ruled in favour of the tax authorities. The Court held that ‘pricing logic’ under a cost-plus method cannot demonstrate the required direct connection between specific costs and the revenues of the service agreement by itself. While price-setting shows how ... Read more

Arcomet Towercranes SRL (Arcomet Romania), a subsidiary of Arcomet Belgium, had entered into a transfer pricing agreement ensuring that the company would remain within an agreed profit margin of -0.71% to 2.74%, with invoices issued when the profit was above or below this range. In 2011, 2012 and 2013, Arcomet Romania recorded a profit above the said margin, for which it received three invoices from Arcomet Belgium. These invoices were recorded by Arcomet Romania as payments for intra-group services. Arcomet Romania was subject to a tax audit, covering the period during which these invoices were issued, and which resulted in the company being ordered to pay additional CIT and VAT, as the deductions were denied on the grounds that the company had not justified the necessity of the services invoiced in the context of its taxable activities. Furthermore, no supporting documents had been provided. The case ended up in the Romanian Court of Appeal, which decided to stay the proceedings ... Read more

“A-SHS S.A.”, a Romanian company within a multinational group, underwent a transfer pricing audit for two main types of controlled transactions: management and centralised services from its foreign parent, and the purchase of products from an affiliated supplier. Regarding the services, the tax authority treated the fees as shareholder activities that primarily served the interests of the parent company in terms of group monitoring. The tax authority denied the deduction and related VAT on the grounds that “A-SHS S.A.” had not provided concrete evidence of specific benefits, despite the company claiming that these were chargeable intra-group services that improved its performance and satisfied the OECD benefit test. For the purchase of products, “A-SHS S.A.” applied the comparable uncontrolled price method using internal comparables with independent customers, and used the transactional net margin method for other dealings. However, the tax authority rejected this transaction-based analysis and instead applied a profitability test based on return on total costs for the whole business ... Read more

Arcomet Towercranes SRL (Arcomet Romania), a subsidiary of Arcomet Belgium, had entered into a transfer pricing agreement ensuring that the company would remain within an agreed profit margin of -0.71% to 2.74%, with invoices issued when the profit was above or below this range. In 2011, 2012 and 2013, Arcomet Romania recorded a profit above the said margin, for which it received three invoices from Arcomet Belgium. These invoices were recorded by Arcomet Romania as payments for intra-group services. Arcomet Romania was subject to a tax audit, covering the period during which these invoices were issued, and which resulted in the company being ordered to pay additional CIT and VAT, as the deductions were denied on the grounds that the company had not justified the necessity of the services invoiced in the context of its taxable activities. Furthermore, no supporting documents had been provided. The case ended up in the Romanian Court of Appeal, which decided to stay the proceedings ... Read more

RPC Superfos Pamplona purchased polymers via a central European purchasing system. Polymers are the group’s main raw material, accounting for around €20 million of manufacturing expenses each year — approximately 45 per cent of the total. The tax authorities opened an audit because the purchase terms agreed with each supplier were unknown, the base price and premiums were not broken down by polymer type on the invoices, discounts to the purchasing centre were not shown on the manufacturers’ invoices, and many discounts appeared implicitly or without a clear calculation trail. A change in the methodology for remunerating the purchasing centre also caused remuneration to increase tenfold, making it crucial to verify these costs and their transfer pricing support. In order to verify the deductibility of purchase expenses and the adequacy of the purchasing centre’s remuneration under transfer pricing rules, the tax authorities requested the service contract with the purchasing centre, the supporting report, supplier contracts for the current and previous ... Read more

The dispute concerned various expenses deducted in ΧΑΜΙΩ ΑΒΕΕ’s declared taxable profits for 2013. The tax authority had disallowed several of these, the most substantial being fees for “management services” allegedly rendered under intra-group agreements. The Administrative Court of Appeal upheld the assessment, leading ΧΑΜΙΩ ΑΒΕΕ to file an appeal with the Supreme Administrative Court. In its appeal, the company argued that the tax authority had failed to demonstrate that the disputed expenses were unproductive and that the court had unlawfully shifted the burden of proof to the taxpayer, particularly concerning the management service fees. Judgment The Supreme Administrative Court rejected the appeal and upheld the judgment of the lower court. It ruled that the burden of proving the deductibility and productive purpose of the expenses rested with the taxpayer. In the Court’s view, the invoices and related contracts for the management services lacked adequate specificity regarding the nature, timing, and valuation of the services provided. This lack of clarity ... Read more

“Airline S.A.” claimed various expenses as deductible payments for intra-group services, arguing that these costs were essential and necessary within the corporate group. However, the tax authorities determined that “Airline S.A.” had not provided sufficient documentation to demonstrate that the services were actually rendered. “Airline S.A.” appealed to the Tax Court, contending that under transfer pricing principles—specifically the OECD Guidelines for Intra-Group Services—the key questions should be whether the services were indeed provided and whether the charges were at arm’s length. Judgment The Tax Court dismissed the appeal and ruled in favor of the tax authorities. The Court held that the central issue was not compliance with transfer pricing rules, but rather the absence of concrete evidence that the claimed expenses were actually incurred. To qualify as deductible, taxpayers must substantiate that the transactions took place and provide reliable documentation proving both the provision of the services and the corresponding payments. Click here for English Translation Click here for other ... Read more

In 2016, Weatherford Atlas Gip acquired Foserco SA, a Romanian company. Foserco’s business was to provide ancillary services for oil and gas production. In the years following the acquisition, Foserco SA paid for administrative services (IT, HR, marketing, etc.) to other companies within the Weatherford group. The Romanian tax authorities disallowed VAT deductions on the payments for these services because, in their view, there was no evidence that the services were used for taxable transactions. The case was brought before the Romanian Regional Court, which decided to stay proceedings and refer the following questions to the EU Court of Justice for a preliminary ruling ‘(1) Must Article 168 of [the VAT Directive], read in the light of the principle of fiscal neutrality, be interpreted as precluding, in circumstances such as those in the main proceedings, the tax authority from refusing a taxable person the right to deduct the [VAT] paid in respect of administrative services acquired, where it is established ... Read more

PT Acer Indonesia is an Indonesian sales and marketing company that sells Acer-branded IT products. It purchases finished goods from its associated company, PT Acer Manufacturing Indonesia, and sells them on in Indonesia via independent distributors and retailers. In 2018, its commercial model involved offering independent distributors two types of sales incentive. The first was a Settlement Discount, a post-sale discount or credit note given when the distributor settles its outstanding receivables under agreed terms. The second type of incentive was Channel Rebate, a sales programme rebate designed to support channel partners and documented in distributor agreements, which is accrued in the company’s books. The dispute concerns how the amounts of the Settlement Discount and Channel Rebate should be treated in Acer Indonesia’s 2018 corporate income tax return. The tax authority audited 2018 and concluded that much of the Settlement Discount and Channel Rebate could not be accepted as a reduction in revenue, as the taxpayer had not provided sufficient ... Read more

The case concerns a number of expenses claimed by “Airline S.A.” as deductible payments for intra-group services, in particular aircraft leasing and related costs, which the company argued should be deductible under the transfer pricing rules. “Airline S.A.” claimed that these costs were essential and necessary expenses within an airline group, emphasizing that it is common for one member of the group – usually the one with the stronger financial capacity – to contract services with third parties and then sublease or subcontract them to related entities. According to the company, this arrangement reflects common practices in the airline industry, where expenses such as aircraft rentals, turbine maintenance, line maintenance, and software costs are often handled centrally and then passed on to operating subsidiaries. The tax authority’s audit did not dispute the general practice of intra-group services or their business logic; rather, the authority concluded that the taxpayer had not provided sufficient documentation to prove that the services were actually ... Read more

The tax authorities considered Minebea to be a contract manufacturer with limited functions within the Valeo group and had issued a TP adjustment where the company’s taxable profit had been determined using the TNMM, IQR and median. Deductions for certain intra-group services (management and technical services) were also denied. Minebea appealed to the Administrative Court, which rejected the appeal, and then Minebea appealed to the Supreme Administrative Court. Judgment of the Court The Supreme Administrative Court dismissed the appeal and upheld the judgment of the Administrative Court and the assessment made by the tax authorities. Click here for English translation Click here for translation ... Read more

TYRAS S.A. is active in the industrial production, import, export and marketing of dairy products, cheese etc. During the financial year in question, TYRAS S.A. had carried out transactions with subsidiaries belonging to the same group. Following an audit, the tax authority concluded that, TYRAS S.A. had not complied with the arm’s length principle and an assessment of additional taxable income was issued. In its appeal TYRAS S.A. challenged, inter alia, the sufficiency of the evidence supporting the tax authority’s finding that the arm’s length principles had not been complied with, arguing in particular that the size of the discrepancy was negligible (0.17%), compared with ‘the total volume of intra-group transactions. TYRAS S.A. further argued that it had applied the arm’s length principle in line with the internationally accepted OECD guidelines ((paragraph (1)(b)(ii) and paragraph (2)(b)(ii)(iii)) 3.13 and 3.14). The Administrative Court decided mostly in favour of TYRAS S.A. and an appeal was then filed by the tax authorities with the ... Read more

A Czech subsidiary, ELI LILLY ČR, s.r.o., had deducted costs purportedly relating to marketing services it had provided to a group company in Switzerland, Eli Lilly Export S.A. The costs were of a nature that would normally not be deductible for tax purposes. Following an audit, the tax authorities disallowed the tax deductibility of the costs in question on the basis that the company had failed to demonstrate a direct relationship between the costs and the income. An appeal was lodged by ELI LILLY ČR, in which the company argued that the costs were directly related to the income, since the income from the services had been determined under the arm’s length principle using the cost-plus method. Judgment of the Court The Court dismissed the appeal and ruled in favour of the tax authorities. Excerpt in English “55. The Supreme Administrative Court thus concluded in the cited decision that a direct link between expenses and income cannot be inferred solely ... Read more

A Czech real estate company, AHI Oscar, had deducted the cost of intra-group services received from a related foreign service company. The price of the services had been calculated at a flat rate of 75% of the wages of the employees providing the support services, plus overhead costs. The tax authority found that the overhead costs included in the calculation did not correspond to the actual costs and excluded these costs from the calculation. According to the tax authority, it was irrelevant to consider the arm’s length principle under Section 23(7) of the ITA. AHI Oscar appealed to the Municipal Court, which upheld the tax authority’s assessment. AHI Oscar then appealed to the Supreme Administrative Court. Judgment of the Court. The Supreme Administrative Court overturned the decision of the Municipal Court. It was undisputed that AHI Oscar had actually incurred the declared costs and received the services from the related foreign service company. According to the court, the tax authority’s ... Read more

The tax authorities had disallowed deductions for administrative services paid by Mercer Consulting to a related party. However, Mercer Consulting was remunerated on a cost plus basis for providing intra-group IT-services and payments for the administrative services were included in the cost basis on which the cost plus remuneration was determined. The Income Tax Appellate Tribunal set aside the assessment in a Judgment issued 25 July 2016. “As a corollary to the ALP of the intra group services received by the assessee being treated as NIL, the price paid for these intra group services is required to be taken out from the computation of remuneration receivable in respect of IT enabled services rendered by the assessee. This is so for the reason that the pricing of IT enabled services is on the cost plus 20% basis, which. has been upheld to be at arm’s length price by the DRP, and, therefore, anything removed from the cost will also have to ... Read more

The tax authorities had issued a tax assessment disallowing the deductibility of intra-group service costs charged to Gru Comedil s.r.l. because, in the opinion of the tax authorities, the company had not provided sufficient documentation and proof of the benefits of the alleged services received (management services). Gru Comedil, and later the tax authorities, appealed the decision, which eventually reached the Supreme Court. Judgment The court overturned the tax authorities’ assessment and ruled in favour of Gru Comedil s.r.l. Excerpts in English “According to an approach widely shared by this Court, in the matter of so-called intra-group costs, in order for the consideration paid to the parent company or to the company entrusted with the service for the benefit of another subsidiary to be deductible by the company receiving it, it is necessary that the subsidiary derives an actual utility from the remunerated service and that this utility is objectively determinable and adequately documented (Court of Cassation, n. 26/01/2023, n ... Read more

In its 2014 and 2015 tax returns, Walmart Chile S.A. (later D&S S.A.) had deducted costs for various inter-group services and interest payments on an inter-group loan. Following an audit, the tax authorities disallowed these deductions. An appeal was made to the Tax Court, which largely ruled in favour of the tax authorities. Walmart – and the tax authorities – then appealed to the Court of Appeal. Judgment The Court of Appeal upheld the decision of the Tax Court. Click here for English translation Click here for other translation ... Read more

K.P. belongs to the K. Group, which is among the world leaders in the supply of electrical systems, cables and plastic components. The company is a contract manufacturer of electrical harnesses and for that purpose, purchases components (semi-finished products, goods and materials) from a related party, KSA, and subsequently sells the products to an unrelated party. The remuneration of K.P. aimes at a target operating margin of 1.25%. This margin has been determined by applying the transactional net margin method. In the event that, K.P.’s yearly results deviate from the target operating margin, an adjustment of component prices is made in order for K.P. to achieve the contractually agreed target margin of 1.25%. For the financial year ended on 1 May 2016, K.P.’s margin was higher than 1.25% so in order to bring the remuneration to the agreed arm’s length levels, K.P. received on 6 May 2016 an adjustment note from KSA increasing the purchase costs for the components and ... Read more

“Tech Ltd” received royalty payments from selling licences to its customers. In many of the countries where the customers were registered, withholding taxes had been levied on the royalty payments to “Tech Ltd” and “Tech Ltd” had deducted these amounts (approximately €27 million) from its taxable income. The tax authorities disallowed the deduction and issued an assessment of additional taxable income for FY2010 to FY2016 equal to the amount of withholding tax that had been deducted. The tax authorities disagreed that the royalty withholding tax deducted from royalty income in the source state was an expense wholly and exclusively incurred in the course of trade. A complaint was lodged with the Tax Appeals Commission by “Tech Ltd”, explaining that royalty withholding tax is a cost of doing business incurred by the company when selling licences to its customers resident in certain countries where royalty withholding tax is applied. Decision The Tax Appeals Commission ruled in favour of Tech Ltd and ... Read more

In the case of “Discount Retail Ltd”, two strands of a long-running corporate income tax audit were at issue. Firstly, in 2014, the company was charged approximately €1.4 million for an ‘A. Retail Suite’ software licence. Secondly, the company had paid annual supervision and support charges invoiced by the Austrian parent company for ‘supervision and support’ services. The tax authority treated the licence fee as non-deductible and reduced the deduction for supervision and support services. An appeal was filed with the Administrative Court. Judgment Regarding the software licence, the court found that the authority had focused almost exclusively on whether the same programmes were in use before and after 2014, ignoring the taxpayer’s central claim — supported by the master file, on-site demonstrations, and other documents — that the group IT centre had evolved over time from a routine service provider into a strategic developer of complex, value-adding solutions, justifying a profit-linked royalty. As the tax inspectors had not examined ... Read more

Herbalife International India is a subsidiary of HLI Inc., USA. It is engaged in the business of dealing in weight management, food and dietary supplements and personal care products. The return of income for the assessment year 2006-07 was filed declaring Nil income. The Indian company had paid royalties and management fees to its US parent and sought to justify the consideration paid to be at arm’s length. In the transfer pricing documentation the Transactional Net Margin Method (TNMM) had been selected as the most appropriate method for the purpose of bench marking the transactions. The case was selected for scrutiny by the tax authorities and following an audit, deductions for administrative services were denied and royalty payments were reduced. Disagreeing with the assessment Herbalife filed an appeal which was later dismissed by the Tax Appellate Tribunal. An appeal was then filed with the High Court, which remaned the case for a reexamination by the Tax Appellate Tribunal, holding that ... Read more

The subject-matter of the dispute was deduction of cost for the advertisement on Czech Television. The advertisements had been resold by a chain of entities, with the prices for the individual advertisements being multiplied in relation to the prices charged by Czech Television. The Second Chamber of the Supreme Administrative Court referred the case to the Extended Chamber for a ruling on the question whether the finding that the price of the subject-matter of the contract was significantly higher than the normal price, without a satisfactory explanation of the difference, is a sufficient condition for the conclusion that there is a combination of persons for the purpose of reducing the tax base or increasing the tax loss pursuant to Section 23(7)(b)(5) of Act No 586/1992 Coll. on Income Taxes, or whether the tax authorities must prove other facts in the conduct of the taxpayer which indicate that the transaction is unusual. Furthermore, according to the Second Chamber, there was a ... Read more

The tax authorities had notified the companies GKN Driveline Firenze s.p.a. and GKN Italia s.p.a. of four notices of assessment, relating to the tax periods from 2002 to 2005, as well as 2011. The assessments related to the signing of a leasing contract, concerning a real estate complex, between GKN Driveline Firenze s.p.a. and the company TA. p.a. and the company TAU s.r.l.. A property complex was owned by the company GKN-Birfield s.p.a. of Brunico and was leased on an ordinary lease basis by the company GKN Driveline Firenze s.p.a. Both companies belonged to a multinational group headed by the company GKN-PLC, the parent company of the finance company GKN Finance LTD and the Italian parent company GKN-Birfield s.p.a., which in turn controlled GKN Driveline Firenze s.p.a. and TAU s.r.l. GKN Driveline Firenze s.p.a. expressed interest in acquiring ownership of the real estate complex; the real estate complex, however, was first sold to TAU s. s.r.l. and, on the same ... Read more

Following an audit of Intralot S.A., the tax authorities issued an adjustment to its taxable income, where intra-group services provided by a related company in Cyprus – Intralot International Ltd. – had been disallowed. Intralot S.A. disagreed with the adjustment and filed an appeal, which was later dismissed by the Administrative Court of Appeal. Judgment of the Court The Supreme Administrative Court allowed the appeal and remanded the case to the Administrative Court of Appeal for further examinations. Excerpt “Because the Administrative Court of Appeal in the present case examined the judgment affected by the aforementioned ground of appeal on the basis of the erroneous understanding that proof of expenditure incurred abroad is legally possible only on the basis of invoices bearing the content required by the provisions of Article 12 of the VAT Code. That judgment, however, is not in accordance with the findings of the abovementioned decisions of the Council of State, which the appellant company relies on ... Read more

At issue was VAT and tax deduction for costs of media and advertising space that EVEREST allegedly purchased from Koukni and Concept s.r.o. and Concept s.r.o.. A tax assessment was issued to EVEREST based on (1) failure to prove the receipt of the supply of “media and advertising space” to the declared extent and (2) denial of the claimed right to deduct VAT as the tax administrator found that EVEREST knew or should have known that it had engaged in VAT fraud by participating in those arrangements. An appeal was filed by EVEREST claiming that various legal formalities had not been observed by the tax authorities i.e. the tax administrator was not competent to issue the decision at all, the decision suffers from defects which render it manifestly internally inconsistent or legally or factually unworkable; the decision is issued on the basis of another void decision issued by the tax administrator; EVEREST was not a related party in relation to ... Read more

Tiger Flex was a fully fledged footwear manufacturer that was later restructured as a contract manufacturer for the Gucci Group. It had acquired goodwill which was written off for tax purposes, resulting in zero taxable income. The tax authorities disallowed the depreciation deduction. It found that the acquired goodwill had benefited the group as a whole and not just Tiger Flex. Tiger Flex filed an appeal with the Regional Tax Commission. The Regional Tax Commission decided in favour of Tiger Flex. The tax authorities then filed an appeal with the Supreme Court. Judgment of the Supreme Court The Court set aside the decision of the Regional Tax Commission and refered the case back to the Regional Tax Commission in a different composition. Excerpt “It is not disputed that the Tiger and Bartoli factories were profitable assets, endowed with productive and earning capacity. What is disputed, however, is the recorded purchase value which, legally spread over the decade, anaesthetises any contributory ... Read more

Cidiverte S.p.A. is an Italian distributor of video-games. Following an audit, the tax authorities issued Cidiverte S.p.A an assessment of additional income resulting from a reduction of the pricing of costs it had paid to its Italian sister company. Appeals were filed by Cidiverte with the local and regional courts, but the objections were dismissed by reference to a previous judgment of the Supreme Court in Case no. 11949/2012 concerning disallowed costs in the same group. The regional court found that, Cidiverte had failed to prove the existence, pertinence and conformity of the price shown on the invoice with the arm’s length value. A study carried out by Price Waterhouse Coopers on behalf of Cidiverte was considered to be a mere “opinion” and therefore not sufficient evidence to support the deductions in question. An appeal was then filed by Cidiverte with the Supreme Court. Judgment of the Court The Supreme Court set aside the decision of the regional court and ... Read more

Bavaria S.A. is part of the SABMiller group – a multinational brewing and beverage group – and in FY2013 the company had deducted costs related to various intra-group transactions – licences, cost of sales, procurement services, administrative services, technical support, other expenses (reimbursements to related parties), etc. Following an audit, the Colombian tax authorities disallowed the deduction of some of these costs. Deductions for investments in productive assets were also disallowed. This resulted in additional taxable income and an assessment was issued together with a substantial penalty. Judgment of the Supreme Administrative Court The Court partially upheld the assessment and partially annulled it. Excerpts “At this point it is necessary to clarify that, although the Administration alleges the violation of the arm’s length principle, insofar as it considers that no independent third party, in a comparable situation, would have paid the commission under the conditions carried out by Bavaria, the truth is that this assertion is only supported by the ... Read more

A. Romania S.R.L. had purchased gas and strategy consulting services from related parties. The tax authorities issued an assessment where part of the deduction for these costs had been denied by application of the arm’s length principle. The court of first instance ruled in favor of A S.A and an appeal was then filed by the tax authorities with the High Court. Judgment of High Court The court set aside the decision issued by the court of first instance and remanded the case for reconsideration. Excerpts in English “The High Court finds that none of the contested additional tax liabilities was genuinely analysed by the court of first instance, as no logical-legal reasoning proper to the judge was set out, but the expert report carried out in the case was taken ad litteram as grounds for the judgment delivered. The adoption took place not only as regards the conclusions on the objectives of the expert’s report, which are explicitly stated ... Read more

In 2003, Watsons Personal Care Stores Holding Limited borrowed USD 36,842,335.00 from Watson Labuan in order to acquire a substantial number of shares in Watson Malaysia and in 2012, the Company borrowed another USD 1,276,000.00 from Watson Labuan to finance the acquisition of shares. According to the loan agreement the annual interest rate was 3% plus the London Interbank Offered Rate (LIBOR) and the principal amount was to be paid on demand by Watson Labuan. In 2013 the tax authorities (DGIR) requested information from Watsons Personal Care Stores Holding Limited relating to cross border transactions for transfer pricing risk assessment purposes and following an audit for FY 2010-2012 the tax authorities informed the Company that the interest would be adjusted under section 140A of the ITA (Malaysian arm’s length provision). Furthermore, the interest expenses paid would not be allowed as a deduction because the transaction as a whole would not have been entered into between unrelated parties. Watsons Personal Care ... Read more

LAKUM KTL, a. s. had deducted from its taxable income costs for the purchase of advertising and promotional services from PRESSTEX MEDIA and PAMBROKE Media. Following an audit, the tax authorities concluded that LAKUM had entered into a legal relationship with PRESSTEX and PAMBROKE for the purpose of reducing the tax base. The tax authorities established reference prices on the basis that LAKUM could have entered into the contract for advertising and promotional services directly with the club concerned and, from the price range thus established, determined the arm’s length price for the services and increased the tax base accordingly. Decision of the Regional Court The Regional Court ruled in favour of the tax authorities on the pricing issue. Excerpts “37. The applicant first argued that the conditions for the application of the first sentence of Article 23(7) of the Income Tax Act were not met. According to that provision, if the prices agreed between related parties differ from the ... Read more

Following an audit, the tax authorities found that “Metal S.A.” had not been remunerated at arm’s length for its distribution activities. In addition, the intra-group services received by “Metal S.A.” were considered to be low value-added services for which the margin could not exceed 5% under local Peruvian TP rules. The price paid for these services was therefore adjusted. An appeal was lodged with the Tax Court. Decision The Tax Court overturned the tax authorities’ assessment of the remuneration for distribution activities, but upheld the assessment of the intra-group services. Click here for English Translation Click here for other translation ... Read more

Mylan Pharmaceuticals is engaged in the business of trading pharmaceutical products in both domestic and export markets. It also provides business support services and research and development activities to other group companies. Following an audit, the tax authorities issued a notice of assessment which partially disallowed deductions for advertising and promotional expenses for the launch of new products. Mylan appealed to the Principal Commissioner of Income Tax where the assessment was subsequently overturned. The tax authorities then appealed to the Income Tax Appellate Tribunal. Judgment of the ITAT The Income Tax Appellate Tribunal allowed the appeal and set aside the decision of the Commissioner of Income Tax. Excerpts “It has been held in various decisions that for invoking jurisdiction u/s 263 of the I.T. Act, the twin conditions namely, (a) the order is erroneous and (b) the order is prejudicial to the interest of the Revenue must be satisfied. However, in the instant case, the order may be prejudicial to ... Read more

The case concerned management fees paid by Multi Square Sdn Bhd, a Malaysian company engaged in the manufacture and sale of paints and chemical solvents, to its holding company Sersol Berhad under management services agreements for the years of assessment 2010 and 2011. The agreements covered corporate, strategic, human resources, accounting, and IT services. The fees increased significantly from 2010 to 2011. Following an audit, the tax authorities disallowed the management fees on the basis that the expenses were not wholly and exclusively incurred in the production of income. The tax authority considered that the services allegedly provided formed part of the normal responsibilities of a holding company and were not substantiated by evidence. Additional assessments were issued together with penalties. The taxpayer appealed to the Special Commissioners of Income Tax, arguing that the management services were commercially expedient, reflected industry practice of centralising group functions, and contributed to increased revenue. It further argued that management fees paid to a ... Read more

This case deals with VAT treatment of disallowed deductions for intra-group services. Following an audit, an adjustment of the taxable income was issued to “VAT Ltd.” by the tax authorities where intra-group services had been disallowed and VAT had been adjusted as a result. “VAT Ltd.” disagreed with the adjustment and filed an appeal. Judgment of the Tax Court The Tax Court upheld the assessment of the tax authorities. Click here for English translation ... Read more

Aspro is an asphalt-paving company. Between 2012 and 2014, the relevant years, Aspro stock was held by: Milton Dakovich, the president of Aspro; Jackson Enterprises Corp.; and Manatt’s Enterprises, Ltd. Aspro has not paid dividends since the 1970s but, except for one year, has paid its shareholders “management fees” for at least twenty years. In addition to receiving management fees, Dakovich received a salary, director fees, and bonuses for each of the relevant years. There were no written agreements between Aspro and its three shareholders regarding fees paid for management services, nor was there an employment contract between Aspro and Dakovich. Aspro claimed deductions on its tax returns for management fees for tax years 2012 through 2014. The tax authorities denied these deductions on the ground that Aspro had failed to establish that it had incurred or paid the management fees for ordinary and necessary business purposes. Aspro took the case to court. Judgment of the Court. The Court upheld ... Read more

An intercompany loan in the form of a so-called international debt pushdown had been issued to Universal Music Japan to acquire the shares of another Japanese group company. The tax authority found that the loan transaction had been entered for the principal purpose of reducing the tax burden in Japan and issued an assessment where deductions of the interest payments on the loan had been disallowed for tax purposes. The Tokyo District Court decided in favour of Universal Music Japan and set aside the assessment. The Court held that the loan did not have the principle purpose of reducing taxes because the overall restructuring was conducted for valid business purposes. Therefore, the tax authorities could not invoke the Japanese anti-avoidance provisions to deny the interest deductions. In 2020 the decision of the district court was upheld by the Tokyo High Court. The tax authorities then filed an appeal with the Supreme Court Decision of the Court The Supreme Court dismissed ... Read more

In 2009-2011 Fortis Petroleum Norway AS (FPN) bought seismic data related to oil exploration in the North Sea from a related party, Petroleum GeoServices AS (PGS), for NKR 95.000.000. FBN paid the amount by way of a convertible intra-group loan from PGS in the same amount. FPN also purchased administrative services from another related party, Consema, and later paid a substantial termination fee when the service contract was terminated. The acquisition costs, interest on the loan, costs for services and termination fees had all been deducted in the taxable income of the company for the years in question. Central to this case is the exploration refund scheme on the Norwegian shelf. This essentially means that exploration companies can demand cash payment of the tax value of exploration costs, cf. the Petroleum Tax Act § 3 letter c) fifth paragraph. If the taxpayer does not have income to cover an exploration cost, the company receives payment / refund of the tax ... Read more

A S.A. is 51% owned by B SA and 49% by C Corp. A S.A is active in development of energy efficiency projects. In 2015 A S.A took out loans from B and C at an annual interest rate of 3.22xEuribor 12 months, plus a spread of 14%. A S.A had also paid for services to related party D. The tax authorities issued an assessment related to the interest rate on the loan and the service purportedly received and paid for. A complaint was filed by A S.A. with the Administrative Tribunal (CAAD). Judgment of the CAAD The complaint of A S.A was dismissed and the assessment upheld. Excerpts regarding the interest rate “Now, regarding the first argument, it falls immediately by the base, since the Applicant has not proved that it had made any effort to finance itself with the bank and that this effort was unsuccessful. On the contrary, it seems to result from the request for arbitration ... Read more

A SGPS S.A. is the parent company of Group A. In 2016, a subsidiary, B S.A., took a loan in a bank, amounting to 1,950,000.00 Euros, and incurred interest costs and Stamp Tax. However, the majority of the loan, an amount of €1,716,256.60, was transferred as an interest free loan to A SGPS S.A. The tax authorities issued an assessment related to costs incurred on the loan and deducted by B S.A. The tax authorities disallowed B S.A.’s deduction of the costs as they were not intended to protect or obtain income, and therefore did not meet the requirements for deductibility under the general provisions of the Tax Code; A complaint was filed by A SGPS S.A. with the Administrative Tribunal. According to A SGPS SA the tax authorities did not justify why it considered that the expenses incurred by B S.A. to an independent bank for a loan that was passed on to the parent company were not deductible ... Read more

Sierra Spain Shopping Centers Services S.L.U. is part of a multinational group that manages shopping centres. Sierra Spain had deducted expenses for services rendered from a related party in Portugal. According to Sierra Spain, the services were related to strategic management and marketing. The tax authorities considered the expenses non-deductible and issued an assessment of additional taxable income. With respect to the strategic business management services, the tax authorities found that there was no contract between the parties. In addition, the authorities found the justification for the actual provision of services was insufficient. With regard to the marketing services, these were contracted by the Portugal-based entity to an external supplier and subsequently re-invoiced to the related parties receiving the service in Portugal, Brazil and Spain. The tax authorities considered that these services were shareholder costs and therefore not deductible in Sierra Spain. Sierra Spain appealed to the Tax Court, which upheld the assessment of the tax authorities. An appeal was ... Read more

IAB Company had deducted fees paid for services to its parent, IAL. Following an audit the tax authorities denied these deductions as sufficient evidence had not been provided for provision of the services. An appeal was filed by IAB Company. Judgment of the High Court. The Court upheld the assessment of the tax authorities concerning management fees and dismissed the appeal of IAB Company in this regard. Excerpts from the judgment: “In a nutshell the issue here is whether or not the appellant received management services from IAL for the tax years 2010 to 2015. ” (…) “The authorities must not look at the matter from their own view point but that of a prudent business an – SA Builders Ltd v CIT (2006) 289 ITR 26 (SC).  Further, I agree with what was stated by Australia’s Full Federal Court on the function of the tax authorities and fiscal legislation.  In FC of T v BHP Billion Finance Ltd 2010 ... Read more

Delta Beverages Ltd, a subsidiary of Delta Corporation, had been issued a tax assessment for FY 2009, 2010, 2011, 2012, 2013 and 2014 where various fees for service, technology license of trademarks, technology and know-how paid to a group company in the Netherlands (SAB Miller Management BV) had been disallowed by the tax authorities (Zimra) of Zimbabwe resulting in additional taxes of US$42 million which was later reduced to US$30 million. An appeal was filed with the Special Court (for Income Tax Appeals) where, in a judgment dated 11 October 2019, parts of the assessment was set aside. Not satisfied with the result, an appeal (Delta Beverages) and cross-appeal (tax authorities) was filed with the Supreme Court. Judgment of the Supreme Court. The Supreme Court set aside the judgment of the Special Court (for Income Tax Appeals) and remanded the case for reconsiderations in relation to the issue of tax avoidance. Excerpts from the Supreme Court judgment regarding deductions for ... Read more

PT Tech Data Advanced Solutions Indonesia (formerly PT AVnet Datamation Solutions) had paid service fees to a related party in FY 2013. Following an audit, the tax authorities issued an assessment where these service fees, among other issues, was found to be unsubstantiated by the evidence provided by the company. The Company disagreed and brought the case to court. Judgment of the Supreme Court The Supreme Court upheld the decision of the Tax authorities. Excerpts. “That the reasons for the Appellant’s request for reconsideration cannot be justified, because the decision of the Tax Court which partially granted the Appellant’s appeal against the Appellant’s Decision Number KEP-01458/KEB/WPJ.07/2017, dated 5 September 2017, concerning Taxpayer’s Objection to the Tax Assessment Letter for Underpayment of Income Tax for the Tax Year 2013, Number 00005/206/13/056/16, dated 8 June 2016, in the name of the Appellant, NPWP 21.120.445.8- 056.000, so that the calculation of Income Tax for the Tax Year 2013 to be paid is Rp ... Read more

At issue was whether Oriflame Software s.r.o. could deduct certain costs that would usually be non-deductible by relying on its cost-plus method within the meaning of Section 24(2)(zc) of the Czech Income Tax Act. The disputed items were: Visas and air tickets for a Slovakian employee not employed by the Czech entity Various refreshments and representation expenses Excessive employee catering Other fines and penalties Both the tax authority and the Municipal Court held that these items either failed to meet the first condition of Section 24(2)(zc), or lacked a direct link to the company’s taxable revenues. Judgment The Supreme Administrative Court dismissed the appeal and upheld the Municipal Court’s judgment. The Court agreed that Oriflame’s cost-plus method establishes only a direct proportionality between costs and revenues, rather than the necessary direct connection between the cost and the revenue. It explained that costs must have the potential to influence revenues by contributing to their achievement, rather than merely being passed on to ... Read more

Following an audit the tax authorities issued an assessment regarding interest payments on intra group loans and tax deductions for the costs for various services. An appeal was filed by the company. Judgment of the Tax Court The court upheld the assessment and decided in favour of the tax authorities. Click here for English translation ... Read more

LCN Group had deducted costs in its taxable income for marketing services provided by related parties – PRESSTEX MEDIA SE and TARDEM Media s.r.o. and PAPILIO. The claimed advertising costs from PRESSTEX in FY 2012 was produced and implemented by PAPILIO and subsequently invoiced to LCN Group, virtually unchanged, at a price 23 times higher than the price of the advertising, without the corresponding value added being justified. In relation to FY 2013, LCN Group claimed advertising costs from TARDEM in a similar pattern where the price was increased by up to 56 times. In both tax periods, LCN Group’s advertising/promotion costs were related to sporting events (gymnastics world cup, tennis tournament and golf tournaments). The tax authorities concluded that the prices agreed between the parties was not at arm’s length and issued an assessment. The Regional Court annulled the assessment. It argued that the tax authorities had not sufficiently dealt with the identification and description of the conditions under ... Read more

X B.V., a private limited company established in the Netherlands, is part of a globally operating group (hereafter: the Group). In the years under review, the head office, which was also the top holding company, was located in the USA. Until 1 February 2008, the X B.V. was, together with BV 1 and BV 2, included in a fiscal unity for corporate income tax with the Interested Party as the parent company. As of 1 February 2008, a number of companies were added to the fiscal unity, including BV 3 and BV 4. X B.V. is considered transparent for tax purposes according to US standards. Its parent company is a company domiciled in the USA, as further described in 2.1.8 below. In 2006, BV 1 borrowed € 195,000,000 under a Euro Credit Facility (ECF), a head office guaranteed credit facility with a syndicate of sixteen banks. BV 1 contributed this amount in 2007 as share premium to BV 2. BV ... Read more