Quaker Italia Srl is a non-exclusive distributor of Quaker products in Italy – lubricating oils and greases. It also carries out a minor manufacturing activity. An assessment was issued by the tax authorities in 2012 regarding the remuneration received for the distribution activities in FY 2007. The Tax authorities considered that the documentation provided by the company was contradictory and incomplete, and therefore recalculated the income using a (partially) different method (TNMM in the modified resale price version, instead of TNMM in the modified cost-plus version). This resulted in additional taxable income in the amount of Euro 1,180,447.00. A complaint was filed by Quaker with the Provincial Tax Commission. The Provincial Commission confirmed the legitimacy and effectiveness of the tax assessment. An appeal was then filed with the the Regional Tax Commission (CTR) of Lombardy. The Regional Tax Commission rejected the appeal and confirmed the first instance decision. An appeal was then filed by Quaker with the Supreme Administrative Court ... Read more

Following an audit, the Greek tax authorities determined that the remuneration of a Greek Clothing Distributor had not been determined in accordance with the arm’s length principle. On that basis an upwards adjustment of the taxable income was issued. An appeal was filed by “Clothing Distributor Ltd.” Judgement of the Court The court dismissed the appeal and upheld the assessment issued by the tax authorities. “the findings of the audit, as recorded in the partial income tax audit report of 29/12/2021 of the C.E.M.E.P., on which the contested act is based, are considered valid, acceptable and fully justified” Click here for English translation Click here for other translation ... Read more

SNC Oakley Europe, a subsidiary of SAS Oakley Holding, which belonged to the American group Oakley Inc. until its takeover in 2007 by the Italian group Luxottica, carried on the business of distributing clothing, footwear, eyewear and accessories of the Oakley brand on European territory. Following the takeover SNC Oakley Europe in 2008 transferred its distribution activity on the French market to another French company, Luxottica France, and its distribution activity on the European market to companies incorporated in Ireland, Luxottica Trading and Finance and Oakley Icon, and deducted restructuring costs in an amount of EUR 15,544,267. The tax authorities qualified these costs as an advantage granted without consideration to its sister companies, constituting, on the one hand, an abnormal management act and, on the other hand, an indirect transfer of profits within the meaning of Article 57 of the General Tax Code on the grounds that its costs had not been re-invoiced to the Italian company, the head of ... Read more

30. The facts in this example are the same as in Example 9, except that the market development functions undertaken by Company S in this Example 10 are far more extensive than those undertaken by Company S in Example 9. 31. Where the marketer/distributor actually bears the costs and assumes the risks of its marketing activities, the issue is the extent to which the marketer/distributor can share in the potential benefits from those activities. A thorough comparability analysis identifies several uncontrolled companies engaged in marketing and distribution functions under similar long-term marketing and distribution arrangements. Assume, however, that the level of marketing expense Company S incurred in Years 1 through 5 far exceeds that incurred by the identified comparable independent marketers and distributors. Assume further that the high level of expense incurred by Company S reflects its performance of additional or more intensive functions than those performed by the potential comparables and that Primair and Company S expect those additional ... Read more

26. The facts in this example are the same as in Example 8, except as follows: Under the contract between Primair and Company S, Company S is now obligated to develop and execute the marketing plan for country Y without detailed control of specific elements of the plan by Primair. Company S bears the costs and assumes certain of the risks associated with the marketing activities. The agreement between Primair and Company S does not specify the amount of marketing expenditure Company S is expected to incur, only that Company S is required to use its best efforts to market the watches. Company S receives no direct reimbursement from Primair in respect of any expenditure it incurs, nor does it receive any other indirect or implied compensation from Primair, and Company S expects to earn its reward solely from its profit from the sale of R brand watches to third party customers in the country Y market. A thorough functional ... Read more

When the distributor actually bears the cost of its marketing activities (for example, when there is no arrangement for the legal owner to reimburse the expenditures), the analysis should focus on the extent to which the distributor is able to share in the potential benefits deriving from its functions performed, assets used, and risks assumed currently or in the future. In general, in arm’s length transactions the ability of a party that is not the legal owner of trademarks and other marketing intangibles to obtain the benefits of marketing activities that enhance the value of those intangibles will depend principally on the substance of the rights of that party. For example, a distributor may have the ability to obtain benefits from its functions performed, assets used, and risks assumed in developing the value of a trademark and other marketing intangibles from its turnover and market share when it has a long-term contract providing for sole distribution rights for the trademarked ... Read more

This case deals with arm’s length remuneration of a Greek Diary Distributor. Following an audit of “Diary Distributor Ltd.”, the Greek tax authorities determined that the prices paid to related parties for FY 2017 had been above the arm’s length price. On that basis an upwards adjustment of the taxable income was issued. An appeal was filed by “Diary Distributor Ltd.” Judgement of the Court The court dismissed the appeal of “Diary Distributor Ltd.” and upheld the assessment of the tax authorities Click here for English translation Click here for other translation ... Read more

An adjustment for FY 2013 and 2014 had been issued to a pharmaceutical company in Panama “Pharma Distributor S.A” that resulted in an income adjustment of 19.5 million dollars, which in turn resulted in additional taxes of 2.4 million dollars. The resale price method had been used by Pharma Distributor S.A. to determine the market value of an asset acquired from a related entity that was sold to an independent entity. This method was rejected by the tax authorities based on the fact that the analysis presented by the taxpayer did not meet the requirements for application of the method. The tax authorities instead applied a TNMM. The tax authorities also rejected tax deductions for expenses purportedly paid for administrative services due to the absence of supporting documentation. Provisions of article 762-G “Administrative services received” in the Tax Code in Panama contemplates tax deductibility for such expenses exclusively when services have actually been rendered to the benefit of the recipient ... Read more

“Petroleum Wholesale Corp” is engaged in the wholesale of petroleum products, accessories and rolling stock in general in Panama. Following a thorough audit carried out by the Tax Administration in Panama, where discrepancies and inconsistencies had been identified between the transfer pricing documentation and financial reports and other publicly available information, an assessment was issued for FY 2013 and 2014 resulting in additional taxes and surcharges of approximately $ 14 millions. Petroleum Wholesale Corp disagreed with the assessment and brought the case before the Administrative Tribunal. The Administrative Tribunal decided in favor of the tax authorities with a minor adjustment in the calculations for 2014. “…we consider that the Tax Administration adhered, in this case, to the powers conferred by law, and that there is no defenselessness, since it was verified that, in the course of the audit, several requests for information were made (as evidenced in the minutes of the proceedings in the background file), and then, in the ... Read more

The Italian tax authorities had issued an assessment against a local distribution company of a multinational group, where the transfer pricing analysis conducted by the taxpayer had been disregarded. The tax authorities, carried out a new benchmark analysis based on the transactional net margin method (“TNMM”) and adjusted the company’s profitability to the median. Judgement of the Court The Court decided in favour of BI S.r.l. and cancelled the assessment. The Court stated that the profitability range calculated by the tax authorities goes, for the year 2013, from a minimum value of 1.40% to a maximum of 18.28%. The local distribution company had obtained a ROS/EBIT margin of 8.38%, and since the last percentage falls between the minimum and the maximum, the court set aside the assessment. In regards to the TP analysis performed by the tax authorities the Court stated: “The company had applied the CUP method, as it was considered the most direct and reliable method to apply ... Read more

30. The facts in this example are the same as in Example 9, except that the market development functions undertaken by Company S in this Example 10 are far more extensive than those undertaken by Company S in Example 9. 31. Where the marketer/distributor actually bears the costs and assumes the risks of its marketing activities, the issue is the extent to which the marketer/distributor can share in the potential benefits from those activities. A thorough comparability analysis identifies several uncontrolled companies engaged in marketing and distribution functions under similar long-term marketing and distribution arrangements. Assume, however, that the level of marketing expense Company S incurred in Years 1 through 5 far exceeds that incurred by the identified comparable independent marketers and distributors. Assume further that the high level of expense incurred by Company S reflects its performance of additional or more intensive functions than those performed by the potential comparables and that Primair and Company S expect those additional ... Read more

26. The facts in this example are the same as in Example 8, except as follows: Under the contract between Primair and Company S, Company S is now obligated to develop and execute the marketing plan for country Y without detailed control of specific elements of the plan by Primair. Company S bears the costs and assumes certain of the risks associated with the marketing activities. The agreement between Primair and Company S does not specify the amount of marketing expenditure Company S is expected to incur, only that Company S is required to use its best efforts to market the watches. Company S receives no direct reimbursement from Primair in respect of any expenditure it incurs, nor does it receive any other indirect or implied compensation from Primair, and Company S expects to earn its reward solely from its profit from the sale of R brand watches to third party customers in the country Y market. A thorough functional ... Read more

When the distributor actually bears the cost of its marketing activities (for example, when there is no arrangement for the legal owner to reimburse the expenditures), the analysis should focus on the extent to which the distributor is able to share in the potential benefits deriving from its functions performed, assets used, and risks assumed currently or in the future. In general, in arm’s length transactions the ability of a party that is not the legal owner of trademarks and other marketing intangibles to obtain the benefits of marketing activities that enhance the value of those intangibles will depend principally on the substance of the rights of that party. For example, a distributor may have the ability to obtain benefits from its functions performed, assets used, and risks assumed in developing the value of a trademark and other marketing intangibles from its turnover and market share when it has a long-term contract providing for sole distribution rights for the trademarked ... Read more

A Russian subsidiary of the Suzuki/Itochu group had been loss making in 2009. Following an audit the tax authority concluded, that the losses incurred by the Russian distributor were due to non-arm’s length transfer pricing within the group and excessive deduction of costs. Decision of the Court The Court decided in favor of the tax authorities and upheld the assessment. “In view of the above, the appeal court considers that the courts’ conclusions that the Inspectorate had not proved that it was impossible to apply the first method for determining the market price and that the Inspectorate had incorrectly applied the resale price method were unfounded.” “In this light, the courts’ conclusions that the Inspectorate incorrectly applied the second method of determining the market price are unfounded.” “In such circumstances, the Inspectorate’s conclusion on the overstatement of the purchase price of vehicles is based on the application of market data and made in compliance with Article 40 of the Tax ... Read more

A Russian subsidiary of the car manufacturer group HYUNDAI had been claiming losses on a reoccurring basis. Following an audit the tax authority concluded, that the losses incurred by the Russian distributor were mainly due to non-arm’s length transfer pricing within the group of companies and issued an assessment for FY 2009 – 2010 in the amount of 857 741 779 rubles. The assessment was partially  upheld by the Arbitration Court and then appealed to the Supreme Court. Decision of the Russian Supreme Court The Supreme Court dismissed the appeal lodged by HYUNDAI. “In checking the calculation of the market price of the goods, the court, having assessed whether the data given in the calculation of the market price for the acquisition of the vehicles corresponded to the data contained in the primary documents, came to the conclusion that the calculation presented by the inspectorate was justified. The court considered that the tax authority had made the calculation on the ... Read more

A Russian subsidiary of the Mazda Motors Group had been claiming losses. Following an audit the tax authorities concluded that losses for FY 2009, was due to overstatement of the purchase prices of Mazda cars. An assessment was issued where the pricing was determined using the Resale Price Method, resulting in additional income of 1,362,172,034 rubles. The Arbitration Court held in favor of the tax authorities and this decision was upheld by the Arbitration Court of Appeal. The decision was then appealed to the Supreme Court. The Supreme Court denied the appeal and upheld the decision of the Arbitration Court. Click here for English Translation ... Read more

A Russian subsidiary of the car manufacturer group HYUNDAI had been claiming losses in fiscal years 2008 and 2009. In the opinion of the tax authority, losses incurred by the Russian distributor were mainly due to non-arm’s length transfer pricing within the group of companies. Decision of the Russian Arbitration Court According to the court, the applied transfer pricing method is not applicable in the present case. A comparison with wholesalers in the Russian automotive market cannot be made, it said. The reason for this is the common sales strategy of automotive groups in Russia. Almost all non-Russian manufacturers distribute their automobiles through affiliated wholesale companies, which in turn purchase the vehicles from affiliated companies abroad. The only exceptions in this context are currently companies such as Volkswagen or BMW, which operate their own production facilities in Russia. Therefore, a reliable identification of comparable business transactions with regard to independent Russian importers is not possible. The second conclusion of the ... Read more

A Russian subsidiary of the Mazda Motors Group had been claiming losses. In the opinion of the tax authority, the losses incurred by the Russian distributor were mainly due to non-arm’s length transfer pricing within the group of companies. An assessment was issued where the pricing had been determined using the Resale Price Method. Decision of the Russian Arbitration Court “Having evaluated the arguments of the parties and the evidence presented in the case, taking into account the provisions of Art. 71 APC RF, the appeal court considers the conclusions of the court of first instance as motivated, consistent with the circumstances of the case and the requirements of the law. In the presence of these circumstances, the claims claimed by the company were rightly rejected by the court of first instance. Thus, the decision of the court is legal and justified, corresponds to the materials of the case and the current legislation, in connection with which it is not ... Read more

“H-S Goods S.A.” was active in wholesale trade of heating and sanitary goods. The main supplier of the products was a related company from Germany, and the cusomers/recipients of the goods were both unrelated domestic companies and foreign related companies (in Latvia and Ukraine). Approximately 30 % of sales were to related parties. Sales prices for the controlled transactions, were determined based on the purchase prices from the supplier. “H-S Goods S.A.” argued that transactions with the related parties were not sale of goods, but rather provision of warehousing services on behalf of the related German supplier. For these services “H-S Goods S.A.” received a 5% margin. The tax authorities found that the activities and the fact that legal title to the goods was transferred to “H-S Goods S.A.”, meant that the transaction was in fact distribution of goods. Furthermore, the margins obtained by “H-S Goods S.A.” from sale of goods to unrelated customers was considerably higher than the 5% ... Read more

“H-S Goods S.A.” was active in wholesale trade of heating and sanitary goods. The main supplier of the products was a related company from Germany, and the cusomers/recipients of the goods were both unrelated domestic companies and foreign related companies (in Latvia and Ukraine). Approximately 30 % of sales were to related parties. Sales prices for the controlled transactions, were determined based on the purchase prices from the supplier. “H-S Goods S.A.” argued that transactions with the related parties were not sale of goods, but rather provision of warehousing services on behalf of the related German supplier. For these services “H-S Goods S.A.” received a 5% margin. The tax authorities found that the activities and the fact that legal title to the goods was transferred to “H-S Goods S.A.”, meant that the transaction was in fact distribution of goods. Furthermore, the margins obtained by “H-S Goods S.A.” from sale of goods to unrelated customers was considerably higher than the 5% ... Read more