Viva Decor TOV, is part of the Sintra Group, which manufactures and sells wallpaper. Viva Decor challenged two tax assessments issued by the tax authorities in February 2020, which assessed additional corporate income tax and reduced VAT refunds, due to mispricing of controlled transactions in FY 2013–2015. The dispute focused on the correct period to use for calculating profit level indicators under the TNMM. The tax authority claimed Viva Decor improperly calculated its profitability for the relevant periods—using full-year figures (2013, 2015)while the tax authorities insisted only data from the months when the transactions were officially recognized as “controlled” (September–December 2013 and January–May 2015) should be used. The tax authorities also alleged flaws in Viva Decor’s transfer pricing documentation and accounting errors, including the treatment of exchange rate differences and the valuation of inventories. Viva Decor argued that full-year financial data should be used because the wallpaper market is seasonal, and that the databases used for comparables only offer annual ... Read more

At issue was whether or not comparability adjustments made for exchange rate differences were appropriate, when the risk for such variations was assumed by the tested party. Judgment The Supreme Administrative Court found that the adjustments that had been made to improve the reliability of the comparability analysis were reasonable and decided in favour of Drummond LTDA. The Court specified that comparability factors that must be verified include significant economic functions or activities, including the assets used and risks assumed in the transactions by the parties to the transaction, including those that are caused by variations in the exchange rates, since these may affect the price or profit margin. Click here for English translation ... Read more

Currency differences are another potentially important factor. Economic factors such as growth rate, inflation rate, and the volatility of exchange rates, mean that otherwise similar financial instruments issued in different currencies may have different prices. Moreover, prices for financial instruments in the same currency may vary across financial markets or countries due to regulations such as interest rate controls, exchange rate controls, foreign exchange restrictions and other legal and practical restrictions on financial market access ... Read more

Currency differences are another potentially important factor. Economic factors such as growth rate, inflation rate, and the volatility of exchange rates, mean that otherwise similar financial instruments issued in different currencies may have different prices. Moreover, prices for financial instruments in the same currency may vary across financial markets or countries due to regulations such as interest rate controls, exchange rate controls, foreign exchange restrictions and other legal and practical restrictions on financial market access ... Read more

The “Sumykhimprom” case concerned export transactions of fertilizers to a related party in Switzerland and import transactions of natural gas from a related party in Cyprus. According to the tax authorities, the pricing of the controlled export transactions of fertilizers had been below arm’s length and the pricing of the controlled import transactions of natural gas had been above arm’s length. Judgment of the Supreme Court The Supreme Court confirmed the position of the tax authorities, determined based on the results of the audit of controlled transactions of a producer of mineral fertilizers, and the legality of additional corporate income tax in the amount of UAH 43 million and a reduction of losses carried forward by UAH 195 million. If the company carried out potentially comparable with controlled uncontrolled operations, it can use them, including for the application of the net profit method. However, the delivery conditions must be comparable, since they affect the functionality of the company, the price ... Read more