Tag: Full range

§ 1.482-7(g)(2)(ix)(E) Adjustments.

Section 1.482-1(e)(3), applied as modified by this paragraph (g)(2)(ix), determines when the Commissioner may make an adjustment to a PCT Payment due to the taxpayer’s results being outside the arm’s length range. Adjustment will be to the median, as defined in § 1.482-1(e)(3). Thus, the Commissioner is not required to establish an arm’s length range prior to making an allocation under section 482 ... Read more

§ 1.482-7(g)(2)(ix)(D)(3) More than one variable input parameter.

If there are two or more variable input parameters, then under the applicable method, the arm’s length range of PCT Payments is the interquartile range, as described in § 1.482-1(e)(2)(iii)(C), of the set of PCT Payment values calculated iteratively using every possible combination of permitted choices of values for the input parameters. For input parameters other than a variable input parameter, the only such permitted choice is the single most reliable value. For variable input parameters, such permitted choices include any value that is – (i) Based on one of the observations described in paragraph (g)(2)(ix)(C) of this section; and (ii) Within the interquartile range (as described in § 1.482-1(e)(2)(iii)(C)) of the set of all values so based ... Read more

§ 1.482-7(g)(2)(ix)(D)(2) One variable input parameter.

If there is exactly one variable input parameter, then under the applicable method, the arm’s length range of PCT Payments is the interquartile range, as described in § 1.482-1(e)(2)(iii)(C), of the set of PCT Payment values calculated by selecting – (i) Iteratively, the value of the variable input parameter that is based on each observation as described in paragraph (g)(2)(ix)(C) of this section; and (ii) The single most reliable values for each other input parameter ... Read more

§ 1.482-7(g)(2)(ix)(D) Determination of arm’s length PCT Payment.

For purposes of applying this paragraph (g)(2)(ix), each input parameter is assigned a single most reliable value, unless it is a variable input parameter as described in paragraph (g)(2)(ix)(C) of this section. The determination of the arm’s length payment depends on the number of variable input parameters ... Read more

§ 1.482-7(g)(2)(ix)(C) Variable input parameters.

For some market-based input parameters (variable input parameters), the parameter’s value is most reliably determined by considering two or more observations of market data that have, or with adjustment can be brought to, a similar reliability and comparability, as described in § 1.482-1(e)(2)(ii) (for example, profit levels or stock betas of two or more companies). See paragraph (g)(2)(ix)(B) of this section ... Read more

§ 1.482-7(g)(2)(ix)(B) Methods based on two or more input parameters.

An applicable method may determine PCT Payments based on calculations involving two or more parameters whose values depend on the facts and circumstances of the case (input parameters). For some input parameters (market-based input parameters), the value is most reliably determined by reference to data that derives from uncontrolled transactions (market data). For example, the value of the return to a controlled participant’s routine contributions, as such term is defined in paragraph (j)(1)(i) of this section, to the CSA Activity (which value is used as an input parameter in the income method described in paragraph (g)(4) of this section) may in some cases be most reliably determined by reference to the profit level of a company with rights, resources, and capabilities comparable to those routine contributions. See § 1.482-5. As another example, the value for the discount rate that reflects the riskiness of a controlled participant’s role in the CSA (which value is used as an input parameter in the income method described in paragraph (g)(4) of ... Read more

§ 1.482-7(g)(2)(ix)(A) In general.

The guidance in § 1.482-1(e) regarding determination of an arm’s length range, as modified by this section, applies in evaluating the arm’s length amount charged in a PCT under a transfer pricing method provided in this section (applicable method). Section 1.482-1(e)(2)(i) provides that the arm’s length range is ordinarily determined by applying a single pricing method selected under the best method rule to two or more uncontrolled transactions of similar comparability and reliability although use of more than one method may be appropriate for the purposes described in § 1.482-1(c)(2)(iii). The rules provided in § 1.482-1(e) and this section for determining an arm’s length range shall not override the rules provided in paragraph (i)(6) of this section for periodic adjustments by the Commissioner. The provisions in paragraphs (g)(2)(ix)(C) and (D) of this section apply only to applicable methods that are based on two or more input parameters as described in paragraph (g)(2)(ix)(B) of this section. For an example of how the rules of this section for determining an ... Read more

§ 1.482-1(e)(5)Example 2.

Arm’s length range consists of all the results. (i) The facts are the same as in Example 1. Applying the resale price method to the four uncontrolled comparables, and making adjustments to the uncontrolled comparables pursuant to § 1.482-1(d)(2), the district director derives the following results: Comparable Result (price) 1 $44.00 2 45.00 3 45.00 4 45.50 (ii) The district director determines that data regarding the four uncontrolled transactions is sufficiently complete and accurate so that it is likely that all material differences between the controlled and uncontrolled transactions have been identified, such differences have a definite and reasonably ascertainable effect, and appropriate adjustments were made for such differences. Accordingly, if the resale price method is determined to be the best method pursuant to § 1.482-1(c), the arm’s length range for the controlled transaction will consist of the results of all of the uncontrolled comparables, pursuant to paragraph (e)(2)(iii)(A) of this section. Thus, the arm’s length range in this case would be the range ... Read more
Italy vs Promgas s.p.a., May 2022, Supreme Court, Cases No 15668/2022

Italy vs Promgas s.p.a., May 2022, Supreme Court, Cases No 15668/2022

Promgas s.p.a. is 50% owned by the Italian company Eni s.p.a. and 50% owned by the Russian company Gazprom Export. It deals with the purchase and sale of natural gas of Russian origin destined for the Italian market. It sells the gas to a single Italian entity not belonging to the group, Edison spa, on the basis of a contract signed on 24 January 2000. In essence, Promgas s.p.a. performes intermediary function between the Russian company, Gazprom Export (exporter of the gas), and the Italian company, Edison s.p.a. (final purchaser of the gas). Following an audit for FY 2005/06, the tax authorities – based on the Transaction Net Margin Method – held that the operating margin obtained by Promgas s.p.a. (0.23% in 2025 and 0.06% in 2006) were not in line with the results that the company could have achieved at arm’s length. Applying an operating margin of l.39% resulted in a arm’s length profit of €4,227,438.07, for the year ... Read more
Finland vs A Oy, September 2021, Supreme Administrative Court, Case No. KHO:2021:127

Finland vs A Oy, September 2021, Supreme Administrative Court, Case No. KHO:2021:127

A Oy, the parent company of group A, had not charged a royalty (the so-called concept fee) to all local companies in the group. The tax authorities had determined the level of the local companies’ arm’s length results and thus the amounts of royalties not collected from them on the basis of the results of nine comparable companies. The comparable companies’ performance levels were -0,24 %, 0,60 %, 1,07 %, 2,90 %, 3,70 %, 5,30 %, 8,40 %, 12,30 % and 13,50 %. The interquartile range of the results had been 1.1-8.4% and the median 3.7%. The tax inspectors had set the routine rate of return for all local companies at 4,5 %, which was also used by A Ltd as the basis for the concept fee. A’s taxes had been adjusted accordingly to the detriment of the company. Before the Supreme Administrative Court, A Oy claimed that the adjustment point for taxable income should be the upper limit of ... Read more

Luxembourg vs “Lux PPL SARL”, July 2021, Administrative Tribunal, Case No 43264

Lux PPL SARL received a profit participating loan (PPL) from a related company in Jersey to finance its participation in an Irish company.  The participation in the Irish company was set up in the form of debt (85%) and equity (15%). The profit participating loan (PPL) carried a fixed interest of 25bps and a variable interest corresponding to 99% of the profits derived from the participation in the Irish company, net of any expenses, losses and a profit margin. After entering the arrangement, Lux PPL SARL filed a request for an binding ruling with the Luxembourg tax administration to verify that the interest  charge under the PPL would not qualify as a hidden profit distribution subject to the 15% dividend withholding tax. The tax administration issued the requested binding ruling on the condition that the ruling would be terminate if the total amount of the interest charge on the PPL exceeded an arm’s length charge. Later, Lux PPL SARL received ... Read more
Chile vs Avery Dennison Chile S.A., March 2021, Tax Court, Case N° RUT°96.721.090-0

Chile vs Avery Dennison Chile S.A., March 2021, Tax Court, Case N° RUT°96.721.090-0

The US group, Avery Dennison, manufactures and distributes labelling and packaging materials in more than 50 countries around the world. The remuneration of the distribution and marketing activities performed Avery Dennison Chile S.A. had been determined to be at arm’s length by application of a “full range” analysis. Furthermore, surplus capital from the local company had been placed at the group’s financial centre in Luxembourg, Avery Management KGAA, at an interest rate of 0,79% (12-month Libor). According the tax authorities in Chile the remuneration of the local company had not been at arm’s length, and the interest rate paid by the related party in Luxembourg had been to low. Judgement of the Tax Tribunal The Tribunal decided in favour of Avery Dennison Chile S.A. “Hence, the Respondent [tax authorities] failed to prove its allegations that the marketing operations carried out by the taxpayer during the 2012 business year with related parties not domiciled or resident in Chile do not conform ... Read more
Hungary vs "Auto Parts Ktf", May 2020, Supreme Court (Kúria), Case No. Kfv.I. 35,618 / 2019/11

Hungary vs “Auto Parts Ktf”, May 2020, Supreme Court (Kúria), Case No. Kfv.I. 35,618 / 2019/11

Auto Parts Ktf’s principal activity is the manufacture and sale of passenger cars and spare parts. Between 1 January 2013 and 31 December 2014, it sold its products to its affiliated undertakings and to unrelated parties. Auto Parts Ktf had prepared transfer pricing documentation, in which it determined the arm’s length price using the transaction net margin method (TNMM). Auto Parts Ktf identified 9 comparable companies for 2013 based on a benchmark using the Amadeus database version of 17 April 2014, and based on the financial documents of these companies for 2010-2012, it defined the interquartile range of the normal price range as the market price range between 2.13% and 9.78%. For 2014, it did not update its benchmark, but fixed the minimum-maximum range as in 2013 and considered this as the market price range. For both years, the applicant examined the total operating profit of the manufacturing activity on a consolidated basis, which showed a profit of 2,22 % ... Read more
Sweden vs Absolut Company AB, June 2019, Supreme Administrative Court, Case no 1913-18

Sweden vs Absolut Company AB, June 2019, Supreme Administrative Court, Case no 1913-18

The Absolut Company AB had been issued an assessment of additional taxable income of SEK 247 mio. The assessment was based on the position that (1) The Absolut Company AB had been selling below the arm’s length price to an US group company – The Absolut Spirit Company Inc. (ASCI), and (2) that acquired distribution services from ASCI that had been priced above the arm’s length price. In 2018 the Swedish Administrative Court of Appeal ruled in favor of the tax administration. The Swedish Supreme Administrative Court has now ruled in favor of The Absolute Company AB. According to the Supreme Administrative Court the Swedish Tax Agency did not fulfill the burden of proof. The Supreme Administrative Court further states that the full range of results in the benchmark study could be applied and that a multiple year analysis of the tested party data can be used to support an arm’s length result. Click here for translation Sweden vs Absolut AB 2019 ... Read more
Hungary vs "Auto Parts Ktf", May 2019, Administrative Court, Case No. 1.K.27.084 / 2019

Hungary vs “Auto Parts Ktf”, May 2019, Administrative Court, Case No. 1.K.27.084 / 2019

Auto Parts Ktf’s principal activity is the manufacture and sale of passenger cars and spare parts. Between 1 January 2013 and 31 December 2014, it sold its products to its affiliated undertakings and to unrelated parties. Auto Parts Ktf had prepared transfer pricing documentation, in which it determined the arm’s length price using the transaction net margin method (TNMM). Auto Parts Ktf identified 9 comparable companies for 2013 based on a benchmark using the Amadeus database version of 17 April 2014, and based on the financial documents of these companies for 2010-2012, it defined the interquartile range of the normal price range as the market price range between 2.13% and 9.78%. For 2014, it did not update its benchmark, but fixed the minimum-maximum range as in 2013 and considered this as the market price range. For both years, the applicant examined the total operating profit of the manufacturing activity on a consolidated basis, which showed a profit of 2,22 % ... Read more
Italy vs BI S.r.l, November 2018, Tax Tribunal of Milano, Case no. 5445/3/2018

Italy vs BI S.r.l, November 2018, Tax Tribunal of Milano, Case no. 5445/3/2018

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
Portugal vs "Cork Portugal SA", May 2016, Collective Arbitration Tribunal, Case No 609/2015-T

Portugal vs “Cork Portugal SA”, May 2016, Collective Arbitration Tribunal, Case No 609/2015-T

“Cork Portugal SA” is engaged in the production and marketing of natural wine corks and is part of a Multinational group operating in the sector of closures for the wine industry. The Portuguese tax administration issued an adjustment of EUR 337,493.97 to the taxable income for 2010 on the basis that, its sales of cork to a related company in the US – via an Irish trading company B within the group – had not been at arm’s length. Portuguese provisions of Article 63(1) of the CIRC, provides “In commercial transactions […] carried out between a taxable person and any other entity, whether or not subject to IRC, with which he is in a situation of special relations, terms or conditions substantially identical to those that would normally be contracted, accepted and practised between independent entities in comparable transactions must be contracted, accepted and practised”. The adjustment was based on a benchmark study provided by the company. Net cost plus ... Read more