The transaction involved Coffee Exporters Limited, a Tanzanian company which, between 2009 and 2011, received cash advances from Taggart S.A., a Swiss company, to facilitate coffee procurement. The company treated the advances as liabilities rather than sales income unless coffee was delivered. The tax authorities accepted that Coffee Exporters Limited was neither a domestic nor a foreign permanent establishment, and that the advances were not taxable sales. However, they treated the dealings as controlled transactions, determining that the parties were associates under section 3(d) of the Tanzanian Income Tax Act. They also applied transfer pricing adjustments under section 33(2) and disallowed foreign exchange losses. Coffee Exporters Limited challenged the assessments before the Tax Revenue Appeals Board and the Tribunal, arguing that there was no associate relationship between the parties, that OECD concepts should apply and that the disallowance of foreign exchange losses was incorrect. Coffee Exporters Limited also argued that the 2009 assessment was time barred. The Board only allowed ... Read more

In 2013 an intra-group restructuring took place involving the transfer of trademark rights developed by an operating company to a related entity within the same corporate group. Following this transfer, the entity now holding the trademarks licensed them back to the operating company, which paid royalties and deducted them for income tax purposes. The entity holding the trademarks amortised the acquired intellectual property. Following an audit the tax authorities concluded that the licensing structure did not reflect arm’s length conditions. Relying on transfer pricing provisions, they argued that the trademark-holding entity did not perform any meaningful DEMPE functions or bear any significant economic risk. Based on this, the authorities went beyond a price adjustment and effectively reclassified the transaction by denying the deductibility of royalty payments and disallowing amortisation of the trademarks. The taxpayer challenged the assessment, arguing that, under the applicable transfer pricing provisions at the time, the authorities were only empowered to adjust prices and could not disregard ... Read more

The transaction concerned intra-group transactions carried out by a Greek company whose main activity was the wholesale of motor vehicles. In addition to wholesale activities, the company also engaged in retail sales of vehicles and parts, as well as providing limited repair services. For the 2010 and 2011 financial years, the company documented its transfer pricing using a TNMM and a set of comparable companies, declaring losses for 2010 which were carried forward to 2011. The tax authorities rejected parts of the transfer pricing documentation, excluded comparable companies that carried out both wholesale and retail activities, and adjusted the results to the median of the arm’s length range. Based on this, they converted the declared loss for 2010 into taxable profits, disallowed the loss carry forward to 2011 and imposed additional income tax and penalties. The company challenged these decisions in the Administrative Court of Appeal in Athens. It argued that the exclusion of comparable companies was unjustified, that limited ... Read more

XZ España SA, a Spanish subsidiary of a multinational consumer goods group, underwent a corporate income tax audit for the 2015–17 financial years. The controlled transactions included intra-group loans, participation in cross-border and domestic cash pooling arrangements, and the provision of contract manufacturing services to related entities. For manufacturing activities, the group applied the TNMM with EBIT over total costs as the profit level indicator, supported by a benchmarking study. While the tax authorities accepted the method and profit indicator used for manufacturing services, they rejected part of the comparable set used by the taxpayer and recalculated the interquartile range. Based on this, they concluded that the taxpayer’s profitability fell outside the arm’s length range and adjusted the margin to the median. Adjustments were also made in relation to intra-group loans and cash pooling. These included the use of the group credit rating, the rejection of country risk adjustments, the substitution of Euribor with Eonia, and the requirement for symmetrical ... Read more

The transaction concerned management services provided by CCB Management Services GmbH & Co KG, an Austrian group company, to Coca-Cola HBC under a long-term management services agreement in 2004. Coca-Cola HBC deducted the invoiced management fees as tax expenses and reported a tax loss for the 2004 corporate income tax period. However, the tax authorities concluded that a substantial portion of the management service costs were not tax-deductible. They treated the Austrian service provider as a related party, ruling that the pricing and allocation of services did not comply with the arm’s length principle under the Income Tax Act and Article 9 of the Austria-Slovakia tax treaty. Based on this, they made transfer pricing adjustment, increased the tax base and reduced the reported tax loss. They also took the view that applying the tax treaty allowed a longer limitation period for assessing tax. Coca-Cola HBC challenged the decision, arguing that the right to assess tax had expired under the five-year ... Read more

Piaggio S.A. was a Greek wholesaler of motorcycles, mopeds, parts, and accessories. In 2008, the company generated gross revenue of €63.63 million and net profit of €878,666, while purchases from related parties, such as Piaggio and Moto Guzzi, totalled €57.99 million. In order to support the pricing of its controlled transactions, the company filed a benchmark study with eight foreign comparables and a tested operating margin of 1.78 per cent, which it claimed fell within an interquartile range of 0.92 to 3.96 per cent. Following an audit, the tax authorities removed two comparables for being uncomparable in size, recalculating the range to 0.78–7.16 per cent, with the first quartile at 1.81 per cent and the median at 3.81 per cent. They then raised the income by moving the tested result to the median and added a penalty for non-compliance. Piaggio S.A. filed an appeal, which was dismissed by the lower court, and an appeal was then filed with the Supreme ... Read more

In these three combined cases, the tax authorities had increased “A-TM Licensor Sp. z o. o.”’s tax base by disallowing some of the royalty payments made to related parties for the “A” trademark, deeming them excessive. They reclassified the licensing agreements with the related party as service contracts for trademark administration and applied the transactional net margin method. “A-TM Licensor Sp. z o. o.” argued that the decision was unlawful and that the claim was time-barred. They also claimed that the regulation on transfer pricing methods lacked a proper statutory basis. The first-instance court dismissed the complaint, agreeing with the tax authorities that the transactions with related parties did not reflect arm’s length conditions, that the licensees only performed formal legal functions and that “A-TM Licensor Sp. z o. o.” remained the economic owner of the trademark. The court also held that the suspension of the limitation period due to the initiation of criminal fiscal proceedings was valid and not ... Read more

The transaction involved L. Sp. z o.o., a Polish operating company belonging to the L. Capital Group, and related group entities that successively became the formal legal owners of the ‘L.’ trademark following a series of steps within the group in 2014. These steps included a contribution in kind of the trademark, its sale, the subsequent transformation of the acquiring company into a partnership and its subsequent liquidation. From September 2015 to August 2016, L. sp. z o.o. paid licence fees to the related entity B. sp. z o.o. sp.j. for use of the trademark, deducting these fees as tax-deductible costs. The tax authorities took the position that the licence fees did not reflect arm’s length conditions within the meaning of Article 11 of the Corporate Income Tax Act, as it was in force at the time. Based on a functional analysis, the authorities concluded that the licensor entity performed only administrative and legal protection functions in relation to the ... Read more

Ilapark Italia SpA is an Italian manufacturing company that produces packaging machines. Other companies within the group were responsible for distribution and sales of the machines. Following an audit, the Italian tax authorities issued an assessment for FY 2008, where they had set aside the CUP method applied by the company and instead used the Transactional Net Margin Method (TNMM). An appeal was filed where Ilapark Italia SpA argued that the CUP method was preferable over the TNMM according to the 2010 TPG. The lower courts upheld the tax authorities’ assessment and an appeal was then filed by Ilapark Italia SpA with the Supreme Court. Judgment The Supreme Court dismissed the appeal in regards of the transfer pricing issue. According to the Court the OECD Guidelines provide guidance rather than enforceable rules. The Guidelines offer operational strategies for implementing transfer pricing but are not part of Italy’s legal hierarchy. In the case at hand, the Court found that the TNMM ... Read more

The transaction concerned IKEA Industry Slovakia s. r. o.’s corporate income tax for the 2010–11 period, when the company was operating within the Swedwood group. The company acted as a contract manufacturer, producing furniture and veneer which it mainly sold to related parties within the group based overseas. The tax audit primarily focused on the transfer prices applied to the sale of finished products to related companies, while also reviewing management services, intra-group loans, foreign exchange transactions and material purchases. The decisive adjustment arose from the pricing of products manufactured and sold to related parties, for which the company reported an overall loss. The tax authorities concluded that the prices applied to sales of finished products to related parties did not comply with the arm’s length principle. Having rejected the comparable uncontrolled price method due to insufficient comparability of the products and conditions, they applied a cost-plus-based approach using the net margin method instead. A benchmarking study based on the ... Read more

“Eswatini Distributor Ltd. is a wholly owned subsidiary of a South African multinational. It had paid its South African parent for various intra-group services – management fees – and deducted these payments from its taxable income. According to Eswatini Distributor Ltd, these costs were legitimately claimed and provided and invoiced by its parent company on arm’s length terms. Following an audit, the tax authorities disallowed part of the tax deduction for the payments and issued an assessment. The main reasons for the assessment were that there was no evidence that the costs had actually been incurred some of the costs were duplicative in nature, and some fell into the category of shareholder activity, and finally that Distributor Ltd. used inappropriate allocation keys for some of the fees. The tax authorities also claimed that the payments constituted tax avoidance and were therefore disallowed under the anti-avoidance provisions (Section 65 of the ITO). Dissatisfied with the assessment, Eswatini Distributor Ltd. filed an ... Read more

Marelli Slovakia’s main business is the manufacture of automotive engine and transmission components and that its main products are throttle bodies, throttle position sensors and high-pressure fuel pumps. The parent company is Magneti Marelli S.p.A., Italy, which owns 100 % of the shares of the company, and the parent company of the entire group is Fiat S.p.A. In an audit of corporate income taxes for FY 2012 the tax authorities compared the resale price method, the cost plus method and the net margin method, and stated the reasons why it had chosen the net margin method as the most appropriate method for assessing the arm’s length pricing of the controlled transactions relating to the intra-group sale of Marelli Slovakia’s products. In comparing the terms and conditions agreed in the commercial relationships, it took into account the activities carried out by Marelli Slovakia in production, purchasing and sales, as well as the extent of the business risks, the contractual terms and ... Read more

The Irish tax authorities considered that the cost of employee share options (stock-based compensation) should have been included in the cost basis when determining the remuneration of “Service Ltd” for services provided to its US parent company and issued an assessment of additional taxable income for FY2015 – FY2018. Service Ltd lodged an appeal with the Tax Appeals Commission. Decision The Tax Appeals Commission ruled in favour of “Service Ltd” and overturned the tax authorities’ assessment. Excerpts “271.The Commissioner notes that the nature of the comparability analysis performed for purposes of applying the TNMM necessitates comparing “like with like”. Paragraph 1.6 of the OECD Guidelines refers to the comparability analysis as “an analysis of the controlled and uncontrolled transactions”. The Commissioner notes paragraph 1.36 of the OECD Guidelines provides that: “…in making these comparisons, material differences between the compared transactions or enterprises should be taken into account. In order to establish the degree of actual comparability and then to make ... Read more

The Costa Rican tax authority carried out a transfer pricing audit of Philip Morris Costa Rica S.A. in relation to corporate income tax for the 2013 and 2014 fiscal years. The audit focused on manufacturing and commercial transactions with related parties, analysed under the transactional net margin method. Following the audit an assessment, which increased the company’s taxable income, together with penalties was issued. Despite the declaration of unconstitutionality of Article 144 of the Code of Tax Rules and Procedures in 2016, the tax authority argued that the transfer pricing audit and subsequent assessment were valid. The State claimed that, once the Constitutional Chamber had annulled Article 144 as amended by Law 9069, the previous version of the provision had automatically been reinstated, enabling the administration to resume the audit and continue with the transfer pricing determination without restarting the procedure. The authority maintained that the transfer pricing analysis itself was unaffected by the constitutional ruling and that no violation ... Read more

A Swiss company, A AG, paid two related parties, B AG and C AG, for services in the financial years 2015 and 2016. These services had been priced using the internal CUP method based on the pricing of services provided by B Ltd to unrelated parties. Following an audit, the tax authorities concluded that the payments made by A AG for the intra-group services were above the arm’s length price and issued a notice of assessment where the price was instead determined using the cost-plus method. According to the tax authorities, the CUP method could not be applied due to a lack of reliable data. Following an appeal the court of first instance ruled mostly in favor of the tax authorities. A AG then appealed to the Federal Administrative Court. Decision of the Court The Federal Administrative Court ruled in favour of A AG. According to the Court, the CUP method is preferred to other methods and other transfer pricing ... Read more

In 2010, E S.A. transferred the legal ownership of a trademark to subsidiary S and subsequently entered into an agreement with S for the “licensing of the use of the trademarks”. In 2013, the same trademark was transferred back to E. S.A. As a result of these transactions, E. S.A., between 2010 and 2013, recognised the licence fees paid to S as tax costs, and then, as a result of the re-purchase of those trademarks in 2013 – it again made depreciation write-offs on them, recognising them as tax costs. The tax authority found that E S.A. had reported income lower than what would have been reported had the relationships not existed. E S.A. had  overestimated the tax deductible costs by PLN […] for the depreciation of trademarks, which is a consequence of the overestimation for tax purposes of the initial value of the trademarks repurchased from S – 27 December 2013 – by the amount of PLN […]. The ... Read more

The main activity of Promet Stiel EAD was the production of hot rolled pig iron from ordinary and special steels and the company was part of METINVEST, an international group in the steel and mining sector. Following an audit, the tax authorities identified various transfer pricing issues and issued an assessment of additional taxable income. Not satisfied with the assessment, Promet filed an appeal with the Administrative Court, which later ruled in favour of Promet. In its decision, the Court stated that the OECD Transfer Pricing Guidelines were inapplicable and had no legal effect in Bulgaria. The tax authorities then appealed to the Supreme Administrative Court. Judgment of the Supreme Administrative Court The Supreme Administrative Court upheld the decision of the Administrative Court as regards the annulment of the assessment of additional taxable income, but concluded as follows as regards the legal status of the OECD Transfer Pricing Guidelines “The conclusions of the AC – Burgas [Administrative Court] on the ... Read more

The case concerned a Polish taxpayer who was a partner in two related limited partnerships, one operating company and one brand company. The operating company had developed and registered trademarks and industrial designs used in its retail business. Through intra group restructuring, ownership of these intangibles was transferred to the brand company, which then licensed them back to the operating company in return for substantial annual royalties. As a result, the brand company claimed amortisation deductions on the acquired intangibles, while the operating company deducted the royalty payments as business expenses. Following a audit for FY 2016, the tax authorities challenged this structure. They concluded that the arrangement did not meet the arm’s length standard, relied on functional arguments resembling DEMPE analysis, and took the view that independent parties would not have entered into comparable transactions. On that basis, the authorities effectively recharacterising the licensing arrangement, reduced the royalty income, denied amortisation of the trademarks, and disallowed the corresponding royalty ... Read more

A. S.R.L. was issued with a notice of additional taxable income based on an audit of the pricing of the company’s controlled transactions. Among other things, the tax authority had found that the company had claimed to have achieved a profitability rate of 10% on the sale of finished products to the related company B., when in fact this was not the case. If the profitability had been 10%, corporate income tax of RON 3,840,000 would have been paid, but A. S.R.L. only paid RON 188,302 in tax. In the assessment, the tax authority had applied the TNMM using the median of the ROTC indicator for comparable independent companies and, on this basis, determined additional income for the period 2012-2016. An appeal was lodged which went to the High Court. Judgment of the Court The Court dismissed the appeal and found largely in favour of the tax authorities. Excerpt (In English) “As stated in Art. 3.43 of the OECD Guidelines ... Read more

“H. LVAS Sp. z oo” had deducted expenses related to intra-group services in its taxable income. The services had been provided by its German parent company, H. GmbH. The services (supervision and management support, coordination of projects, support in accounting, controlling, IT and personnel) had been classified by the group as low value-added services. Following a inspection, the tax authority issued an assessment where these deductions had been denied resulting in additional taxable income. An appeal was filed by H with the Administrative Court. Judgment of the Administrative Court The Court found that the assessment issued by the tax authorities was incorrect and remanded the case for further considerations. Excerpts “Inaccuracies or incompleteness of documentation, and in particular its absence, may result in the necessity to estimate income (cf. the judgments of the Supreme Administrative Court of 22 October 2014, II FSK 2494/12 and of 7 February 2018, II FSK 3644/15). The court notes that the company – as is ... Read more

In this case “A. Median S.R.L.” had appealed a decision of the court of first instance where the income had been determined to the median value. According to the company the median is not the only value corresponding to the market value, when both the lower limit and the upper limit of the range of comparison in turn reflect the market value of the goods or services supplied. The provisions of Article 2.7 of the Guidelines were relied on in that regard. “…the assessment must be made in a manner which does not contravene Article 2.7 of the OECD Guidelines, that is to say, does not lead to overtaxation. However, given that the court of first instance assumed that the only value which may be taken into account in determining the transfer price is the median value, any other value within the margin established is excluded, which is contrary to the Tax Code and the OECD Guidelines.” The Tax authorities ... Read more

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 based on the resale price minus method. 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, and on that basis an assessment was issued. A complaint was filed by Avery Dennison with the Tax Tribunal and in March 2021 the Tribunal issued a decision in favour of Avery Dennison Chile S.A. “Hence, the Respondent [tax authorities] failed to prove its ... Read more

Pandox AB is the parent company of a hotel group active in northern Europe. Pandox AB’s business concept is to acquire hotel property companies with associated external operators running hotel operations. Pandox AB acquires both individual companies and larger portfolios, both in Sweden and abroad. Within the group, the segment is called Property Management. Pandox AB’s main income consists of dividends from the Property Management companies (PM companies), interest income from intra-group loans and compensation for various types of administrative services that Pandox AB provides to the Swedish and foreign PM companies. These services include strategic management, communication, general back-office functions and treasury. The PM companies’ income consists of rental income from the external hotel operators. Following an audit for FY 2013-2017 the Swedish tax authorities found that the affiliated property management entities were only entitled to a risk-free return and that the residual profit should be allocated to the Swedish parent. The tax authorities argued that Pandox AB had ... Read more

Skechers USA ITALIA SRL – a company operating in the sector of the marketing of footwear and accessories – challenged a notice of assessment, relating to FY 2004, by which, at the outcome of a tax audit, its business income was adjusted as a result of the ascertained inconsistency of the transfer prices relating to purchases of goods from the parent company (and sole shareholder) resident in Switzerland. The tax authorities had contested the uneconomic nature of the taxpayer company’s operations, given the losses recognised in various financial years, attributing the uneconomic nature to the artificial manipulation of the transfer prices of the purchases of goods and recalculating, consequently, the negative income component constituted by the aforesaid costs pursuant to Article 110, paragraph 7 of the TUIR, with the consequent non-deductibility of the same to the extent exceeding the normal value of the price of the goods in question. Skechers held that the losses did not derive from the costs ... Read more

Intervet Productions SRL, a company resident in Italy, manufactures veterinary medicines and supplements. The Italian tax authorities issued a notice of assessment, relating to the 2004 tax year. In that notice, the tax authorities ascertained the inconsistency of the transfer prices concerning the sale of certain goods to a related party in Germany. For the determination of the transfer prices, the taxpayer had used two methods: the resale price method, for products subject to mere marketing, and the cost-plus method, for products subject to further processing by Intervet. The tax authorities had used the CUP method for the purpose of the adjustment. Intervet appealed against the assessment, contesting the comparability of the products compared by the tax authorities but lost in the proceedings on the merits An appeal was then filed with the Supreme Administrative Court. Judgment of the Supreme Administrative Court The Court set aside the assessment. The Court stated that the tax authorities has to prove that the ... Read more

Glencore Australia (CMPL) sold copper concentrate produced in Australia to its Swiss parent, Glencore International AG (GIAG). The tax authorities found, that the price paid by Glencore International AG to Glencore Australia for the copper concentrate in the relevant years according to a price sharing agreement was less than the price that might reasonably be expected to have been paid in an arm’s length dealing between independent parties. The tax assessment was brought to court by Glencore. The Federal Court of Australia found in favor of Glencore. The ruling of the Federal Court was appealed by the Australian tax authorities. On 6 November 2020, a Full Federal Court in a 3-0 ruling dismissed the appeal of the tax authorities. The tax authorities then submitted a application for special leave to the High Court. Judgment This application was dismissed by the Court in a judgment issued 20. May 2021. Click here for translation ... Read more

Reybanano del Pacifico C.A. alleges infringement of the right to legal certainty (Art. 82 of the Constitution) since, in the contested judgment, the National Court indicated that the OECD guidelines should be used. However, according to Reybanano del Pacifico C.A. the OECD Guidelines were not part of the Ecuadorian legal system in the tax year 2006, the year of the tax dispute. Therefore, they could not be considered as non-applied rules since they do not come, “[…] from any source contemplated in the Constitution […] to form part of the legal system in the 2006 tax year, in such a way that the normative certainty that protects the right to legal certainty has been violated”. Judgment of the Court The Constitutional Court dismissed the appeal of Reybanano del Pacifico C.A. and confirmed the validity and legitimacy of the decision issued by the National Court. Excerpt in English “34. In turn, the Chamber analysed the content of the OECD guidelines (1.37, ... Read more

ABC Ltd is in the business of manufacturing, importing, and selling chemical products. It has a catalyst division that is focused on manufacturing and selling catalytic converters (catalysts) which is used in the abatement of harmful exhaust emissions from motor vehicles. To produce the catalysts, applicant requires, inter alia, some metals known as the Precious Group of Metals (PGMs). It purchases the PGMs from a Swiss entity (“the Swiss Entity”). The PGMs are liquified and mixed with other chemicals to create coating for substrates, all being part of the manufacturing process. Once the manufacturing is complete, the catalysts are sold to customers in South Africa known as the original equipment manufacturers (OEMs). ABC Ltd and the Swiss Entity are connected parties as defined in section 1 of the ITA. Following an audit carried out in 2014 the revenue service issued an assessment for FY 2011 by an amount of R114 157 077. According to the revenue service the prices paid ... Read more

“Cosmetics Corp” is active in wholesale of medicinal products, cosmetics, perfumery and cleaning products. Following an audit the tax authorities issued an assessment regarding the interest rate on loans granted to the related parties domiciled in Cayman Islands and Luxembourg. An appeal was filed by the company. Judgment of the Tax Court The court partially upheld the assessment. Excerpt “In this sense, it is essential to create a law that contains the guidelines that the OECD has established to guarantee the principle of full competition in transactions carried out between national taxpayers with related companies, for the purpose of applying the technical methods and procedures that they provide; The express reference made by Article 62-A of the TC cannot be considered as a dimension of the principle of relative legal reserve, insofar as there is no full development of the methods or procedures contained therein, nor a reference to an infra-legal rule containing them, but rather a reference that does ... Read more

Following an audit the tax authorities issued an assessment regarding various intra group costs of sales deducted for tax purposes by “E-S. Sales Corp”. An appeal was filed by the company. Judgment of the Tax Court The court partially upheld the assessment, but in regards of application of the OECD Transfer Pricing Guidelines, the assessment was set aside. For the years in question the OECD guidelines had not yet been implemented by El Salvador. Excerpt “In this regard, it should be noted that the seventh paragraph of the aforementioned article provides that “””If, for any reason, the market price cannot be determined, the Tax Administration shall establish it by adopting the price or the amount of the consideration that the taxpayer under audit has received from purchasers of goods or providers of unrelated services other than those to whom it transferred goods or provided services at a price lower or higher than the market price”””. Therefore, if it had been ... Read more

Glencore Australia (CMPL) sold copper concentrate produced in Australia to its Swiss parent, Glencore International AG (GIAG). The tax administration found, that the price paid by Glencore International AG to Glencore Australia for the copper concentrate in the relevant years according to a price sharing agreement was less than the price that might reasonably be expected to have been paid in an arm’s length dealing between independent parties. ‘The amended assessments included in the taxpayer’s assessable income additional amounts of $49,156,382 (2007), $83,228,784 (2008) and $108,675,756 (2009) referable to the consideration which the Commissioner considered would constitute an arm’s length payment for the copper concentrate sold to Glencore International AG in each of the relevant years. The Federal Court of Australia found in favor of Glencore. “Accordingly I find that the taxpayer has established that the prices that CMPL was paid by GIAG for the copper concentrate it supplied to GIAG under the February 2007 Agreement were within an arm’s ... Read more

“HDP Lux SA acquired a building in France and financed the acquisition with a shareholder loan at an interest rate of 12%. The tax authorities issued a tax assessment for FY 2011 and 2012 in which the market interest rate was set at 3.57% and 2.52% respectively and the excess payments were considered as hidden distribution of profit on which withholding tax was applied. Decision of the Administrative Court The court upheld the tax authorities adjustment of the interest paid on the loan and the qualification of the excess payment as a hidden distribution of profits subject to a withholding tax of 15%. In addition, the court held that the OECD Guidelines could not influence the interpretation of the provision on hidden profit distributions, as the domestic provision had been adopted long before the OECD Guidelines, while at the same time recognising that the OECD Guidelines could be used as an “element of appreciation”. Click here for English translation Click ... Read more

In this case there were family, capital and personal ties between the Blueberry Factory and its shareholders, and the terms and conditions of the Company’s transactions with its shareholders (purchase of blueberry fruit) had not been at arm’s length. The higher prices paid by the Blueberry Farm benefited the shareholders (suppliers), who thus generated higher income from their agricultural activities, not subject to income tax. The company generated only losses in the years 2011 – 2013. According to the Polish tax authorities, the Blueberry Farm purchased blueberry fruit at excessive prices and thus overstated its tax-deductible expenses by PLN 347,845.48. The excessive prices (relative to market prices) increased the income of its shareholders (agricultural producers), whose income was not subject to personal income tax as being derived from agricultural activities. The tax authorities applied the provisions of Art. 11.1, Par. 2.2 of the Corporate Income Tax Act of February 15th 1992, as the gross margin earned by the Blueberry Factory ... Read more

Corrugados del Guarco S.A. had declared losses on controlled transactions for FY 2003, 2004 and 2005 as export prices for these transactions had been set below cost and without profit margin, and also different from the price charged for that product to other independent or unrelated companies, in favour of its related company Envases Nicaragüenses S.A. According to the Corrugados del Guarco S.A. the reason why the prices of these controlled transactions had been set low was that unfair competition had made it necessary to use a commercial strategy of selling at preferential prices to the group company in Nicaragua. The tax authorities issued an assessment whereby the prices of the controlled transactions were adjusted in accordance with the arm’s length principle. Furthermore a fine was issued to the company for gross negligence. Judgment of the Supreme Court The Court dismissed the appeal of Corrugados del Guarco S.A. Excerpts from the Judgment “…Finally, and in relation to transfer pricing, on which the ... Read more

An adjustments had been made by the tax authorities to a series of loans granted by GOLDEN ARCHES OF SPAIN SA (GAOS), domiciled in Ireland, to RESTAURANTES MC DONALDS, S.A. (RMSA), throughout the period 2000/2004 for amounts ranging between 10,000,000 and 86,650,000 €, at interest rates between 3,450% and 6,020%. The tax administration held that GAOS “has no structure or means to grant the loan and monitor compliance with its conditions … it does not have its own funds to lend, it receives them from other companies in the group”. The Administration refers to a loan received by GAOS from the parent company at a rate of 0%, which is paid in advance to receive another with an interest rate of 3.3%. The Administration indicates that “nobody, under normal market conditions, cancels a loan to constitute another one under clearly worse conditions”. The arm’s length interest rate was determined by reference to the interest rate RMSA would have paid to ... Read more

At issue was deductions of management fees paid by a Coca-Cola s.r.o. – a Slovakian subsidiary of the Coca-Cola group – to Coca Cola Management Services GmbH & Co. AG. in Switzerland. The assessment issued by the tax authorities was based on the OECD Guidelines on Transfer Pricing for Multinational Enterprises and Tax Administration, which according to the tax authorities was a generally accepted supplementary interpretative tool to Art. 9 of the Treaty on the avoidance of double taxation within the meaning of the Vienna Convention on contract law. Documents and information submitted in the course of a tax inspection showed that in addition to the fee for the provision of management services, Coca-Cola s.r.o. also paid for the provision of employment services and IT services. In total, payments for provision of services in 2005 was € 1,463,385.46. Judgment of the Supreme Court In regards to MTC article 9 and application of the OECD Transfer pricing guidelines in Slovakia the ... Read more

The Court of Justice concluded that the tax authority had acted correctly when, in the course of a tax inspection, it adjusted the tax base on the basis of the transfer pricing documentation submitted by the taxpayer, even though the taxpayer subsequently requested that the entire case be re-examined after it had ascertained the tax consequences of the primary and secondary adjustments. The tax authority was also correct in following the comparability analysis and the taxable person’s proposal and in adopting the contested decision on that basis. “30. In its observations on the record, in the appeal and in the application, the applicant complains that the contested decision is not adequately reasoned and that the Appellate Body also failed to address the appellant’s objections in relation to transfer pricing. The reasons given by the appellate authority are indeed deficient in the light of the appellant’s objections, but, in the Court’s view, do not constitute a substantive breach of the procedural ... Read more

In this case ZERAIM IBÉRICA SA argues that the OECD Transfer Pricing Guidelines has not been applied propperly, as secret comparables have been used in determining the arm’s length price of controlled transactions between the Spanish company and its Dutch parent company. The court concludes that the “..Guidelines are considered to be merely recommendations to States, which are given an interpretative value.” The appeal filed by the company is dismissed by the court. Click here for other translation ... Read more

The Administrative Court held that the facts of the case were correctly established and that, on the basis of Article 16 of the ZDDPO-2, the expenditure was not tax deductible in the period under consideration. The Court also clarified that the provisions of the ZDDPO-2 and the PTC undisputedly follow the OECD Guidelines (the same is also the case of the Supreme Court of the Republic of Slovenia in its judgment X Ips 452/2014 of 25.08.2016).The Court also held that the provisions of the ZDDPO-2 and the PTC undisputedly follow the OECD guidelines. Click here for English translation Click here for other translation ... Read more

In this case the Slovenian Supreme Court explains that a legal act created by an international organisation can be directly applicable in a Member State only if the Member State has transferred part of its sovereign rights to the organisation, which the Republic of Slovenia has not done by ratifying the OECD Convention. The OECD Guidelines themselves are therefore not directly binding on the Member State, which is already clear from the OECD’s internal acts (Article 18 of the Rules of Procedure of the OECD). It concludes that the mere existence of marketing costs does not mean that they are incurred as a result of the implementation of a business strategy. That link is possible if its substance is demonstrated. It is not possible to determine which costs are causally linked to the implementation of a business strategy if it is not clear what is included in the business strategy in the first place. It is only when an activity ... Read more

The Swedish Supreme Administrative Court makes it clear that OECD guidelines can be used for interpreting Swedish domestic legislation in cases where the domestic legislation is based on OECD guidance and principles. It is also concluded, that the fact that an agreement is given a certain legal term does not mean that the Court is bound by that classification. It is the substance of the agreement – based on the facts and circumstances – that matters. Click here for translation ... Read more

At issue was the concept of beneficial ownership of income flowing to non-residents from sources in the Slovak Republic. The application of this concept was questionable in a situation where the relevant international treaty did not require the non-resident to be the “beneficial” owner of the source of income. In assessing the transaction under examination, the Financial Report referred to the application of the concept of beneficial ownership of income, through the Commentary on the OECD Model Agreement (“Commentary”). The Supreme Court states that from the perspective of international law, the rules stated in the commentary are not legally binding but are adopted with the purpose of achieving the practical effect and can be transformed to legally binding if applied within the national system by the tax authorities and courts. From the perspective of national law, the OECD commentaries do not exist as standards and can only influence the interpretation of international treaties. Under the circumstances where the legal norm ... Read more

McKesson is a multinational group engaged in the wholesale distribution of pharmaceuticals. Its Canadian subsidiary, McKesson Canada, entered into a factoring agreement in 2002 with its ultimate parent, McKesson International Holdings III Sarl in Luxembourg. Under the terms of the agreement, McKesson International Holdings III Sarl agreed to purchase the receivables for approximately C$460 million and committed to purchase all eligible receivables as they arise for the next five years. The receivables were priced at a discount of 2.206% to face value. The funds to purchase the accounts receivable were borrowed in Canadian dollars from an indirect parent company of McKesson International Holdings III Sarl in Ireland and guaranteed by another indirect parent company in Luxembourg. At the time the factoring agreement was entered into, McKesson Canada had sales of $3 billion and profits of $40 million, credit facilities with major financial institutions in the hundreds of millions of dollars, a large credit department that collected receivables within 30 days ... Read more

A restructuring contract dated 16 June 2003 was entered between NORTEL NETWORKS LIMITED and CODISCO INVESTMENTS LLC and promissory notes were issued by OPERADORA UNEFÓN, S.A. de C.V. Following an audit, an assessment was issued by the tax authorities, where the transaction was recharacterised and priced on an aggregatet basis taking into account the totality of the arrangement. Judgment of the Court The court upheld the assessment. According to the court, when the tax authorities carries out an audit of transactions between related parties, it must do so based on the structure and contractual agreements as determined by the associated enterprises. However, the general rule provides for two exceptions where the tax authorities may disregard the form and recharacterise the transactions for tax purposes. The first exception occurs when the economic substance of the transaction differs from its form. The second exception occurs when, although the form and substance of the transaction coincide, the arrangements relating to the transaction, taken ... Read more

Polymer S.A. had been issued an assessment of taxable income based on the arm’s length principle. In the assessment the tax authorities had based the adjustment on the guidance provided in the OECD TPG. Polymer S.A. was of the opinion that this was unconstitutional since the OECD TPG had not been implemented by law and Costa Rica was not an OECD member country. Judgment of the Supreme Court The Court dismissed the appeal of Polymer S.A. Excerpts from the Judgment “The contested Guideline does not establish or impose a single method of transfer pricing analysis, so that, in the absence of a law, the autonomy of tax law allows for the determination of the tax payable to resort to the provisions of Articles 8 and 12 of the Code of Tax Rules and Procedures, without prejudice to the possibility that other – better – techniques may be admitted. What is important is that the contested Interpretative Guideline does not aim ... Read more

In an appeal to the Supreme Court in Costa Rica, Nestlé claimed that the basis for an arm’s length adjustment was unconstitutional, since the arms length principle as described in the OECD transfer pricing guidelines had not been incorporated into the laws of Costa Rica. Judgment of the Supreme Court The Court dismissed the appeal of Nestlé. “The contested Guideline does not establish or impose a single method of transfer pricing analysis, so that, in the absence of a law, the autonomy of tax law allows for the determination of the tax payable to resort to the provisions of Articles 8 and 12 of the Code of Tax Rules and Procedures, without prejudice to the possibility of admitting “other -better- techniques”. What is important is that the contested Interpretative Guideline does not aim to eliminate other multiple scenarios arising from different forms of company organisation, but is directed at transfer pricing between related companies. Even if the legislator may adopt ... Read more

The Court of First Instance found no merit in the argument that the tax authority should have compared the price at issue with the prices obtained in the liquidation procedure, since the “Inventory-Corp” was not in the liquidation procedure. The three bidders relied on by “Inventory-Corp” do not provide a sufficiently reliable basis for the decision in view of the fact that the applicant did not sell any of its stock to any of them without explanation and the fact that it sold part of its stock to another, unrelated party at cost. In finding the value of the stock to be the amount of the transfer prices, the tax authority in fact decided in favour of “Inventory-Corp”, since the said value of the stock did not contain any mark-up. Judgment of the Court The Supreme court explained that, although Slovenian legislation in force at the time did not specifically provided for the methods of determining transfer market comparable prices, ... Read more

The subject-matter of the dispute was the exclusion of the rent for lease of machinery and equipment. It referred to the lease and sublease agreements for non-residential premises, machinery and equipment with the companies B.p., s.r.o. and M.-T., s.r.o., by which the parties agreed that the objects of the lease agreements would be used free of charge for a certain period of time – during the trial period. Bp s.r.o. disputed the use of transfer prices in accordance with the arm’s length principle and the question of the tenant’s payment behaviour. It argued economic aspects – the possibility of making a real profit over a longer period of time. According to the taxpayer the tax authority should have examined the possibility of obtaining a total profit for the taxpayer over a five-year period and not simply applied ‘the most ideal course of market economics (i.e. the business partners are always solvent and the market situation is optimal)’. It also supplemented ... Read more