Tag: Legal status of TPG

Italy vs SKECHERS USA ITALIA SRL, January 2022, Supreme Court, Case No 02908/2022

Italy vs SKECHERS USA ITALIA SRL, January 2022, Supreme Court, Case No 02908/2022

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
Italy vs INTERVET PRODUCTIONS SRL, January 2021, Corte di Cassazione, Case No 22539/2021

Italy vs INTERVET PRODUCTIONS SRL, January 2021, Corte di Cassazione, Case No 22539/2021

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. Judgement 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
Australia vs Glencore, May 2021, High Court, Case No [2021] HCATrans 098

Australia vs Glencore, May 2021, High Court, Case No [2021] HCATrans 098

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. This application was dismissed by the Court in a judgement issued 20. May 2021. Click here for translation Australia vs Glencore 2021 ... Read more
South Africa vs ABC (PTY) LTD, January 2021, Tax Court of Johannesburg, Case No IT 14305

South Africa vs ABC (PTY) LTD, January 2021, Tax Court of Johannesburg, Case No IT 14305

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
El Salvador vs "E-S Cosmetics Corp", December 2020, Tax Court, Case R1701011.TM

El Salvador vs “E-S Cosmetics Corp”, December 2020, Tax Court, Case R1701011.TM

“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. Judgement 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
Australia vs Glencore, November 2020, Full Federal Court of Australia, Case No FCAFC 187

Australia vs Glencore, November 2020, Full Federal Court of Australia, Case No FCAFC 187

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
Poland vs "Blueberry Factory" Sp z.o.o., June 2018, Supreme Administrative Court, II FSK 1665/16

Poland vs “Blueberry Factory” Sp z.o.o., June 2018, Supreme Administrative Court, II FSK 1665/16

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
Costa Rica vs Corrugados del Guarco S.A., March 2018, Supreme Court, Case No 13-002632-1027-CA

Costa Rica vs Corrugados del Guarco S.A., March 2018, Supreme Court, Case No 13-002632-1027-CA

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. Judgement of the Supreme Court The Court dismissed the appeal of Corrugados del Guarco S.A. Excerpts from the Judgement “…Finally, and in relation to transfer pricing, on which the ... Read more
Spain vs McDonald's, March 2017, Spanish Tribunal Supremo, Case no 961-2017

Spain vs McDonald’s, March 2017, Spanish Tribunal Supremo, Case no 961-2017

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
Slovakia vs Coca-Cola s.r.o., April 2015, Supreme Court of the Slovak Republic No. 2Sžf/76/2014

Slovakia vs Coca-Cola s.r.o., April 2015, Supreme Court of the Slovak Republic No. 2Sžf/76/2014

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 sas issued by the tax authorities 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. In regards to MTC article 9 and application of the OECD Transfer pricing guidelines in Slovakia the Supreme Court stated: “… the ... Read more
Spain vs. ZERAIM IBÉRICA, SA, Oct. 2016, Spanish Supreme Court, Case no 4675-2016

Spain vs. ZERAIM IBÉRICA, SA, Oct. 2016, Spanish Supreme Court, Case no 4675-2016

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 Spain vs Zeraim 191016 Spanish Supreme Court 4675-2016 ... Read more
Sweden vs. taxpayer april 2016, Swedish Supreme Administrative Court, HFD 2016 ref. 23

Sweden vs. taxpayer april 2016, Swedish Supreme Administrative Court, HFD 2016 ref. 23

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 Sweden-vs-Corp-HFD-2016-ref.-23 ... Read more
Slovakia vs Ruhrgas Slovakia, April 2015, Supreme Court of the Slovak Republic No. 2Sžf/76/2014

Slovakia vs Ruhrgas Slovakia, April 2015, Supreme Court of the Slovak Republic No. 2Sžf/76/2014

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
Costa Rica vs Polymer S. A., June 2012, Supreme Court, Case No 11-010227-0007-CO

Costa Rica vs Polymer S. A., June 2012, Supreme Court, Case No 11-010227-0007-CO

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. Judgement of the Supreme Court The Court dismissed the appeal of Polymer S.A. Excerpts from the Judgement “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
Costa Rica vs Nestlé, April 2012, Supreme Court, Case No 10-017768-0007-CO Res. Nº 2012004940

Costa Rica vs Nestlé, April 2012, Supreme Court, Case No 10-017768-0007-CO Res. Nº 2012004940

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. Judgement 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
Czech Republic vs. B.p., s.r.o., June 2007, Supreme Administrative Court , Case No 8 Afs 152/2005 – 72

Czech Republic vs. B.p., s.r.o., June 2007, Supreme Administrative Court , Case No 8 Afs 152/2005 – 72

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