In 2016, Mr. R.S. held 99 per cent of the shares in T. sp. z o.o., and was also the sole member of its management board. Alongside his corporate role, R.S. ran an individual business and, on 31 October 2013, concluded a contract for management consulting services with the company, for which he issued invoices. The company deducted input VAT on these invoices, classifying the services as distinct from R.S.’s management functions. However, the tax authorities denied the VAT deduction for the period from January to December 2016. They concluded that the invoices did not document actual consulting services, and that the company had failed to prove that any services had been performed outside of R.S.’s duties as managing director and owner. They noted the absence of reports or other material outputs required by the contract, as well as inconsistencies between the contractual settlement terms and the amounts invoiced. They also noted the close links between the parties. The company ... 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

“A-SHS S.A.”, a Romanian company within a multinational group, underwent a transfer pricing audit for two main types of controlled transactions: management and centralised services from its foreign parent, and the purchase of products from an affiliated supplier. Regarding the services, the tax authority treated the fees as shareholder activities that primarily served the interests of the parent company in terms of group monitoring. The tax authority denied the deduction and related VAT on the grounds that “A-SHS S.A.” had not provided concrete evidence of specific benefits, despite the company claiming that these were chargeable intra-group services that improved its performance and satisfied the OECD benefit test. For the purchase of products, “A-SHS S.A.” applied the comparable uncontrolled price method using internal comparables with independent customers, and used the transactional net margin method for other dealings. However, the tax authority rejected this transaction-based analysis and instead applied a profitability test based on return on total costs for the whole business ... Read more

Following an audit, the tax authorities assessed an additional tax liability against Coca-Cola HBC Česko a Slovensko s.r.o., a decision that was upheld by the Financial Directorate on 4 August 2020 following an appeal. Coca-Cola HBC Česko challenged this decision, arguing that Article 9 of the double taxation treaties with the Czech Republic, Austria and the Netherlands could not be applied directly without implementing legislation, and that the tax authority had wrongly invoked it. They also claimed that Slovak income tax law did not permit the disputed transfer pricing adjustments since foreign affiliates could not be considered “foreign dependent persons” under the law. The company also claimed that the tax authority had improperly reclassified intra-group loans as equity contributions, had wrongly denied interest deductibility and had misapplied allocation keys for management service costs. Coca-Cola also objected to procedural defects, including the use of new economic analyses introduced at the appeal stage without prior notification, which it claimed violated the principle ... Read more

The dispute concerned various expenses deducted in ΧΑΜΙΩ ΑΒΕΕ’s declared taxable profits for 2013. The tax authority had disallowed several of these, the most substantial being fees for “management services” allegedly rendered under intra-group agreements. The Administrative Court of Appeal upheld the assessment, leading ΧΑΜΙΩ ΑΒΕΕ to file an appeal with the Supreme Administrative Court. In its appeal, the company argued that the tax authority had failed to demonstrate that the disputed expenses were unproductive and that the court had unlawfully shifted the burden of proof to the taxpayer, particularly concerning the management service fees. Judgment The Supreme Administrative Court rejected the appeal and upheld the judgment of the lower court. It ruled that the burden of proving the deductibility and productive purpose of the expenses rested with the taxpayer. In the Court’s view, the invoices and related contracts for the management services lacked adequate specificity regarding the nature, timing, and valuation of the services provided. This lack of clarity ... Read more

In FY 2013, Stefanutti Stocks Kenya Limited, a Kenyan subsidiary of a South African company, had deducted salary costs amounting to Kshs 46,391,512.00 in respect of expatriates provided by its South African affiliated company due to lack of local resources. According to the tax authorities, the salary costs were not sufficiently substantiated to qualify as expenses wholly and exclusively incurred in the production of income and, on this basis, disallowed deductions for the reported costs. On appeal, the Tax Appeal Tribunal initially upheld the position of the tax authorities in a 2021 decision. However, Stefanutti Stocks Kenya Limited appealed to the High Court, which ruled in 2023 that the Tribunal had failed to determine whether the salary expenses were allowable under section 15. The High Court remitted the matter back to the Tribunal to deal specifically with this issue. Judgment of the Tribunal On re-examination of the matter, the Tribunal found that although Stefanutti Stocks Kenya Limited claimed that the ... Read more

Ola Energy Kenya Limited is a Kenyan oil marketing company formerly known as Libya Oil Kenya Limited. It is engaged in the wholesale, retail and commercial sale of petroleum products and lubricants. On 13 June 2023, the Kenya Revenue Authority (KRA) issued corporation tax assessments for the years of income from 2011 to 2016. An appeal was filed where Ola Energy Kenya Limited asked the Tribunal to set aside the assessment. Judgment The Tribunal determined that the statutory basis lacked due to breach of statutes of limitations and set aside the assessment. Although the merits were rendered moot, the judgment records the disputed heads of assessment. Regarding the alleged management and corporate services received by Ola from related parties, the Kenya Revenue Authority (KRA) had demanded Kshs 265,176,021. The KRA also asserted that other corporate or management functions within the Eastern Cluster should have been recharged to affiliates with a five percent markup, as these were considered to be low-value ... 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

D. Sp. z oo had deducted interest expenses on intra-group loans and expenses related to intra-group services in its taxable income for FY 2015. The loans and services had been provided by a related party in Delaware, USA. Following a inspection, the tax authority issued an assessment where deductions for these costs had been denied resulting in additional taxable income. In regards to the interest expenses the authority held that the circumstances of the transactions indicated that they were made primarily in order to achieve a tax advantage contrary to the object and purpose of the Tax Act (reduction of the tax base by creating a tax cost in the form of interest on loans to finance the purchase of own assets), and the modus operandi of the participating entities was artificial, since under normal trading conditions economic operators, guided primarily by economic objectives and business risk assessment, do not provide financing (by loans or bonds) for the acquisition of ... Read more

The tax authorities had issued a tax assessment disallowing the deductibility of intra-group service costs charged to Gru Comedil s.r.l. because, in the opinion of the tax authorities, the company had not provided sufficient documentation and proof of the benefits of the alleged services received (management services). Gru Comedil, and later the tax authorities, appealed the decision, which eventually reached the Supreme Court. Judgment The court overturned the tax authorities’ assessment and ruled in favour of Gru Comedil s.r.l. Excerpts in English “According to an approach widely shared by this Court, in the matter of so-called intra-group costs, in order for the consideration paid to the parent company or to the company entrusted with the service for the benefit of another subsidiary to be deductible by the company receiving it, it is necessary that the subsidiary derives an actual utility from the remunerated service and that this utility is objectively determinable and adequately documented (Court of Cassation, n. 26/01/2023, n ... Read more

The tax authorities issued an assessment of additional taxable income for “D. sp. z o.o.” resulting in additional corporate income tax liability for 2014 in the amount of PLN 2,494,583. The basis for the assessment was the authority’s findings that the company understated its taxable income for 2014 by a total of PLN 49,732,274.05, as a result of the inclusion of deductible expenses interest in the amount of PLN 39,244,375.62, under an intra-group share purchase loan agreements paid to W. S.a.r.l. (Luxembourg) expenses for intra-group services in the amount of USD 2,957,837 (amount of PLN 10,487,898.43) paid to W. Inc. (USA) “D. sp. z o.o.” filed a complaint with the Administrative Court (WSA) requesting annulment of the assessment. In a judgment of 15 September 2020 the Administrative Court dismissed the complaint. In the opinion of the WSA, it was legitimate to adjust the terms of the loan agreement for tax purposes in such a way as to lead to transactions that ... Read more

A. Romania S.R.L. had purchased gas and strategy consulting services from related parties. The tax authorities issued an assessment where part of the deduction for these costs had been denied by application of the arm’s length principle. The court of first instance ruled in favor of A S.A and an appeal was then filed by the tax authorities with the High Court. Judgment of High Court The court set aside the decision issued by the court of first instance and remanded the case for reconsideration. Excerpts in English “The High Court finds that none of the contested additional tax liabilities was genuinely analysed by the court of first instance, as no logical-legal reasoning proper to the judge was set out, but the expert report carried out in the case was taken ad litteram as grounds for the judgment delivered. The adoption took place not only as regards the conclusions on the objectives of the expert’s report, which are explicitly stated ... Read more

SGGE W T is a Spanish branch of SGG that carries out distribution and marketing activities related to the information technology network products and services. SGG is part of the KF group which “is an international group that provides solutions and services in the Information Technology (IT) sector, starting its activity in . .. as a distributor of access and communications networks”. The group “is the result of several corporate operations, mainly company acquisitions and mergers carried out to increase its share in world markets” and “is mainly organized in three divisions (SGG, QR and …) according to the IT areas (Technology, Integration and Consulting) in which they operate”. Following an audit of FY 2015 and 2016 the tax authorities issued assessments of additional income to the Spanish branch. One of the issues identified was SGGE’s remuneration for its sales and marketing activities. According to the tax authorities, the income of the Spanish branch was below the lower quartile of ... Read more

The case concerned management fees paid by Multi Square Sdn Bhd, a Malaysian company engaged in the manufacture and sale of paints and chemical solvents, to its holding company Sersol Berhad under management services agreements for the years of assessment 2010 and 2011. The agreements covered corporate, strategic, human resources, accounting, and IT services. The fees increased significantly from 2010 to 2011. Following an audit, the tax authorities disallowed the management fees on the basis that the expenses were not wholly and exclusively incurred in the production of income. The tax authority considered that the services allegedly provided formed part of the normal responsibilities of a holding company and were not substantiated by evidence. Additional assessments were issued together with penalties. The taxpayer appealed to the Special Commissioners of Income Tax, arguing that the management services were commercially expedient, reflected industry practice of centralising group functions, and contributed to increased revenue. It further argued that management fees paid to a ... 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

D. Sp. z oo had deducted interest expenses on intra-group loans and expenses related to intra-group services in its taxable income for FY 2015. The loans and services had been provided by a related party in Delaware, USA. Following a inspection, the tax authority issued an assessment where deductions for these costs had been denied resulting in additional taxable income. In regards to the interest expenses the authority held that the circumstances of the transactions indicated that they were made primarily in order to achieve a tax advantage contrary to the object and purpose of the Tax Act (reduction of the tax base by creating a tax cost in the form of interest on loans to finance the purchase of own assets), and the modus operandi of the participating entities was artificial, since under normal trading conditions economic operators, guided primarily by economic objectives and business risk assessment, do not provide financing (by loans or bonds) for the acquisition of ... Read more

Rayonnages de France paid royalties and management fees to a related Portuguese company. Following an audit for FY 2010 – 2012 the French tax authorities denied tax deductions for the payments by reference to the the arm’s length principle. The court of first instance decided in favor of the tax authorities and Rayonnages de France then filed an appeal with the CAA of Douai. Judgment of the CAA The Court of appeal upheld the decision of the court of first instance and decided in favor of the tax authorities. Excerpt “However, as the Minister points out, in order to be eligible for deduction, the management services invoiced by VJ Trans.Fer to SARL Rayonnages de France must necessarily cover tasks distinct from those relating to the day-to-day management of the latter company, which were the responsibility of Mr B. as statutory manager of SARL Rayonnages de France, it being for the latter to determine, where appropriate, the remuneration to be paid ... Read more

Sierra Spain Shopping Centers Services S.L.U. is part of a multinational group that manages shopping centres. Sierra Spain had deducted expenses for services rendered from a related party in Portugal. According to Sierra Spain, the services were related to strategic management and marketing. The tax authorities considered the expenses non-deductible and issued an assessment of additional taxable income. With respect to the strategic business management services, the tax authorities found that there was no contract between the parties. In addition, the authorities found the justification for the actual provision of services was insufficient. With regard to the marketing services, these were contracted by the Portugal-based entity to an external supplier and subsequently re-invoiced to the related parties receiving the service in Portugal, Brazil and Spain. The tax authorities considered that these services were shareholder costs and therefore not deductible in Sierra Spain. Sierra Spain appealed to the Tax Court, which upheld the assessment of the tax authorities. An appeal was ... Read more

“Construction Service S.A.” is active in Design, Repair and Construction of buildings. During the FY 2011-2013 it paid for services – management services and construction services – rendered from related parties. Following an audit the tax authorities issued an assessment where payments for these services had been adjusted by reference to the arm’s length principle. According to the authorities the benchmark studies in the company’s transfer pricing documentation suffered from comparability defects and moreover it had not been sufficiently demonstrated that the services had been effectively provided. The tax authorities pointed out that since the company is not considered comparable to the taxpayer, the interquartile range would be from 5.15% to 8.30% with a median of 5.70%; therefore, the taxpayer’s operating margin of 4.07% is outside the interquartile range. Not satisfied with the adjustment “Construction Service S.A.” filed an appeal with the Tax Court Judgment of the Tax Court The court ruled in favour of “construction S.A” and revoked the ... Read more

A. Romania S.R.L. had purchased services from A. Nederland BV and A. CZ Holding sro, and the costs of the services had been deducted for tax purposes. At issue was whether these services had actually been provided to the benefit of A. Romania S.R.L. and if so whether the costs were deductible under Romanian tax provisions. According to the tax authorities it was not possible to identify the services actually provided, as the documentation provided was only general data on the types of services invoiced, such as: group services, taxes and contributions, other group services. No supporting documents had been submitted to show that the services were actually provided. Furthermore, according to Romanian tax provisions – paragraph 41 of H.G. no. 44/2004 – the costs of administration, management, control, consultancy or similar functions are borne by the parent company and no remuneration can be claimed for these activities from the affiliated persons, thus the expenses are not deductible for tax ... Read more

S.C. A. had paid for intra group services in FY 2013 and 2014 and deducted the costs for tax purposes. The purchases of services were made on the basis of a management services contract concluded with related party C. S.A. and a production service contract, logistics service contract, product management service contract and service contract concluded with related party B. The tax authorities had issued an assessment where deductions for the costs had been denied. The court of first instance set aside the tax assessment. Judgment of Supreme Administrative Court The Supreme Administrative Court upheld the decision from the court of first instance and decided in favor of S.C. A. Excerpts “As regards the necessity of providing the services The High Court finds that the expert held, with regard to that aspect, that by the contracts concluded, C. S.A. and B. undertook to carry out for the applicant multiple and complex activities requiring the allocation of a large amount of ... Read more

In december 2020 the tax authorities in Peru issued a new administrative ordinance related to use of the most appropriate method to determine the market value of services. Click here for English translation ... Read more

Kenya Fluospar Company Ltd (KFC) had been issued an assessment related to VAT and transfer pricing – leasing of mining equipment, mining services and management services. The assessment was later set aside by the Tax Tribunal and an appeal was then filed by the tax authorities with the High Court THE JUDGEMENT The High Court dismissed the appeal of the tax authorities and decided in favour of KFC. Excerpts “B. Whether the Commissioner was right in the using Transactional Nett Margin Method (TNMM) instead of Split Profit Method (SPM) in determining how to share the income tax between KFC EPZ. 48. Rule 7 thus gives the various methods of choice, one of them being the profit split method. In this regard also, Rule 8(2) provides as follows – 8(2). A person shall apply the method most appropriate for his enterprise, having regard to the nature of the transaction, or class of related persons or function performed by such persons in ... Read more

A group company, PI, purportedly provided management services to the Ashin Steel Trading House. During the audit for FY 2013-2015 the tax authority came to the conclusions that Ashin Steel Trading House and the PI had “deliberately created a management relationship scheme so that service providers are listed on the staff of an entrepreneur who pays tax on the ONS with the object of taxation “income””. Significant sums of money was transferred to PIs in the form of payments for the provision of management services for their subsequent withdrawal and to the accounts of an individual (from the accounts of the PI), which allowed the Company to minimize tax revenues. The tax authority recalculated the Company’s expenses for the management services, using a combination of transfer pricing methods – cost plus and comparable profitability. The Decision of the Court of Appeal: The CUP method has priority, but in cases where it is not subject to application, the tax authority has ... Read more

A Plc had provided its subsidiaries with supply chain services, marketing and brand management services, human resources and IT services. The services provided by A Plc had mainly consisted of coordinating and harmonising the activities of the group companies. A Plc’s turnover had consisted almost exclusively of the fees received from the sale of these management services. As service fees, A Plc had charged an amount corresponding to the costs incurred in providing the services, without any mark-up. On the basis of the findings of the tax audit, the tax authorities had added to A Plc’s taxable income, by way of back-taxation and tax adjustments, amounts corresponding to a 7 % mark-up to the detriment of the taxpayer. The amount of the surcharges had been established during the tax audit on the basis of a comparative search of Bureau van Dijk’s Amadeus database. The comparator companies were nine independent consultancy firms. Judgment The Supreme Administrative Court held that A Plc ... Read more

The African Tax Administration Forum (ATAF) and the German Federal Ministry for Economic Cooperation and Development (BMZ), through the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, have developed this toolkit for African tax authorities seeking to assess transfer pricing risk in the mining industry. The purpose is to strengthen authorities’ capacity to determine whether they should audit particular high-risk “related party transactions.” The toolkit employs a specific risk review approach, which focuses on particular transfer pricing issues that present a high risk to revenue (as distinct from a comprehensive risk review, which tax authorities use when they cannot detect where transfer  pricing issues are likely to arise). A loss of even 1 percent of the value of these transactions is likely to be significant for developing country revenues. These issues are also very prevalent: many African tax authorities report corporate services, including procurement and management, as common causes of tax loss. The four issues of focus are: 1. Marketing arrangements ... Read more

The tax authorities had issued an assessment where deductibility of service costs charged to an Italien company had been disallowed for tax purposes, as the Italien company – according to the tax authorities – had not provided sufficient proof of the benefits from the purported services received (marketing, telephone, EDP and legal, accounting and tax consultancy services). Judgment of the Supreme court. The Court dismissed the appeal of Alfa Gomma and ruled in favor of the tax administration.. Excerpts from the Judgment “By the second ground, alleging infringement of Article 2697 of the Civil Code, the appellant criticises the judgment of appeal in so far as it finds that Alfa Gomma Sud did not discharge its burden of proof, since the documentation produced does not make it possible to carry out an adequate check as to the existence, relevance and usefulness of the costs of the services charged by the parent company Alfa Gomma SpA. It submits that, in so ... Read more

In 2010 the tax authorities issued an assessment, in the part concerning a service contract entered by X EOOD with a related party. In regards of the service contract, the tax authority established that some of the services were actually performed as X EOOD did not have the necessary staff and resources to perform them. The dispute was related to management services allegedly performed by the related party. An appeal was filed by X EOOD The Administrative Court referred to the provision of Article 16(2)(4) of the Income Tax Act, according to which the payment of remuneration or benefits for services without those services having actually been rendered is also regarded as an evasion of taxation, and therefore held that the complaint in that part was unfounded. An appeal was then filed with the Supreme Administrative Court Judgment of the Supreme Administrative Court The Supreme Administrative Court upheld the decision of the Administrative Court and decided in favour of the ... Read more

Korea vs Levi’s – Supreme Court case No. 2004두7955 Deductions for management support services was allowed by the Supreme Court. Click here for translation ... Read more