LAKUM KTL, a. s. had deducted from its taxable income costs for the purchase of advertising and promotional services from PRESSTEX MEDIA and PAMBROKE Media. Following an audit, the tax authorities concluded that LAKUM had entered into a legal relationship with PRESSTEX and PAMBROKE for the purpose of reducing the tax base. The tax authorities established reference prices on the basis that LAKUM could have entered into the contract for advertising and promotional services directly with the club concerned and, from the price range thus established, determined the arm’s length price for the services and increased the tax base accordingly. Decision of the Regional Court The Regional Court ruled in favour of the tax authorities on the pricing issue. Excerpts “37. The applicant first argued that the conditions for the application of the first sentence of Article 23(7) of the Income Tax Act were not met. According to that provision, if the prices agreed between related parties differ from the ... Read more

Kellogg India Private Limited is engaged in manufacturing and sales of breakfast cereals and convenience foods and it operates as a licensed manufacturer under the Kellogg brand. During the year under consideration, Kellogg India had commenced business of distributing Pringles products in the Indian markets. Kellogg India purchases the pringles product from its AE Pringles International Operations SARL, based in Singapore. Singapore AE does not manufacture pringles, but in turn gets it manufactured from a third party contract manufacturer. Thereafter, the goods are supplied at a cost plus mark up of 5% on third party manufacturer’s cost. These Pringles are later imported by Kellogg India from its AE and distributed in the Indian market. Kellogg India characterised itself as a distributor of Pringles products and is responsible for the strategic and overall management of Pringles business in India. Singapore AE, being the least complex entity, was selected as the tested party for benchmarking the international transaction of import of finished ... Read more

LCN Group had deducted costs in its taxable income for marketing services provided by related parties – PRESSTEX MEDIA SE and TARDEM Media s.r.o. and PAPILIO. The claimed advertising costs from PRESSTEX in FY 2012 was produced and implemented by PAPILIO and subsequently invoiced to LCN Group, virtually unchanged, at a price 23 times higher than the price of the advertising, without the corresponding value added being justified. In relation to FY 2013, LCN Group claimed advertising costs from TARDEM in a similar pattern where the price was increased by up to 56 times. In both tax periods, LCN Group’s advertising/promotion costs were related to sporting events (gymnastics world cup, tennis tournament and golf tournaments). The tax authorities concluded that the prices agreed between the parties was not at arm’s length and issued an assessment. The Regional Court annulled the assessment. It argued that the tax authorities had not sufficiently dealt with the identification and description of the conditions under ... Read more

Plastic Pipes s.p.a. produces and sells flexible plastic pipes, via foreign subsidiaries, to which it supplies the product to be resold to foreign customers and it operates abroad, selling the product directly to customers, also in foreign countries where it has a subsidiary. The tax authorities had issued a notice of assessment for FY 2006 claiming that Plastic Pipes s.p.a. had incurred (and deducted) marketing costs in the interest of its subsidiaries, without recharging their share of the expenses. The Court of first instance set aside the assessment of the tax authorities. Judgement of the Supreme Court. The supreme Court dismissed the appeal of the tax authorities. Excerps “…the burden of proof on the tax authorities is limited to providing evidence of the existence of the intra-group transaction and of the agreement of a consideration lower than the normal market value; the taxpayer who intends to contest the tax claim must instead provide evidence that the agreed consideration, or the ... Read more

LCN Group s.r.o. had deducted costs in its taxable income for marketing services provided by related parties. Following an audit, the tax authorities concluded that the prices agreed between the parties was not at arm’s length and issued an assessment. Decision of the Regional Court The Regional Court annulled the assessment and decided in favor of the LNC Group. The court held that the tax authorities had not sufficiently dealt with the identification and description of the conditions under which the prices of the controlled transactions had been agreed. The tax authorities had not considered the “commercial strength” and “advertising capacity” of the parties. Click here for English Translation Click here for other translation Czech 25Af_76_20200609112810.2019_prevedeno ... Read more

For FY 2007, 2008 and 2009, JV had deducted expenses consisting in the payment for services pursuant to invoices issued by BP Property s.r.o. and TOP ZONEVIEW. The services consisted in the provision and implementation of an advertising campaign. Following an audit the tax authorities adjusted JV’s taxable income by the difference found, since pursuant to Article 23(7)(b)(5) of the Income Tax Act, the prices agreed differed from the prices which would have been agreed between unrelated parties in normal commercial relations under the same or similar conditions. JV contested the decision of the tax authorities but the appeal was dismissed by the Regional Court. The Regional Court held that the applicant’s objection – that he did not know and could not have known about the chain because he had dealt only with the managing director of Property Praha or B.V. – was unfounded. Section 23(7)(b)(5) of the Income Tax Act does not require proof of active conduct of all ... Read more

LG Electronic India has incurred advertisement and AMP expenses aggregating to Rs.6,89,60,79,670/- for the purpose of its business. The tax authorities undertook benchmarking analysis of AMP expenses incurred by LG Electronic India applying bright line test by comparing ratio of AMP expenses to sale of LG Electronic India with that of the comparable companies and holding that any expenditure in excess of the bright line was for promotion of the brand/trade name owned by the AE, which needed to be suitably compensated by the AE. By applying bright line test, the tax authorities compared AMP expenditure incurred by LG Electronic India as percentage of total turnover at 8.01% with average AMP expenditure of 4.93% of comparable companies. Since AMP expenses incurred by LG Electronic India  as percentage of sales was more than similar percentage for comparable companies, LG Electronic India had incurred such AMP expenditure on brand promotion and development of marketing intangibles for the AE. The tax authorities also ... Read more

In this case the court accepted the tax authorities’ procedure for determining the arm’s length price for advertising services, whereby the tax authorities took into account conditions such as the size of the advertising space, the type of event, the duration of the advertising, etc., when comparing controlled and uncontrolled transactions The appeal of JN Trans was dismissed by the court. Click here for English Translation Click here for other translation Czech Case No 9 Afs 92-2013 ... Read more

In the case of Roche Indonesia the tax authorities had disallowed deductions for royalties paid by the local company to F. Hoffmann-La Roche & Co. Deductions for marketing and and Promotions costs paid by the local company had also been disallowed. Judgement of the Tax Court The court decided predominantly in favour of the tax authorities. Roche Indonesia had been unable to prove the value, existence and ultimate owner of intangible assets for which the royalty was paid. In regards to the disallowed deductions of cost related to marketing and and promotions half of the costs were allowed and the other half disallowed. Click here for translation putusan_put.50616_pp_m.xii_b_15_2014_20210530 ... Read more