Tag: Median

Spain vs BIOMERIEUX ESPAÑA SA, February 2021, National Court, Case No 2021:416

Spain vs BIOMERIEUX ESPAÑA SA, February 2021, National Court, Case No 2021:416

BIOMERIEUX ESPAÑA SA is active in the business of clinical and biological analysis, production, distribution, training and technical assistance. Likewise, the provision of computer services and, in particular, the computer management of laboratories. Following an audit the tax authorities found that the controlled prices agreed for the acquisition of instruments and consumables between bioMérieux España and its related entities, bioMérieux SA and bioMérieux Inc, did not provided bioMérieux España with an arm’s length return on is controlled activities. A tax assessment was issued for FY 2008 on the basis af a thorough critical analysis of the benchmark study provided by the BIOMERIEUX, and detailed reasoning and analysis in regards to comparability and market developments. Judgement of the National Court The Audiencia Nacional dismissed the appeal of Biomerieux España SA and decided in favour of the tax authorities. Excerpts “As we already reasoned in our SAN (2nd) of 6 March 2019 (Rec. 353/2015 ), it is legitimate to resort to what ... Continue to full case
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). Catalysts are 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 ... Continue to full case
Poland vs "Cans Corp", September 2019, Provincial Administrative Court i Szczecin, Case no SA/Sz155/19

Poland vs “Cans Corp”, September 2019, Provincial Administrative Court i Szczecin, Case no SA/Sz155/19

At issue in this case was the remuneration of a Polish manufacturing subsidiary in an international group dealing in the production and sale of metal packaging for food products, including beverage cans, food cans, household cans and metal closures. The tax authorities had issued an tax assessment for FY 2009 – 2012 based on a benchmark study. Decision of the Administrative Court The Court upheld the decision of the tax authorities concerning income for the tax year from 01/01/2012 to 31/12/2012. In 2012, the Polish manufacturing site operated by producing lids for jars. In the course of the audit proceedings against the Party regarding corporate income tax for 2012, the first instance authority determined – based on a comparative analysis of the financial results of similar independent manufactures operating in the packaging industry on the market in Central and Eastern Europe, that this market showed an upward trend and in none of the years 2009-2012 this industry recorded a downward ... Continue to full case
Spain vs Ikea, March 2019, Audiencia Nacional (TEAC), Case No SAN 1072/2019

Spain vs Ikea, March 2019, Audiencia Nacional (TEAC), Case No SAN 1072/2019

The tax administration had issued an adjustment to the taxable profit of IKEA’s subsidiary in Spain considering that taxable profit in years 2007, 2008, and 2009 had not been determined in accordance with the arm’s length principle. In 2007 taxable profits had been below the interquartile range and in 2008 and 2009 taxable profits had been within the interquartile range but below the median. In all years taxable profits had been adjusted to the median in the benchmark study. Judgement of the Court In regards to the adjustment mechanism – benchmark study, interquartile range, median – the Court provide the following reasoning “However, the OECD Guidelines in point 3.60 provide that “if the relevant terms of the controlled transaction (e.g. price or margin) are within the arm’s length range, no adjustment is necessary”. Conversely, under rule 3.61, if the relevant terms of the controlled transaction “(e.g., price or margin) are outside the arm’s length range determined by the tax administration, ... Continue to full case
Chile vs Monsanto Chile S.A, December 2018, Tax Court, Case N° RUC N° 14-9-0000002-3

Chile vs Monsanto Chile S.A, December 2018, Tax Court, Case N° RUC N° 14-9-0000002-3

Monsanto Chile – since 2018 a subsidiary of Bayer – is engaged in production of vegetable seeds and Row Crop seeds. The company uses its own local farmers and contractors, employs some 250 people and hires a maximum of 2,000 temporary workers in the summer months. It receives parental seed from global planners in the US and other countries and then multiplies these seeds in Chile on its own or third-party farms. The seeds are then harvested, processed and shipped to locations specified by global planners. Following an audit of FY 2009-2010 an adjustment was issued related to the profitability obtained in the operations of the “Production” segment (sale of semi-finished products to related parties) and “Research and Development” carried out on behalf of related parties abroad. The adjustment was determined by the tax authorities using the a Net Margin method. The tax authorities found that the income obtained under the production segment and in the research and development business ... Continue to full case
Italy vs BI S.r.l, November 2018, Tax Tribunal of Milano, Case no. 5445/3/2018

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

The Italian tax authorities had issued an assessment against a local distribution company of a multinational group, where the transfer pricing analysis conducted by the taxpayer had been disregarded. The tax authorities, carried out a new benchmark analysis based on the transactional net margin method (“TNMM”) and adjusted the company’s profitability to the median. Judgement of the Court The Court decided in favour of BI S.r.l. and cancelled the assessment. The Court stated that the profitability range calculated by the tax authorities goes, for the year 2013, from a minimum value of 1.40% to a maximum of 18.28%. The local distribution company had obtained a ROS/EBIT margin of 8.38%, and since the last percentage falls between the minimum and the maximum, the court set aside the assessment. In regards to the TP analysis performed by the tax authorities the Court stated: “The company had applied the CUP method, as it was considered the most direct and reliable method to apply ... Continue to full case

TPG2017 Chapter III paragraph 3.65

Generally speaking, a loss-making uncontrolled transaction should trigger further investigation in order to establish whether or not it can be a comparable. Circumstances in which loss-making transactions/ enterprises should be excluded from the list of comparables include cases where losses do not reflect normal business conditions, and where the losses incurred by third parties reflect a level of risks that is not comparable to the one assumed by the taxpayer in its controlled transactions. Loss-making comparables that satisfy the comparability analysis should not however be rejected on the sole basis that they suffer losses ... Continue to full case

TPG2017 Chapter III paragraph 3.64

An independent enterprise would not continue loss-generating activities unless it had reasonable expectations of future profits. See paragraphs 1.129-1.131. Simple or low risk functions in particular are not expected to generate losses for a long period of time. This does not mean however that loss-making transactions can never be comparable. In general, all relevant information should be used and there should not be any overriding rule on the inclusion or exclusion of loss-making comparables. Indeed, it is the facts and circumstances surrounding the company in question that should determine its status as a comparable, not its financial result ... Continue to full case

TPG2017 Chapter III paragraph 3.62

In determining this point, where the range comprises results of relatively equal and high reliability, it could be argued that any point in the range satisfies the arm’s length principle. Where comparability defects remain as discussed at paragraph 3.57, it may be appropriate to use measures of central tendency to determine this point (for instance the median, the mean or weighted averages, etc., depending on the specific characteristics of the data set), in order to minimise the risk of error due to unknown or unquantifiable remaining comparability defects ... Continue to full case

TPG2017 Chapter III paragraph 3.61

If the relevant condition of the controlled transaction (e.g. price or margin) falls outside the arm’s length range asserted by the tax administration, the taxpayer should have the opportunity to present arguments that the conditions of the controlled transaction satisfy the arm’s length principle, and that the result falls within the arm’s length range (i.e. that the arm’s length range is different from the one asserted by the tax administration). If the taxpayer is unable to establish this fact, the tax administration must determine the point within the arm’s length range to which it will adjust the condition of the controlled transaction ... Continue to full case

TPG2017 Chapter III paragraph 3.60

If the relevant condition of the controlled transaction (e.g. price or margin) is within the arm’s length range, no adjustment should be made ... Continue to full case

TPG2017 Chapter III paragraph 3.57

It may also be the case that, while every effort has been made to exclude points that have a lesser degree of comparability, what is arrived at is a range of figures for which it is considered, given the process used for selecting comparables and limitations in information available on comparables, that some comparability defects remain that cannot be identified and/or quantified, and are therefore not adjusted. In such cases, if the range includes a sizeable number of observations, statistical tools that take account of central tendency to narrow the range (e.g. the interquartile range or other percentiles) might help to enhance the reliability of the analysis ... Continue to full case
Portugal vs "Cork Portugal SA", May 2016, Collective Arbitration Tribunal, Case No 609/2015-T

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

“Cork Portugal SA” is engaged in the production and marketing of natural wine corks and is part of a Multinational group operating in the sector of closures for the wine industry. The Portuguese tax administration issued an adjustment of EUR 337,493.97 to the taxable income for 2010 on the basis that, its sales of cork to a related company in the US – via an Irish trading company B within the group – had not been at arm’s length. Portuguese provisions of Article 63(1) of the CIRC, provides “In commercial transactions […] carried out between a taxable person and any other entity, whether or not subject to IRC, with which he is in a situation of special relations, terms or conditions substantially identical to those that would normally be contracted, accepted and practised between independent entities in comparable transactions must be contracted, accepted and practised”. The adjustment was based on a benchmark study provided by the company. Net cost plus ... Continue to full case
Argentina vs Boehringer Ingelheim S.A. , April 2012, Tribunal Fiscal de la Nación, Case No 26713

Argentina vs Boehringer Ingelheim S.A. , April 2012, Tribunal Fiscal de la Nación, Case No 26713

The tax authorities had not contested but have accepted the method (TNMM) used by the company to assess their transactions with related or affiliated parties, the dispute is therefore limited to certain aspects of the application of the methodology. Boehringer had used ROS indicator (operating profit margin) which the tax authorities accepted for the resale function but applied the ROTC indicator (profit margin on costs and expenses) for the manufacturing function. On the use of foreign comparables the tax court held in favor of the company and revoked the adjustment back to the authorities. Click here for English Translation Tribunal Fiscal de la Nación ... Continue to full case
Germany vs "Clothing Distribution Gmbh", October 2001, BFH Urt. 17.10.2001, IR 103/00

Germany vs “Clothing Distribution Gmbh”, October 2001, BFH Urt. 17.10.2001, IR 103/00

A German GmbH distributed clothing for its Italian parent. The German tax authorities issued a tax assessment based on hidden profit distribution from the German GmbH in favor of its Italien parent as a result of excessive purchase prices, which led to high and continuous losses in Germany.  The tax authorities determined the arm’s length price based on purchase prices, which the German GmbH had paid to external suppliers. However, these purchases accounted for only 5% of the turnover. The German Tax Court affirmed in substance a vGA (hidden profit distribution) as the tax authorities had provided no proff of deviation from arm’s length prices. If a hidden profit distribution is to be accepted, the profit shall be increased by the difference between the actually agreed price and the price agreed by independent contractual parties under similar circumstances – the arm’s length price. Where a range of arm’s length prices is produced, there are no legal basis for adjustment to the ... Continue to full case