“Poly Corp”, a manufacturer of polypropylene products, had an export marketing contract with an group company for overseas sales. The products were sold to unrelated third parties or foreign group companies through this arrangement. Following an audit, the tax authority claimed that “Poly Corp” sold its products to foreign group companies below the arm’s length price. An assessment of additional taxable income was issued and the amount was treated as dividends to the foreign group companies. “Poly Corp” appealed and the Administrative Court determined that even though the transfer prices were agreed upon by shareholders without special relationships, they did not automatically qualify as arm’s length prices. For transactions with certain group companies, the tax authority failed to account for sales volume in their comparability analysis, rendering the assessments invalid. However, for transactions with another related companies, the criteria applied were deemed reasonable, and using a single comparable transaction to determine the arm’s length price was sufficient. The court concluded that the ... Read more

“Poly Corp”, a manufacturer of polypropylene products, had an export marketing contract with an group company for overseas sales. The products were sold to unrelated third parties or foreign group companies through this arrangement. Following an audit, the tax authority claimed that “Poly Corp” sold its products to foreign group companies below the arm’s length price. An assessment of additional taxable income was issued and the amount was treated as dividends to the foreign group companies. “Poly Corp” appealed and the Administrative Court determined that even though the transfer prices were agreed upon by shareholders without special relationships, they did not automatically qualify as arm’s length prices. For transactions with certain group companies, the tax authority failed to account for sales volume in their comparability analysis, rendering the assessments invalid. However, for transactions with another related companies, the criteria applied were deemed reasonable, and using a single comparable transaction to determine the arm’s length price was sufficient. The court concluded that the ... Read more

Futaba Czech s.r.o. is a Czech company that has been operating since 2005 as a manufacturer and supplier of components for the automotive industry and is part of the Japanese Futaba group. Futaba had been loss making in FY 2016-2017. Following a transfer pricing audit, the tax authorities found that Futaba had provided “comprehensive production service”, which should have compensated by the group. An assessment was issued based on the TNMM with NCP as Profit Level Indicator. Futaba Czech contested the assessment on several grounds. It argued that no instructions or pricing directives from the parent had been proven; that it in fact bore most business functions, risks and financing decisions; that the tax authorities had wrongly reallocated the functional‐and‐risk profile in a value‐chain analysis (for example assigning research and development 50 percent weight versus only 15 percent to production); that the choice of the transaction‐net‐margin method and aggregation over individual‐transaction methods was unjustified; that the reference period (2014–16) and ... Read more

In 2020 “Mineral Export SA” received a tax assessment for FY 2010 after the Peruvian tax authorities (SUNAT) had made two large transfer pricing adjustments: (i) an uplift of the remuneration it had received for its business activities (export of mineral concentrates to related parties), and (ii) an uplift of the price at which it had sold a controlling shareholding to a another group company. “Mineral Export SA” appealed to the Peruvian Tax Court. Judgment The Court partially upheld the adjustment concerning remuneration of the activities carried out, but it set aside the adjustment related to the price of the shares it had sold. In determining the remuneration for the activities carried out, the tax authorities had disallowed five comparability adjustments, discarding most of the taxpayer’s comparables, and recalculated the profit margins. The Court agreed that the comparability adjustments made by “Mineral Export SA” were unsupported and that the tax authorities could restrict the sample to two comparables. But according ... Read more

“Poly Corp”, a manufacturer of polypropylene products, had an export marketing contract with an group company for overseas sales. The products were sold to unrelated third parties or foreign group companies through this arrangement. Following an audit, the tax authority claimed that “Poly Corp” sold its products to foreign group companies below the arm’s length price. An assessment of additional taxable income was issued and the amount was treated as dividends to the foreign group companies. “Poly Corp” appealed. Judgment The Administrative Court determined that even though the transfer prices were agreed upon by shareholders without special relationships, they did not automatically qualify as arm’s length prices. For transactions with certain group companies, the tax authority failed to account for sales volume in their comparability analysis, rendering the assessments invalid. However, for transactions with another related companies, the criteria applied were deemed reasonable, and using a single comparable transaction to determine the arm’s length price was sufficient. The court concluded ... Read more

The tax authority found that P.sp. z o.o. had understated its income from sales to related parties in the P. Group. The tax authority selected three comparable independent wholesalers and established a range of profit margins between 4.02% and 6.24%. As P. sp. z o.o. had a profit margin of only 2.84% on its wholesale activities, an adjustment was made to the taxable income. A complaint was filed by “P. sp. z o.o.” with the Administrative Court, which was dismissed, and an appeal was then filed with the Supreme Administrative Court. Judgment of the Supreme Administrative Court. The the Supreme Administrative Court, annulled the appealed decision in its entirety and ordered – when re-examining the case – the tax authority to follow the interpretation of the law made by the Supreme Administrative Court. In a very comprehensive judgment, the Court ruled on a wide range of issues, including Whether and how to take into account income received for other activities ... Read more

In 2013, “Panamá Fertilizer S.A.” purchased fertilisers and agrochemicals from affiliated companies and resold them in Panama. The total value of these purchases was approximately B/.22.1 million. In its transfer pricing study, the company treated its Costa Rican subsidiary as the tested party, applying the transactional net margin method. It argued that there were no suitable Panamanian comparables and that Costa Rica had similar functions and risks. However, the tax authority rejected this, stating that the tested party had to be the Panamanian distributor. They considered Panamá Fertiliser S.A. to be a simple reseller, whereas they considered Costa Rica to be a more complex manufacturer and distributor. The tax authority applied the resale price method, using one Panamanian comparable based on a segmented division of a company listed on the Panama Stock Exchange. Based on this, it issued an additional tax assessment. Panamá Fertiliser S.A. argued that the local comparable was not truly comparable, as it was much larger and ... Read more