Tag: Penalty/Fine

Administrative penalties and fines are imposed for tax offences, such as failure to make a timely return or payment, negligence, and making a false return or statement. They take the form of additions to the tax and are assessed as part of the tax. Criminal penalties, on the other hand, are enforceable only by prosecution. A prison sentence may be imposed for serious tax fraud.

Panama vs "Doc Corp", October 2023,  Administrative Tribunal, Case No TAT-RF-070

Panama vs “Doc Corp”, October 2023, Administrative Tribunal, Case No TAT-RF-070

“Doc Corp” had been issued a penalty for not submitting a Transfer Pricing Report and filed an appeal with the Tax Court. Judgment of the Court The Court ruled in favour of “Doc Corp” and revoked the penalty. Excerpt in English “From the transcribed rules, it is understood that in order for a taxpayer to be under the obligation to file the Transfer Pricing Report – Form 930, the following two assumptions must be met: 1. that the taxpayer has transactions with related parties abroad. 2. that such transactions have effects as income, costs or deductions in the determination of the taxable base, for Income Tax purposes, of the tax period in which the transaction is declared or carried out. In that sense, when the operations of a taxpayer with related parties abroad do not comply with the condition that such operations have effects as income, costs or deductions in the determination of the taxable base for Income Tax purposes, ... Read more
Nigeria vs Check Point Software Technologies B.V NIG LTD, August 2023, Tax Appeal Tribunal, Case No TAT/LZ/CIT/121/2022

Nigeria vs Check Point Software Technologies B.V NIG LTD, August 2023, Tax Appeal Tribunal, Case No TAT/LZ/CIT/121/2022

Check Point Software Technologies was assessed administrative penalties by the tax authorities (FIRS) for failure to file a country-by-country report, and a complaint was filed with the Tax Appeal Tribunal by the company. Decision of the Tribunal The Tax Appeal Tribunal held that the administrative penalties issued by the FIRS in enforcement of the CbCR Regulations were unconstitutional and void because the Board of the Federal Inland Revenue Service, which was legally empowered to make the regulations, did not exist between 2012 and 2020. Since the FIRS Board did not exist during the said period, the exercise of the delegated powers under the provisions of the Nigerian CbCR regulations was not possible – any step, process or action taken in the name of the Board would be null and void. Excerpts “A careful consideration of the provisions of Section 61 as exposed above shows that the National Assembly has delegated its powers specifically to the Board of the Federal Inland ... Read more
Credit Suisse enters EUR 238 million settlement agreement in France

Credit Suisse enters EUR 238 million settlement agreement in France

A settlement agreement between the French Financial Public Prosecutor and Credit Suisse was announced in the Paris Court of Appeal 24 October 2022. The “CJIP” agreement brings an end to investigations in France over whether the Swiss bank facilitated and aided clients in tax avoidance. (English translation of the press release from the French Public Prosecutor) On 24 October 2022, the President of the Paris Judicial Court validated the judicial public interest agreement (CJIP) concluded on 21 October 2022 between the Financial Public Prosecutor (PRF) and CREDIT SUISSE AG pursuant to Article 41-1-2 of the Criminal Procedure Code. Under the terms of the CJIP, CREDIT SUISSE AG undertakes to pay the Treasury a public interest fine totaling EUR 123,000,000. In addition, CREDIT SUISSE AG undertakes to pay to the Treasury the sum of €115,000,000 in damages owed to the State. As a result, the public interest fine and the damages amount to the total sum of €238,000,000. Subject to the ... Read more
Germany vs X GmbH & Co. KG, October 2022, European Court of Justice, Case No C-431/21

Germany vs X GmbH & Co. KG, October 2022, European Court of Justice, Case No C-431/21

A Regional Tax Court in Germany had requested a preliminary ruling from the European Court of Justice on two questions related to German transfer pricing documentation requirements. whether the freedom of establishment (Article 49 TFEU) or the freedom to provide services (Article 56 TFEU) is to be interpreted in such a way that it precludes the obligation to provide transfer pricing documentation for transactions with a foreign related parties (Section 90 (3) AO) and whether the sanctions regulated in section 162(4) AO could be contrary to EU law The Regional Tax Court considered that these provisions establish special documentation requirements for taxpayers with transactions with foreign related parties. In the event of non-compliance with these documentation requirements, section 162(4) AO leads to a sanction in the form of a fine/surcharge. Neither was provided for taxpayers with transactions with domestic related parties. However, such discrimination can be justified by compelling reasons in the public interest. In this context, the Regional Tax ... Read more
New Zealand vs Frucor Suntory, September 2022, Supreme Court, Case No [2022] NZSC 113

New Zealand vs Frucor Suntory, September 2022, Supreme Court, Case No [2022] NZSC 113

Frucor Suntory (FHNZ) had deducted purported interest expenses that had arisen in the context of a tax scheme involving, among other steps, its issue of a Convertible Note to Deutsche Bank, New Zealand Branch (DBNZ), and a forward purchase of the shares DBNZ could call for under the Note by FHNZ’s Singapore based parent Danone Asia Pte Ltd (DAP). The Convertible Note had a face value of $204,421,565 and carried interest at a rate of 6.5 per cent per annum. Over its five-year life, FHNZ paid DBNZ approximately $66 million which FHNZ characterised as interest and deducted for income tax purposes. The tax authorities issued an assessment where deductions of interest expenses in the amount of $10,827,606 and $11,665,323 were disallowed in FY 2006 and 2007 under New Zealand´s general anti-avoidance rule in s BG 1 of the Income Tax Act 2004. In addition, penalties of $1,786,555 and $1,924,779 for those years were imposed. The tax authorities found that, although ... Read more
US vs Eaton Corp., August 2022, Sixth Circuit, Nos. 21-1569/2674

US vs Eaton Corp., August 2022, Sixth Circuit, Nos. 21-1569/2674

Eaton is an Ohio corporation with a global presence. It manufactures a wide range of electrical and industrial products. During the relevant period—2005 and 2006—Eaton had its foreign subsidiaries in Puerto Rico and the Dominican Republic manufacture certain products which Eaton then sold to its other affiliates and third-party customers. In 2002, Eaton applied for an APA related to these transactions. In 2004 the IRS and Eaton entered into the first APA which covered tax years 2001 through 2005. And in 2006 a second APA was entered which covered tax years 2006 through 2010. A few years after entering in to the APAs, Eaton reviewed its records and caught some inadvertent calculation errors. After letting the IRS know, Eaton corrected the mistakes. But the IRS thought that Eaton’s mistakes were serious enough to warrant its unilateral cancellation of the APAs for tax years 2005 and 2006. And after cancelling the APAs, the IRS handed Eaton a notice claiming a deficiency of ... Read more
Hong Kong vs Directors of Nam Tai Trading Company Limited, August 2022, Court of Appeal, Case FACV No. 1 of 2022

Hong Kong vs Directors of Nam Tai Trading Company Limited, August 2022, Court of Appeal, Case FACV No. 1 of 2022

The tax returns of Nam Tai Trading Company Limited (“NT Trading”) for the years 1996/97, 1997/98 and 1999/2000 were found by the tax authorities to be incorrect due to non arm’s length pricing of controlled transactions. Mr Koo and Mr Murakami, were directors of NT Trading at the time. Mr Koo signed the first and third of those returns, and Mr Murakami signed the second. NT Trading’s attempts to challenge the Inland Revenue Department’s assessments were unsuccessful. In 2013, the directors were assessed to additional tax under section 82A(1)(a) of the Inland Revenue Ordinance (Cap. 112) (the “Ordinance”) on the basis that the Returns were incorrect. At the relevant time, section 82A(1)(a) provided: “(1) Any person who without reasonable excuse— (a) makes an incorrect return by omitting or understating anything in respect of which he is required by this Ordinance to make a return, either on his behalf or on behalf of another person or a partnership… shall… be liable ... Read more
Netherlands vs "Dividend B.V.", May 2022, District Court, Case No AWB-21_2426 (ECLI:NL:RBZWB:2022:2432)

Netherlands vs “Dividend B.V.”, May 2022, District Court, Case No AWB-21_2426 (ECLI:NL:RBZWB:2022:2432)

“Dividend B.V.” is the legal successor of a BV that has made (dividend) distributions. With respect to the distributions to a Luxembourg company (LuxCo), no Dutch dividend tax was withheld on the basis of the withholding tax exemption. Prior to the first distribution, the relevant shares in the BV were held by a limited partnership established in the Cayman Islands. This limited partnership transferred the shares in the BV to LuxCo in view of the first distribution. In the light of the T-Danmark judgment, the Court found that the tax authorities had proved that there had been an abuse of EU law, on the basis that without the use of LuxCo, a 15% withholding tax would have been due in the Netherlands, and after the use of LuxCo, this was not the case – based only on the formal conditions. The use of letter shares and preferred equity certificates avoided withholding tax in Luxembourg. LuxCo passed on 99.84% of the ... Read more
Sweden vs Swedish Match Intellectual Property AB, May 2022, Supreme Administrative Court, Case No Mål: 5264--5267-20, 5269-20

Sweden vs Swedish Match Intellectual Property AB, May 2022, Supreme Administrative Court, Case No Mål: 5264–5267-20, 5269-20

At issue was whether the acquisition value of an inventory acquired from a related company should be adjusted on the basis of Swedish arm’s length provisions or alternatively tax avoidance provisions According to the arm’s length rule in Chapter 18, Section 11 of the Income Tax Act, the acquisition value is to be adjusted to a reasonable extent if the taxpayer or someone closely related to the taxpayer has taken steps to enable the taxpayer to obtain a higher acquisition value than appears reasonable and it can be assumed that this has been done in order to obtain an unjustified tax advantage for one of the taxpayer or someone closely related to the taxpayer. Company (A) acquired a trademark from another company (B) in the same group for a price corresponding to its market value and used the acquisition value as the basis for depreciation deductions totalling approximately SEK 827 million. At B, the tax value of the trademark amounted ... Read more
Norway vs Fortis Petroleum Norway AS, March 2022, Court of Appeal, Case No LB-2021-26379

Norway vs Fortis Petroleum Norway AS, March 2022, Court of Appeal, Case No LB-2021-26379

In 2009-2011 Fortis Petroleum Norway AS (FPN) bought seismic data related to oil exploration in the North Sea from a related party, Petroleum GeoServices AS (PGS), for NKR 95.000.000. FBN paid the amount by way of a convertible intra-group loan from PGS in the same amount. FPN also purchased administrative services from another related party, Consema, and later paid a substantial termination fee when the service contract was terminated. The acquisition costs, interest on the loan, costs for services and termination fees had all been deducted in the taxable income of the company for the years in question. Central to this case is the exploration refund scheme on the Norwegian shelf. This essentially means that exploration companies can demand cash payment of the tax value of exploration costs, cf. the Petroleum Tax Act § 3 letter c) fifth paragraph. If the taxpayer does not have income to cover an exploration cost, the company receives payment / refund of the tax ... Read more
Sweden vs Flir Commercial Systems AB, January 2022, Administrative Court of Appeal, Case No 2434–2436-20

Sweden vs Flir Commercial Systems AB, January 2022, Administrative Court of Appeal, Case No 2434–2436-20

In 2012, Flir Commercial Systems AB sold intangible assets from a branch in Belgium and subsequently claimed a tax relief of more than SEK 2 billion in fictitious Belgian tax due to the sale. The Swedish Tax Agency decided not to allow relief for the Belgian “tax”, and issued a tax assessment where the relief of approximately SEK 2 billion was denied and a surcharge of approximately SEK 800 million was added. An appeal was filed with the Administrative Court, In March 2020 the Administrative Court concluded that the Swedish Tax Agency was correct in not allowing relief for the fictitious Belgian tax. In the opinion of the Administrative Court, the Double tax agreement prevents Belgium from taxing increases in the value of the assets from the time where the assets were owned in Sweden. Consequently, any fictitious tax cannot be credited in the Swedish taxation of the transfer. The Court also considers that the Swedish Tax Agency was correct ... Read more

TPG2022 Chapter V paragraph 5.43

Another way for countries to encourage taxpayers to fulfil transfer pricing documentation requirements is by designing compliance incentives such as penalty protection or a shift in the burden of proof. Where the documentation meets the requirements and is timely submitted, the taxpayer could be exempted from tax penalties or subject to a lower penalty rate if a transfer pricing adjustment is made and sustained, notwithstanding the provision of documentation. In some jurisdictions where the taxpayer bears the burden of proof regarding transfer pricing matters, a shift of the burden of proof to the tax administration’s side where adequate documentation is provided on a timely basis offers another measure that could be used to create an incentive for transfer pricing documentation compliance ... Read more

TPG2022 Chapter V paragraph 5.42

Care should be taken not to impose a documentation-related penalty on a taxpayer for failing to submit data to which the MNE group did not have access. However, a decision not to impose documentation-related penalties does not mean that adjustments cannot be made to income where prices are not consistent with the arm’s length principle. The fact that positions are fully documented does not necessarily mean that the taxpayer’s positions are correct. Moreover, an assertion by a local entity that other group members are responsible for transfer pricing compliance is not a sufficient reason for that entity to fail to provide required documentation, nor should such an assertion prevent the imposition of documentation-related penalties for failure to comply with documentation rules where the necessary information is not forthcoming ... Read more

TPG2022 Chapter V paragraph 5.41

Documentation-related penalties imposed for failure to comply with transfer pricing documentation requirements or failure to timely submit required information are usually civil (or administrative) monetary penalties. These documentation-related penalties are based on a fixed amount that may be assessed for each document missing or for each fiscal year under review, or calculated as a percentage of the related tax understatement ultimately determined, a percentage of the related adjustment to the income, or as a percentage of the amount of the cross-border transactions not documented ... Read more

TPG2022 Chapter V paragraph 5.40

Many countries have adopted documentation-related penalties to ensure efficient operation of transfer pricing documentation requirements. They are designed to make non-compliance more costly than compliance. Penalty regimes are governed by the laws of each individual country. Country practices with regard to transfer pricing documentation-related penalties vary widely. The existence of different local country penalty regimes may influence the quality of taxpayers’ compliance so that taxpayers could be driven to favour one country over another in their compliance practices ... Read more

TPG2022 Chapter V paragraph 5.8

This compliance objective may be supported in two important ways. First, tax administrations can require that transfer pricing documentation requirements be satisfied on a contemporaneous basis. This would mean that the documentation would be prepared at the time of the transaction, or in any event, no later than the time of completing and filing the tax return for the fiscal year in which the transaction takes place. The second way to encourage compliance is to establish transfer pricing penalty regimes in a manner intended to reward timely and accurate preparation of transfer pricing documentation and to create incentives for timely, careful consideration of the taxpayer’s transfer pricing positions. Filing requirements and penalty provisions related to documentation are discussed in greater detail in Section D below ... Read more

TPG2022 Chapter IV paragraph 4.28

Since penalties are only one of many administrative and procedural aspects of a tax system, it is difficult to conclude whether a particular penalty is fair or not without considering the other aspects of the tax system. Nonetheless, OECD member countries agree that the following conclusions can be drawn regardless of the other aspects of the tax system in place in a particular country. First, imposition of a sizable “no-fault” penalty based on the mere existence of an understatement of a certain amount would be unduly harsh when it is attributable to good faith error rather than negligence or an actual intent to avoid tax. Second, it would be unfair to impose sizable penalties on taxpayers that made a reasonable effort in good faith to set the terms of their transactions with associated enterprises in a manner consistent with the arm’s length principle. In particular, it would be inappropriate to impose a transfer pricing penalty on a taxpayer for failing ... Read more

TPG2022 Chapter IV paragraph 4.27

It is generally regarded by OECD member countries that the fairness of the penalty system should be considered by reference to whether the penalties are proportionate to the offence. This would mean, for example, that the severity of a penalty would be balanced against the conditions under which it would be imposed, and that the harsher the penalty the more limited the conditions in which it would apply ... Read more

TPG2022 Chapter IV paragraph 4.26

Because cross-border transfer pricing issues implicate the tax base of two jurisdictions, an overly harsh penalty system in one jurisdiction may give taxpayers an incentive to overstate taxable income in that jurisdiction contrary to Article 9. If this happens, the penalty system fails in its primary objective to promote compliance and instead leads to non-compliance of a different sort – non-compliance with the arm’s length principle and under-reporting in the other jurisdiction. Each OECD member country should ensure that its transfer pricing compliance practices are not enforced in a manner inconsistent with the objectives of the OECD Model Tax Convention, avoiding the distortions noted above ... Read more

TPG2022 Chapter IV paragraph 4.25

Improved compliance in the transfer pricing area is of some concern to OECD member countries and the appropriate use of penalties may play a role in addressing this concern. However, owing to the nature of transfer pricing problems, care should be taken to ensure that the administration of a penalty system as applied in such cases is fair and not unduly onerous for taxpayers ... Read more

TPG2022 Chapter IV paragraph 4.24

It is difficult to evaluate in the abstract whether the amount of a civil monetary penalty is excessive. Among OECD member countries, civil monetary penalties for tax understatement are frequently calculated as a percentage of the tax understatement, where the percentage most often ranges from 10% to 200%. In most OECD member countries, the rate of the penalty increases as the conditions for imposing the penalty increase. For instance, the higher rate penalties often can be imposed only by showing a high degree of taxpayer culpability, such as a wilful intent to evade. “No-fault” penalties, where used, tend to be at lower rates than those triggered by taxpayer culpability (see paragraph 4.28) ... Read more

TPG2022 Chapter IV paragraph 4.23

Civil monetary penalties for tax understatement are frequently triggered by one or more of the following: an understatement of tax liability exceeding a threshold amount, negligence of the taxpayer, or wilful intent to evade tax (and also fraud, although fraud can trigger much more serious criminal penalties). Many OECD member countries impose civil monetary penalties for negligence or willful intent, while only a few countries penalise “no-fault” understatements of tax liability ... Read more

TPG2022 Chapter IV paragraph 4.22

Although some countries may refer to a “penalty”, the same or similar imposition by another country may be classified as “interest”. Some countries’ “penalty” regimes may therefore include an “additional tax”, or “interest”, for understatements which result in late payments of tax beyond the due date. This is often designed to ensure the revenue recovers at least the real time value of money (taxes) lost ... Read more

TPG2022 Chapter IV paragraph 4.21

Some civil penalties are directed towards procedural compliance, such as timely filing of returns and information reporting. The amount of such penalties is often small and based on a fixed amount that may be assessed for each day in which, e.g. the failure to file continues. The more significant civil penalties are those directed at the understatement of tax liability ... Read more

TPG2022 Chapter IV paragraph 4.20

There are a number of different types of penalties that tax jurisdictions have adopted. Penalties can involve either civil or criminal sanctions – criminal penalties are virtually always reserved for cases of very significant fraud, and they usually carry a very high burden of proof for the party asserting the penalty (i.e. the tax administration). Criminal penalties are not the principal means to promote compliance in any of the OECD member countries. Civil (or administrative) penalties are more common, and they typically involve a monetary sanction (although as discussed above there may be a non-monetary sanction such as a shifting of the burden of proof when, e.g. procedural requirements are not met or the taxpayer is uncooperative and an effective penalty results from a discretionary adjustment) ... Read more

TPG2022 Chapter IV paragraph 4.19

Care should be taken in comparing different national penalty practices and policies with one another. First, any comparison needs to take into account that there may be different names used in the various countries for penalties that accomplish the same purposes. Second, the overall compliance measures of an OECD member country should be taken into account. National tax compliance practices depend, as indicated above, on the overall tax system in the country, and they are designed on the basis of domestic need and balance, such as the choice between the use of taxation measures that remove or limit opportunities for noncompliance (e.g. imposing a duty on taxpayers to cooperate with the tax administration or reversing the burden of proof in situations where a taxpayer is found not to have acted in good faith) and the use of monetary deterrents (e.g. additional tax imposed as a consequence of underpayments of tax in addition to the amount of the underpayment). The nature ... Read more

TPG2022 Chapter IV paragraph 4.18

Penalties are most often directed toward providing disincentives for non-compliance, where the compliance at issue may relate to procedural requirements such as providing necessary information or filing returns, or to the substantive determination of tax liability. Penalties are generally designed to make tax underpayments and other types of non-compliance more costly than compliance. The Committee on Fiscal Affairs has recognised that promoting compliance should be the primary objective of civil tax penalties. OECD Report Taxpayers’ Rights and Obligations (1990). If a mutual agreement results in a withdrawal or reduction of an adjustment, it is important that there exist possibilities to cancel or mitigate a penalty imposed by the tax administrations ... Read more

TPG2022 Chapter IV paragraph 4.5

This section describes three aspects of transfer pricing compliance that should receive special consideration to help tax jurisdictions administer their transfer pricing rules in a manner that is fair to taxpayers and other jurisdictions. While other tax law compliance practices are in common use in OECD member countries – for example, the use of litigation and evidentiary sanctions where information may be sought by a tax administration but is not provided – these three aspects will often impact on how tax administrations in other jurisdictions approach the mutual agreement procedure process and determine their administrative response to ensuring compliance with their own transfer pricing rules. The three aspects are: examination practices, the burden of proof, and penalty systems. The evaluation of these three aspects will necessarily differ depending on the characteristics of the tax system involved, and so it is not possible to describe a uniform set of principles or issues that will be relevant in all cases. Instead, this ... Read more
Spain vs DIGITEX INFORMÁTICA S.L., February 2021, National Court, Case No 2021:629

Spain vs DIGITEX INFORMÁTICA S.L., February 2021, National Court, Case No 2021:629

DIGITEX INFORMATICA S.L. had entered into a substantial service contract with an unrelated party in Latin America, Telefonica, according to which the DIGITEX group would provide certain services for Telefonica. The contract originally entered by DIGITEX INFORMATICA S.L. was later transferred to DIGITEX’s Latin American subsidiaries. But after the transfer, cost and amortizations related to the contract were still paid – and deducted for tax purposes – by DIGITEX in Spain. The tax authorities found that costs (amortizations, interest payments etc.) related to the Telefonica contract – after the contract had been transferred to the subsidiaries – should have been reinvoiced to the subsidiaries, and an assessment was issued to DIGITEX for FY 2010 and 2011 where these deductions had been disallowed. DIGITEX on its side argued that by not re-invoicing the costs to the subsidiaries the income received from the subsidiaries increased. According to the intercompany contract, DIGITEX would invoice related entities 1% of the turnover of its own ... Read more
Ukrain vs PJSC Galnaftochim, January 2021, Supreme Court, Case No 813/3748/16

Ukrain vs PJSC Galnaftochim, January 2021, Supreme Court, Case No 813/3748/16

The tax authority conducted an inspection, where it found that PJSC Galnaftochim, when conducting business transactions with a non-resident related party, had to submit a report on controlled transactions. PJSC Galnaftochim, disagreeing with the results of the audit, appealed to the court to cancel the tax assessment notice, as there were no grounds for submitting the relevant report. When paying interest to a non-resident for using a loan, PJSC Galnaftochim paid a tax of 2% of the total interest amount and believed that the transaction was not a controlled transaction within the meaning of the Tax Code of Ukraine. The District Administrative Court upheld the claim of PJSC Galnaftochim in a ruling upheld by the Lviv Administrative Court of Appeal. The courts proceeded from the fact that the legislator, when defining the criteria for classifying a business transaction as a controlled transaction, emphasises that such a transaction must affect the object of income taxation. At the same time, the business ... Read more
Ukrain vs "Groklin-Carpathians" LLC, September 2020, Supreme Court, Case No 0740/860/18

Ukrain vs “Groklin-Carpathians” LLC, September 2020, Supreme Court, Case No 0740/860/18

The tax authority conducted an inspection of Groklin-Carpathians LLC, which revealed that the company had failed to file a controlled transactions report for 2015. On this basis, the tax authority issued a documentation penalty notice to the company. Groklin-Carpathians LLC appealed the decision, which was upheld by both the District Court and the Court of Appeal. The tax authorities then appealed to the Supreme Court. Judgement of the Supreme Court The Supreme Court dismissed the appeal. “Taking into account the circumstances of this case, as well as the officially expressed position of the fiscal authority on the procedure for determining the transaction as a controlled one, the panel of judges agrees with the conclusions of the courts of previous instances that the plaintiff has no statutory obligation to reflect the return of intangible assets in the TP Report, since such transactions do not in any way affect the increase or decrease of the plaintiff’s taxable object, which in turn indicates ... Read more
Spain vs Stavelot Comunicación S.L., May 2020, Tribunal Supremo, Case No 446/2020, STS 951/2020 - ECLI:EN:TS:2020:951

Spain vs Stavelot Comunicación S.L., May 2020, Tribunal Supremo, Case No 446/2020, STS 951/2020 – ECLI:EN:TS:2020:951

In the case at hand a related-party transactions had been carried out between a person (shareholder) and a related company. The transaction took place in 2007 and 2008 and was exempt from Spanish transfer pricing documentation requirements. The tax authorities issued an assessment where the transfer pricing had been adjusted and a penalty/fine was added to the claim. The taxpayer was of the opinion that the exemption from penalties extended to cases where the controlled transactions were exempt from transfer pricing documentation requirements. On that basis an appeal was filed. The appeal was dismissed by the lower court Judgement of the Supreme Court The Supreme court upheld the decision of the lower courts and dismissed the taxpayers appeal. According to the court, the exemption from penalties provided for in the rule on related-party transactions requires the taxpayer to be obliged to prepare transfer pricing documentation, and is therefore not applicable to those taxpayers who are exempt from the documentation requirement. In ... Read more
Greece vs S.p.A. ST. MEDICAL, May 2020, Supreme Administrative Court, Case No A 984/2020

Greece vs S.p.A. ST. MEDICAL, May 2020, Supreme Administrative Court, Case No A 984/2020

Following an audit the tax authorities issued a tax assessment and a substantial fine to S.p.A. ST. MEDICAL related to costs deducted in FY 2009, which the tax authorities claimed were partially fictitious. “the Economic Police carried out, on 22.10.2012, a tax audit of the appellant, which, during the contested management period (1.1.-31.12.2009), had as its business the wholesale trade in medical and surgical equipment, tools and similar items, keeping, for the purpose of monitoring its business, books and records of category C of the Commercial Code. During the audit carried out, in addition to the books kept by the appellant, various items of information found at its registered office (sales invoices, service receipts, delivery notes, delivery notes, exclusive distribution contracts between the appellant and foreign companies, with attached price lists of the products to be distributed, etc.) were seized for further processing, including items issued by the limited liability company ‘Praxis Company of Medical Equipment Ltd’ (‘Praxis’), established in ... Read more
Greece vs S.p.A. ST. MEDICAL, May 2020, Supreme Administrative Court, Case No A 985/2020

Greece vs S.p.A. ST. MEDICAL, May 2020, Supreme Administrative Court, Case No A 985/2020

Following an audit the tax authorities issued a tax assessment and a substantial fine to S.p.A. ST. MEDICAL related to costs deducted in FY 2010, which the tax authorities claimed were partially fictitious. “the Economic Police carried out, on 22.10.2012, a tax audit of the appellant, which, during the contested management period (1.1.-31.12.2010), had as its business the wholesale trade in medical and surgical equipment, tools and similar items, keeping, for the purpose of monitoring its business, books and records of category C of the Commercial Code. During the audit carried out, in addition to the books kept by the appellant, various items of information found at its registered office (sales invoices, service receipts, delivery notes, delivery notes, exclusive distribution contracts between the appellant and foreign companies, with attached price lists of the products to be distributed, etc.) were seized for further processing, including items issued by the limited liability company ‘Praxis Company of Medical Equipment Ltd’ (‘Praxis’), established in ... Read more
Chile vs Monsanto Chile S.A, April 2020, Tribunal Constitucional de Chile, Case N° Rol 7864-19-INA

Chile vs Monsanto Chile S.A, April 2020, Tribunal Constitucional de Chile, Case N° Rol 7864-19-INA

Monsanto Chile, Since 2018 a subsidiary in the Bayer group, had been issued a tax assessment related to FY 2009 and 2010 resulting in additional taxes of approximately $800.000.000. and penal interest of 1,5% per month in an amount of $2.216.759.197. Monsanto filed an appeal in regards to the penal interest of $2.216.759.197. In the appeal the company argued, that the interest should be inapplicable since the case has been delayed by Courts due to both lack of activities and COVID 19. Decision of the Court In a split decision the Constitutional Court ruled in favor of Monsanto and declared the penal interest inapplicable. “For all the reasons stated in this ruling, this Court concludes that the application of the penal interest provided for in the third paragraph of Article 53 of the Tax Code, in this specific case, contravenes the constitutional guarantees contained in numbers 2 and 3, paragraph 6, of Article 19 of the Constitution. For this reason, ... Read more
Panama vs "Glass Corp", February 2020,  Administrative Tribunal, Case No TAT-RF-015

Panama vs “Glass Corp”, February 2020, Administrative Tribunal, Case No TAT-RF-015

“Glass Corp” Panama, was issued a fine for not filing (in time) Transfer Pricing Report – Form 930 – for the fiscal year 2012. Article 762-I of the Tax Code in Panama establishes that failure to comply with filing obligation of transfer pricing documentation results in a fine of 1% of the total amount of the transactions with related parties. The decision of the Court “since it has been demonstrated that the formal duty to submit the Transfer Pricing Report contained in Article 762-I of the Tax Code has not been fulfilled by the company, this Administrative Tribunal considers that it is appropriate to confirm Resolution No. 201-579 of 15 October 2014 and the administrative act by which the General Revenue Directorate resolves to maintain it in all its parts.” Click here for English translation Panama Exp. 176-18 ... Read more
US vs Eaton, Oct. 2019, United States Tax Court, Docket No 5576-12

US vs Eaton, Oct. 2019, United States Tax Court, Docket No 5576-12

Eaton Corporation is a global manufacturer of electrical and industrial products headquartered in the US.  This case concerning the computation of penalties is related to a previous 2017 dispute concerning the cancellation of two advance pricing agreements (APAs) establishing a transfer pricing methodology (TPM) for covered transactions between Eaton Corp and its subsidiaries. In 2011 IRS determined that Eaton had not complied with the applicable terms of the governing APA revenue procedures and canceled APA I and APA II, effective January 1, 2005 and 2006, respectively. The US Tax Court found that the cancellation of the APAs was an abuse of discretion (US vs Eaton TC opinion from July 2017), and the APAs remained in effect. Irespective of the ruling related to the cancellation of the APAs, the IRS determined that a section 482 adjustment were still necessary to reflect an arm’s-length result for Eaton’s intercompany transactions, and that the computations should include 40% penalties pursuant to I.R.C. sec. 6662(h). Section 6662(a) imposes a ... Read more
Panama vs Chevron Panama Fuels Limited, October 2019, Administrative Court of Appeals, Case no 1060 (559-19)

Panama vs Chevron Panama Fuels Limited, October 2019, Administrative Court of Appeals, Case no 1060 (559-19)

The Transfer Pricing Department of the General Directorate of Revenue of the Ministry of Economy and Finance, through Resolution 201-1429 of 24 October 2014, decided to sanction the taxpayer Chevron Products Antilles, LTD, now Chevron Panama Fuels Limited, with a fine of one million balboas (B/. 1,000,000.00), for failure to file the Transfer Pricing Report-Form 930 for the 2012 tax period. As a result of the issuance of the resolution mentioned in the previous paragraph, Chevron’s legal representative filed an appeal for reconsideration with the tax authority, which was resolved by Resolution 201-1321 of 1 March 2016, through which the accused act was maintained in all its parts. This resolution was notified to the taxpayer on 8 April 2016. Chevron then filed an appeal before the Administrative Tax Court, which by Resolution TAT-RF-057 of 22 May 2019, confirmed the provisions of the main administrative act and its confirmatory act, being notified of this appeal ruling on 18 June 2019, thus ... Read more
Panama vs "Oil Export S.A", May 2019,  Administrative Tribunal, TAT-RF-057

Panama vs “Oil Export S.A”, May 2019, Administrative Tribunal, TAT-RF-057

“Oil Export S.A” Panama, was issued a fine of $ 1 mill. for not filing Transfer Pricing Report – Form 930 – for the fiscal year 2012. Article 762-I of the Tax Code in Panama establishes that “Failure to submit the report shall be sanctioned with a fine equivalent to 1% of the total amount of the operations with related parties. For the calculation of the fine, the gross amount of the operations shall be considered, regardless of whether they are representative of income, costs, or deductions.” The fine referred to in the paragraph shall not exceed one million balboas (B/.1,000,000.00). The decision of the Court “Consequently, since it has been demonstrated that —[“Oil Export S.A”]— did not comply with the formal obligation to submit the Transfer Pricing Report contained in Article 762-I of the Tax Code, the Tax Administration considers that it is appropriate to confirm Resolution No. 201-1429 of 24 October 2014 and its confirmation act.” Click here ... Read more
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 ... Read more
Switzerland vs "Pharma X SA", December 2018, Federal Supreme Court, Case No 2C_11/2018

Switzerland vs “Pharma X SA”, December 2018, Federal Supreme Court, Case No 2C_11/2018

A Swiss company manufactured and distributed pharmaceutical and chemical products. The Swiss company was held by a Dutch parent that held another company in France. R&D activities were delegated by the Dutch parent to its French subsidiary and compensated with cost plus 15%. On that basis the Swiss company had to pay a royalty to its Dutch parent of 2.5% of its turnover for using the IP developed. Following an audit the Swiss tax authorities concluded that the Dutch parent did not contribute to the development of IP. In 2006 and 2007, no employees were employed, and in 2010 and 2011 there were only three employees. Hence the royalty agreement was disregarded and an assessment issued where the royalty payments were denied. Instead the R&D agreement between the Dutch parent and the French subsidiary was regarded as having been concluded between the Swiss and French companies Judgement of the Supreme Court The Court agreed with the decision of the tax ... Read more
Spain vs Representaciones Creta S.L., October 2018, Tribunal Supremo, Case No 1504/2018, STS 3632/2018 - ECLI:ES:TS:2018:3632

Spain vs Representaciones Creta S.L., October 2018, Tribunal Supremo, Case No 1504/2018, STS 3632/2018 – ECLI:ES:TS:2018:3632

Tax penalties/fines had been issued following a transfer pricing adjustments in regards of controlled transactions exempt from Spanish TP documentation requirements. An appeal was filed by the taxpayer claiming to be excluded from the Spanish penalty regime. The appeal was dismissed by the lower courts. Judgement of the Supreme Court The Supreme Court upheld the decision of the lower courts and dismissed the appeal of the taxpayer. The Court ruled that the specific transfer pricing penalty regime in Spain is only applicable to the related-party transactions subject to transfer pricing requirements and that controlled transactions exempt from Spanish TP documentation requirements can trigger tax penalties where adjustments have been issued by the tax authorities. In cases, where the taxpayer is exempt from TP documentation requirement, art. 16.10.4 of the TRLIS (the exclusion from penalties) does not apply. The exclusion from penalties provided for in paragraph 4 of art. 16.10 TRLIS is only applicable when the following three circumstances apply: (a) ... Read more
Argentina vs YPF S.A., May 2018, Supreme Court, Case No TF 29.205-1

Argentina vs YPF S.A., May 2018, Supreme Court, Case No TF 29.205-1

The Tax authorities considered that the financial loans made by YPF S.A. to the controlled companies YPF Gas S.A.; Maleic S.A. and Operadora de Estaciones de Servicio constituted a “disposition of income in favor of third parties”, since in the first two cases (loans granted to YPF Gas S.A. and Maleic S.A.) the agreed interest was lower than that provided for in the aforementioned regulations, while in the last case (operation carried out with OPESSA) no interest payment had even been stipulated. Likewise, it estimated that the transfer prices corresponding to gas oil, propane butane exports made to Repsol YPF Trading and Transport S.A. were below the first quartile. Consequently, it made an adjustment to the taxable income. Furthermore, a fine equivalent to 70% of the allegedly omitted tax was issued. At issue before the Supreme Court was only the fine which was set aside. Click here for English Translation YPF FALLO CAF 040460_2012_1_RH001 ... Read more
Spain vs ICL ESPAÑA, S.A. (Akzo Nobel), March 2018, Audiencia Nacional, Case No 1307/2018  ECLI:ES:AN:2018:1307

Spain vs ICL ESPAÑA, S.A. (Akzo Nobel), March 2018, Audiencia Nacional, Case No 1307/2018 ECLI:ES:AN:2018:1307

ICL ESPAÑA, S.A., ICL Packaging Coatings, S.A., were members of the Tax Consolidation Group and obtained extraordinary profits in the financial years 2000, 2001 and 2002. (AKZO NOBEL is the successor of ICL ESPAÑA, as well as of the subsidiary ICL PACKAGING.) On 26 June 2002, ICL ESPAÑA, S.A. acquired from ICL Omicron BV (which was the sole shareholder of ICL ESPAÑA, S.A. and of Elotex AG and Claviag AG) 45.40% of the shares in the Swiss company, Elotex AG, and 100% of the shares in the Swiss company of Claviag AG. The acquisition was carried out by means of a sale and purchase transaction, the price of which was 164.90 million euros, of which ICL ESPAÑA, S.A. paid 134.90 million euros with financing granted by ICL Finance, PLC (a company of the multinational ICL group) and the rest, i.e. 30 million euros, with its own funds. On 19 September 2002, ICL Omicron BV contributed 54.6% of the shares of ... Read more

TPG2017 Chapter V paragraph 5.43

Another way for countries to encourage taxpayers to fulfil transfer pricing documentation requirements is by designing compliance incentives such as penalty protection or a shift in the burden of proof. Where the documentation meets the requirements and is timely submitted, the taxpayer could be exempted from tax penalties or subject to a lower penalty rate if a transfer pricing adjustment is made and sustained, notwithstanding the provision of documentation. In some jurisdictions where the taxpayer bears the burden of proof regarding transfer pricing matters, a shift of the burden of proof to the tax administration’s side where adequate documentation is provided on a timely basis offers another measure that could be used to create an incentive for transfer pricing documentation compliance ... Read more

TPG2017 Chapter V paragraph 5.42

Care should be taken not to impose a documentation-related penalty on a taxpayer for failing to submit data to which the MNE group did not have access. However, a decision not to impose documentation-related penalties does not mean that adjustments cannot be made to income where prices are not consistent with the arm’s length principle. The fact that positions are fully documented does not necessarily mean that the taxpayer’s positions are correct. Moreover, an assertion by a local entity that other group members are responsible for transfer pricing compliance is not a sufficient reason for that entity to fail to provide required documentation, nor should such an assertion prevent the imposition of documentation-related penalties for failure to comply with documentation rules where the necessary information is not forthcoming ... Read more

TPG2017 Chapter V paragraph 5.41

Documentation-related penalties imposed for failure to comply with transfer pricing documentation requirements or failure to timely submit required information are usually civil (or administrative) monetary penalties. These documentation-related penalties are based on a fixed amount that may be assessed for each document missing or for each fiscal year under review, or calculated as a percentage of the related tax understatement ultimately determined, a percentage of the related adjustment to the income, or as a percentage of the amount of the cross-border transactions not documented ... Read more

TPG2017 Chapter V paragraph 5.40

Many countries have adopted documentation-related penalties to ensure efficient operation of transfer pricing documentation requirements. They are designed to make non-compliance more costly than compliance. Penalty regimes are governed by the laws of each individual country. Country practices with regard to transfer pricing documentation-related penalties vary widely. The existence of different local country penalty regimes may influence the quality of taxpayers’ compliance so that taxpayers could be driven to favour one country over another in their compliance practices ... Read more

TPG2017 Chapter V paragraph 5.8

This compliance objective may be supported in two important ways. First, tax administrations can require that transfer pricing documentation requirements be satisfied on a contemporaneous basis. This would mean that the documentation would be prepared at the time of the transaction, or in any event, no later than the time of completing and filing the tax return for the fiscal year in which the transaction takes place. The second way to encourage compliance is to establish transfer pricing penalty regimes in a manner intended to reward timely and accurate preparation of transfer pricing documentation and to create incentives for timely, careful consideration of the taxpayer’s transfer pricing positions. Filing requirements and penalty provisions related to documentation are discussed in greater detail in Section D below ... Read more

TPG2017 Chapter V paragraph 5.2

This chapter provides guidance for tax administrations to take into account in developing rules and/or procedures on documentation to be obtained from taxpayers in connection with a transfer pricing enquiry or risk assessment. It also provides guidance to assist taxpayers in identifying documentation that would be most helpful in showing that their transactions satisfy the arm’s length principle and hence in resolving transfer pricing issues and facilitating tax examinations ... Read more