Tag: Profit split method

A transactional profit method is a method that identifies the combined profit to be split for the associated enterprises from a controlled transaction (or controlled transactions that it is appropriate to aggregate under the principles of Chapter III) and then splits those profits between the associated enterprises based upon an economically valid basis that approximates the division of profits that would have been anticipated and reflected in an agreement made at arm’s length.

Italy vs SIOT S.p.A. June 2020, Cassazione, Case no Sez. 5 Num. 11837

Italy vs SIOT S.p.A. June 2020, Cassazione, Case no Sez. 5 Num. 11837

This case concerns Società Italiana per l’Oleodotto Transalpino Spa (S.I.O.T.) – , which operates the transalpine oil pipeline that crosses Italy, Austria and Germany, with the Austrian subsidiary T.O.O. GmbH and with the German subsidiary D.T.O. GmbH, belonging to the same group of companies. The Italian tax authorities had issued four notices of assessment for FY 2003-2006, related to undeclared revenues, determined in application of the transfer pricing regulations, according to which revenues deriving from transactions with foreign companies must be determined according to the “normal value” of the goods sold or services provided, cf, the arm’s length principle. S.I.O.T. had allocated profit from the activity between the Italien, Austrian and German pipelines using the profit split method – where kilometers of pipeline was the splitting factor. However, the cost of maintenance borne of S.I.O.T. was almost three times higher than that of the other two companies managing the pipeline due to the geography. The tax authorities therefore adjusted the ... Continue to full case
Revised guidance on the profit split method from the OECD

Revised guidance on the profit split method from the OECD

June 2018 the OECD released revised guidance on the profit split method. The new guidance will be incorporated into the OECD Transfer Pricing Guidelines, replacing the previous text on the transactional profit split method in Chapter II. The revised guidance retains the basic premise that the profit split method should be applied where it is found to be the most appropriate method to the case at hand, but it significantly expands the guidance available to help determine when that may be the case. It also contains more guidance on how to apply the method, as well as numerous examples. revised-guidance-on-the-application-of-the-transactional-profit-split-method-beps-action-10 ... Continue to full case
Tokyo District Court, judgment of November 24 2017

Tokyo District Court, judgment of November 24 2017

A Japanese company had entered into a series of controlled transactions with foreing group companies granting services and licences to use intangibles – know-how related to manufacturing and sales, training, and provided support by sending over technical experts. The company had used a CUP method to price these transactions based on select “internal comparables”. Tax authorities disagreed with the company and found that the residual profit split method should be applied to price the transactions. The court found the transactions should be aggregated and that the price should be determined for the full packaged deal – not separately for each transaction. The foreign related-party transactions were compared – as a whole – to the comparable transactions selected by the company and the court found that the product lines, how to use them and frequency of dispatching employees to support the foreing group company were not comparable. This could have resulted in differences the value of the intangibles and services provided ... Continue to full case
US vs. Microsoft Corp. February 1998

US vs. Microsoft Corp. February 1998

Microsoft appealed an IRS ruling, which had disallowed the use of the profit-split method to recalculate Microsoft’s taxable income. In this decision, the United States Tax Court found in Microsoft’s favor, granting the motion for summary judgment. US-Microsoft_decision_02101998 ... Continue to full case