Tag: Related parties

Related parties are entities under common management, control or ownership, or where one entity controls the other entity.

Czech Republic vs D. D. D. SERVIS OPAVA v. o. s., August 2021, Supreme Administrative Court, Case No 1 Afs 109/2021 - 67

Czech Republic vs D. D. D. SERVIS OPAVA v. o. s., August 2021, Supreme Administrative Court, Case No 1 Afs 109/2021 – 67

Following an audit the tax authorities issued an assessment of additional income resulting from an adjustment of the tax deductions related to marketing expenses. According to the tax authorities the parties to the transactions were “otherwise related” within the meaning of the Czech arm’s length provisions in § 23 par. b) point 5 of the Income Tax Act. SERVIS OPAVA filed an appeal against the assessment claiming that the tax authorities did not established the existence of a relationship between the parties and therefore had no legal basis for the adjustment. The Regional Administrative Court dismissed the appeal and upheld the decision of the tax authorities. An appeal was then filed against this decision with the Supreme Administrative Court Judgement of the Supreme Administrative Court The court decided in favour of SERVIS OPAVA. The prerequisite for the adjustment of the tax base pursuant to Section 23(7) of Act No. 586/1992 Coll., on Income Taxes, is the determination that the relationship ... Read more
Czech Republic vs. LCN GROUP s.r.o., July 2021, Supreme Administrative Court, Case No 2 Afs 148/2020 - 37

Czech Republic vs. LCN GROUP s.r.o., July 2021, Supreme Administrative Court, Case No 2 Afs 148/2020 – 37

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
Netherlands vs "Related Party B.V.", July 2021, District Court, Case No ECLI:NL:RBGEL:2021:3382

Netherlands vs “Related Party B.V.”, July 2021, District Court, Case No ECLI:NL:RBGEL:2021:3382

In 2013 “Related Party B.V” entered into an agreement with “X BV” for the provision of transportation- and support services for oil and gas. The Dutch tax authority suspected that the parties were affiliated within the meaning of Section 8b of the Corporate Income Tax Act 1969. Decision of Court The Court decided in favor of the tax authority. Based on the documents in the case, the tax authority rightly suspected that there was an affiliation within the meaning of Section 8b of the Corporate Income Tax Act. The tax authority was therefore entitled to reasonably issue information decisions for the Vpb for 2013 to 2016 inclusive. Nemo Tenetur Principle – self incrimination “Related Party B.V” argued that it’s right not to incriminate itself had been violated because the information decision(s) had been issued to examine the possibility of imposing a fine. In this regard, the court observed that pursuant to the law a taxpayer is obliged to provide the ... Read more
Poland vs A S.A., June 2021, Provincial Administrative Court, Case No I SA/Gl 1649/20

Poland vs A S.A., June 2021, Provincial Administrative Court, Case No I SA/Gl 1649/20

The business activity of A S.A. was wholesale of pharmaceutical products to external pharmacies, hospitals, wholesalers (including: to affiliated wholesalers). The tax authority had noted that the company’s name had been changed in FY 2013, and a loss in the amount of PLN […] had been reported in the company’s tax return. An audit revealed that the Company had transferred significant assets (real estate) to a related entity on non-arm’s length terms. The same real estate was then going forward made available to the company on a fee basis under lease and tenancy agreements. The tax authority issued an assessment where a “restructuring fee” in the amount of PLN […] was added to the taxable income, reflecting the amount which would have been achieved if the transaction had been agreed between independent parties. According to the company the tax authority was not entitled at all to examine the compliance of the terms of these transactions with the terms that would ... Read more
Chile vs Avery Dennison Chile S.A., March 2021, Tax Court, Case N° RUT°96.721.090-0

Chile vs Avery Dennison Chile S.A., March 2021, Tax Court, Case N° RUT°96.721.090-0

The US group, Avery Dennison, manufactures and distributes labelling and packaging materials in more than 50 countries around the world. The remuneration of the distribution and marketing activities performed Avery Dennison Chile S.A. had been determined to be at arm’s length by application of a “full range” analysis. Furthermore, surplus capital from the local company had been placed at the group’s financial centre in Luxembourg, Avery Management KGAA, at an interest rate of 0,79% (12-month Libor). According the tax authorities in Chile the remuneration of the local company had not been at arm’s length, and the interest rate paid by the related party in Luxembourg had been to low. Judgement of the Tax Tribunal The Tribunal decided in favour of Avery Dennison Chile S.A. “Hence, the Respondent [tax authorities] failed to prove its allegations that the marketing operations carried out by the taxpayer during the 2012 business year with related parties not domiciled or resident in Chile do not conform ... Read more
Czech Republic vs D. D. D. SERVIS OPAVA v. o. s., January 2021, Regional Court in Ostrava, Case No 22 Af 42/2019- 36

Czech Republic vs D. D. D. SERVIS OPAVA v. o. s., January 2021, Regional Court in Ostrava, Case No 22 Af 42/2019- 36

Following an audit the tax authorities issued an assessment of additional income resulting from an adjustment of the tax deductions related to marketing expenses. According to the tax authorities the parties to the transactions were “otherwise related” within the meaning of the Czech arm’s length provisions in § 23 par. b) point 5 of the Income Tax Act. SERVIS OPAVA filed an appeal against the assessment claiming that the tax authorities did not established the existence of a relationship between the parties and therefore had no legal basis for the adjustment. Judgment of the Regional Court The Court dismissed the appeal and upheld the decision of the tax authorities. The court first dealt with the interpretation of § 23 par. b) point 5 of the Income Tax Act. In this regard the court stated that was clear from the content of the administrative file that the applicant had a duly concluded contract with the supplier. The court therefore rejected the ... Read more
Czech Republic vs. LCN Group s.r.o., April 2020, Regional Court, Case No 25 Af 76/2019 - 42

Czech Republic vs. LCN Group s.r.o., April 2020, Regional Court, Case No 25 Af 76/2019 – 42

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
Taiwan vs Goodland, February 2020, Supreme Administrative Court, Case No 147 of 109

Taiwan vs Goodland, February 2020, Supreme Administrative Court, Case No 147 of 109

Goodland Taiwan had sold 7 machines to a local buyer via a related party in Hongkong thus avoiding taxes on sales profits. The transaction had been audited by the Taiwanese tax administration and an assessment issued. Goodland brought the case to court. The Supreme Administrative court dismissed the appeal and upheld the assessment. “The appeal alleges that the original judgment failed to conduct an investigation, but does not specify what the original judgment found to be wrong or what specific legal norm was violated. In fact, Article 2 of the Regulations Governing the Recognition of Income from Controlled Foreign Enterprises by Profit-making Enterprises, as cited in the appeal, states that Article 3 and Article 4, paragraph 2, of the Regulations Governing the Recognition of Income from Controlled Foreign Enterprises and the Unusual Transfer Pricing Check for Business Enterprises, as cited in the appeal, are all specific to the income tax law and may not be consistent with the judgment of ... Read more
Czech Republic vs. J.V., May 2019, Supreme Administrative Court, Case No 2 Afs 131/2018 - 59

Czech Republic vs. J.V., May 2019, Supreme Administrative Court, Case No 2 Afs 131/2018 – 59

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
Italy vs Veneto Banca, July 2017, Regional Tax Court, Case No 2691/2017

Italy vs Veneto Banca, July 2017, Regional Tax Court, Case No 2691/2017

In 2014, the tax authorities issued the Italien Bank a notice of assessment with which it reclaimed for taxation IRAP for 2009 part of the interest expense paid by the bank to a company incorporated under Irish law, belonging to the same group which, according to the tax authorities, it also controlled. In particular, the tax authorities noted that the spread on the bond was two points higher than the normal market spread. The Bank appealed the assessment, arguing that there was no subjective requirement, because at the time of the issue of the debenture loan it had not yet become part of the group of which the company that had subscribed to the loan belonged. It also pleaded that the assessment was unlawful because it applied a provision, Article 11(7) TUIR, provided for IRES purposes, the extension of which to IRAP purposes was provided for by Article 1(281) of Law 147/13, a provision, however, of an innovative nature, the ... Read more
Chile vs "MMM Limitada", July 2015, Tax Court, Case N° RIT GR-12-00069-2013

Chile vs “MMM Limitada”, July 2015, Tax Court, Case N° RIT GR-12-00069-2013

The Tax Court accepted a claim filed against an assessments resulting from the application of transfer pricing rules. MMM Limitada indicated that the Internal Revenue Service was unable to exercise its powers to challenge the prices of exports made, since the companies participating in the disputed transactions were not related. It added that the Revenue Service had not used the system of reasonable profitability, nor that of reasonable margin on production costs, nor the comparison with international prices, lacking a logical analysis in the determination of prices, since these did not consider the factors that differentiate the quality of the chips, thus violating the rule of Article 38 of the Income Tax Law. The Revenue Service based its analysis on a comparison of the terms of an intercompany transaction with the terms of a transaction between independent companies, using factors including the characteristics of the good being traded, the functions performed by the companies involved in the transaction, the contractual ... Read more
Ecuador vs JFC Ecuador S.A., November 2014, National Court, Case No. 488-2012

Ecuador vs JFC Ecuador S.A., November 2014, National Court, Case No. 488-2012

JFC Ecuador is active in coordination and logistic operations for the transfer of Ecuadorian fruit to related parties in the Russian JFC Group. Following an audit the tax authorities issued an assessment where the prices of these transactions had been determined based on quoted prices issued by the authorities in the SOPISCO NEWS database. However, according to JFC Ecuador, SOPISCO NEWS does not correspond to a publicly available international trade exchange or price database. On the contrary, it is a bulletin that lists quotations that involve price estimates, established through unidentified sources. The price quotations listed by SOPISCO NEWS correspond to prices that the bulletin presumes were agreed upon by companies that have carried out the management and marketing and sales for the placement of the product, while JFC Ecuador did not carry out such activities. Judgment of the Court The Court concludes that the use of the SOPISCO NEWS database by the Tax Administration, as it is an internationally ... Read more
Czech Republic vs. EWE s.r.o., June 2013, Supreme Administrative Court , Case No 7 Afs 48/2013 – 31

Czech Republic vs. EWE s.r.o., June 2013, Supreme Administrative Court , Case No 7 Afs 48/2013 – 31

EWE s.r.o first criticised the Regional Court for the lack of logical reasoning in the grounds of the judgment, based on evidence that it had established a legal relationship with another person mainly for the purpose of reducing the tax base. Although the facts adduced by the administrative court show that ‘some third parties’ created a relationship between them for that purpose, it does not indicate which evidence shows that it was she who created such a relationship for the purpose of reducing the tax base, as is intended by section 23(7)(b)(5) of the Income Tax Act. This defect in the court’s decision is all the more serious since she herself argued that no evidence was adduced in the administrative proceedings (in the tax inspection report) to show that she was knowingly involved in a chain of otherwise connected persons. It is thus merely the unproven assumptions of the tax authorities. No such evidence was presented by the Police of ... Read more
Germany vs "Asset management Gmbh", April 2013, Supreme Administrative Court, Case No I R 45/11

Germany vs “Asset management Gmbh”, April 2013, Supreme Administrative Court, Case No I R 45/11

Asset management Gmbh was a subsidiary of a Luxembourg investment fund management company. The German company paid substantial fees to a Luxembourg service company. Both companies in Luxembourg were wholly-owned by a Luxembourg holding company. Asset management Gmbh was obliged to follow the policies of the fund. These could only be revised by a two-thirds majority resolution of the investors. The German company argued that this restriction meant that its Luxembourg shareholder could not be forced to follow a common business policy with the service provider. Accordingly the two were not related parties within the meaning of the Foreign Tax Act and there was no requirement for it to furnish the extensive transfer pricing documentation in support of its transactions with associated enterprises as required by the Tax Management Act. In any case, the fact that these transfer pricing documentation requirements only applied to cross-border transactions was a restriction on the freedom to provide (receive) services and thus contrary to ... Read more
Czech Republic vs. P. S., March 2013, Supreme Administrative Court , Case No 5 Afs 34/2012 – 65

Czech Republic vs. P. S., March 2013, Supreme Administrative Court , Case No 5 Afs 34/2012 – 65

According to the tax authorities, the prices agreed between the P.S. and her husband, as lessors, and Long Wave, s.r.o. (‘Long Wave’), as lessee, differed from the prices which would have been agreed between independent persons in normal commercial relations under the same or similar conditions. According to the tax authorities, P.S., together with her husband and Long Wave, are persons who have created a legal relationship mainly for the purpose of reducing the tax base. According to the appellant, P.S, the conditions laid down in the judgment of the Supreme Administrative Court of 31 March 2009, No 8 Afs 80/2007-105, were not met and the tax administrator’s procedure for determining the normal price was seriously flawed. Judgement of the Court The Supreme Administrative Court concluded that the appeal as a whole was unfounded and therefore dismissed it Excerpt “In the present case, the complainant was informed of the difference in the agreed prices and at the same time asked ... Read more
Czech Republic vs. B.p., s.r.o., June 2007, Supreme Administrative Court , Case No 8 Afs 152/2005 – 72

Czech Republic vs. B.p., s.r.o., June 2007, Supreme Administrative Court , Case No 8 Afs 152/2005 – 72

The subject-matter of the dispute was the exclusion of the rent for lease of machinery and equipment. It referred to the lease and sublease agreements for non-residential premises, machinery and equipment with the companies B.p., s.r.o. and M.-T., s.r.o., by which the parties agreed that the objects of the lease agreements would be used free of charge for a certain period of time – during the trial period. Bp s.r.o. disputed the use of transfer prices in accordance with the arm’s length principle and the question of the tenant’s payment behaviour. It argued economic aspects – the possibility of making a real profit over a longer period of time. According to the taxpayer the tax authority should have examined the possibility of obtaining a total profit for the taxpayer over a five-year period and not simply applied ‘the most ideal course of market economics (i.e. the business partners are always solvent and the market situation is optimal)’. It also supplemented ... Read more