Tag: Research and development (R&D)

Any systematic or intensive study carried out in the manufacturing and industrial field, the results of which are to be used for the production or improvement of products and processes.

Poland vs "S." sp. z o.o., August 2023, Supreme Administrative Court, Case No II FSK 1427/21

Poland vs “S.” sp. z o.o., August 2023, Supreme Administrative Court, Case No II FSK 1427/21

“S.” sp. z o.o. had filed a requested a written interpretation (binding ruling) with the tax authorities. The company had asked the following question: when calculating the income ratio to which the tax rate referred to in Article 24d(1) of the A.P.C. may be applied, can the transfer pricing regulations be applied accordingly (mutatis mutandis) by applying the profit split method – residual analysis (the method listed in § 13(3)(2) of the Ordinance). The request was dismissed by the tax authorities, stating that it could not assess the position presented in the application, as this would go beyond the framework of the individual interpretation proceedings defined by the legislator. An appeal was filed by “S” sp. z o.o. with the regional court and the court ruled in favour of the company. An appeal was then filed by the tax authorities with the the Supreme Administrative Court. Judgement of the Supreme Administrative Court. The Court dismissed the appeal of the tax authorities ... Read more

§ 1.482-3(a) In general.

The arm’s length amount charged in a controlled transfer of tangible property must be determined under one of the six methods listed in this paragraph (a). Each of the methods must be applied in accordance with all of the provisions of § 1.482-1, including the best method rule of § 1.482-1(c), the comparability analysis of § 1.482-1(d), and the arm’s length range of § 1.482-1(e). The methods are – (1) The comparable uncontrolled price method, described in paragraph (b) of this section; (2) The resale price method, described in paragraph (c) of this section; (3) The cost plus method, described in paragraph (d) of this section; (4) The comparable profits method, described in § 1.482-5; (5) The profit split method, described in § 1.482-6; and (6) Unspecified methods, described in paragraph (e) of this section ... Read more

TPG2022 Chapter VI paragraph 6.80

The principles set out in this section similarly apply in situations where a member of an MNE group provides manufacturing services that may lead to process or product improvements on behalf of an associated enterprise that will assume legal ownership of such process or product improvements. Examples 14 to 17 in the Annex I to Chapter VI illustrate in greater detail the application of this Section B in the context of research and development arrangements ... Read more
Israel vs Sephira & Offek Ltd and Israel Daniel Amram, August 2021, Jerusalem District Court, Case No 2995-03-17

Israel vs Sephira & Offek Ltd and Israel Daniel Amram, August 2021, Jerusalem District Court, Case No 2995-03-17

While living in France, Israel Daniel Amram (IDA) devised an idea for the development of a unique and efficient computerized interface that would link insurance companies and physicians and facilitate financial accounting between medical service providers and patients. IDA registered the trademark “SEPHIRA” and formed a company in France under the name SAS SEPHIRA . IDA then moved to Israel and formed Sephira & Offek Ltd. Going forward the company in Israel would provid R&D services to SAS SEPHIRA in France. All of the taxable profits in Israel was labled as “R&D income” which is taxed at a lower rate in Israel. Later IDA’s rights in the trademark was sold to Sephira & Offek Ltd in return for €8.4m. Due to IDA’s status as a “new Immigrant” in Israel profits from the sale was tax exempt. Following the acquisition of the trademark, Sephira & Offek Ltd licensed the trademark to SAS SEPHIRA in return for royalty payments. In the books ... Read more
Norway vs A/S Norske Shell, May 2020, Supreme Court, Case No HR-2020-1130-A

Norway vs A/S Norske Shell, May 2020, Supreme Court, Case No HR-2020-1130-A

A / S Norske Shell runs petroleum activities on the Norwegian continental shelf. By the judgment of the Court of Appeal in 2019, it had been decided that there was a basis for a discretionary tax assessment pursuant to section 13-1 of the Tax Act, based on the fact that costs for research and development in Norway should have been distributed among the other group members. According to section 13-1 third paragraph of the Norwegian Tax Act the Norwegian the arms length provisions must take into account OECD’s Transfer pricing guidelines. And according to the Court of Appeal the Petroleum Tax Appeals Board had correctly concluded – based on the fact – that this was a cost contribution arrangement. Hence the income determination then had to be in accordance with what follows from the OECD guidelines for such arrangements (TPG Chapter VIII). The question before the Supreme Court was whether this additional income assessment should also include the part of ... Read more
Norway vs A/S Norske Shell, September 2019, Borgarting lagmannsrett, Case No LB-2018-79168 – UTV-2019-807

Norway vs A/S Norske Shell, September 2019, Borgarting lagmannsrett, Case No LB-2018-79168 – UTV-2019-807

A/S Norske Shell – an entity within the Dutch Shell group – had operations on the Norwegian continental shelf and conducted research and development (R&D) through a subsidiary. All R&D costs were deducted in Norway. The Norwegian tax authority applied the arms length principle and issued a tax assessment. It was assumed that the R&D expense was due to a joint interest with the other upstream companies in the Shell group. The Court of Appeal found that the R&D conducted in Norway also constituted an advantage for the foreign companies within the group for which an independent company would demand compensation. The resulting reduction in revenue provided the basis for determining the company’s income on a discretionary basis in accordance with section 13-1 of the Tax Act. The tax authorities determination of the amount of the income reduction had not based on an incorrect or incomplete fact, nor did the result appear arbitrary or unreasonable. The Court of Appeal concluded ... Read more
France vs SAP Laps SAS, February 2019, Administrative Tribunal of Montreuil, Case No. 1801945

France vs SAP Laps SAS, February 2019, Administrative Tribunal of Montreuil, Case No. 1801945

SAP Labs France SAS provided IT-related services to its German parent company, SAP AG, and received a cost-plus 6 % remuneration. According to the R&D agreement all income taxes, including withholding tax, applied on the amount paid by the parent company pursuant to the agreement would be paid for by the French company. However, the French tax administration held that the French company should have included the CVAE tax in the cost base on which it was remunerated, and by not doing so SAP Laps France had indirectly transferred profit to SAP AG. A tax reassessments under the French arm’s length provisions was then issued. SAP disagreed with the assessment and brought the case before the Administrative Tribunal. The Administrative Tribunal issued a decision in favor of the tax administration. “6. The contribution on the added value of companies is a burden on the company. Consequently, this tax could not be disregarded when determining the transfer price of the services ... 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
US vs Xilinx Inc, March 2010, Court of Appeal, Nos. 06-74246, 06-74269

US vs Xilinx Inc, March 2010, Court of Appeal, Nos. 06-74246, 06-74269

At issue was whether, under the tax regulations in effect during tax years 1997, 1998 and 1999, related companies engaged in a joint venture to develop intangible property must include the value of certain stock option compensation one participant gives to its employees in the pool of costs to be shared under a cost sharing agreement, even when companies operating at arm’s length would not do so. The tax court found related companies are not required to share such costs and ruled that the Commissioner of Internal Revenue’s attempt to allocate such costs was arbitrary and capricious. Judgement of the Court of Appeal The Court of Appeal affirmed the decision of the Tax Court. August 16, 2010, the Department of the Treasury, IRS, issued an ACTION ON DECISION US vs XILINX INC 2010 ... Read more
US vs Xilinx Inc, May 27, 2009, Court of Appeal

US vs Xilinx Inc, May 27, 2009, Court of Appeal

In a decision the IRS determined that Xilinx should have allocated stock option costs for foreign subsidiary research and development employees as part of its Section 482-7 cost-sharing agreement calculation. The United States Tax Court overruled the IRS, finding that in an arm’s-length situation, unrelated parties would not allocate employee stock option costs in the way determined by the IRS. The Court of Appeals later in 2009 overruled the opinion of the tax court, and found in favor of the IRS. US-vs-XILINX-INC-CIR06-74246 ... Read more