Cargill Bulgaria’s main activity is trade and export of agricultural goods and products, including wheat, corn, barley, sunflower, and rapeseed. During the audited period it was part of the Cargill group, and the examined controlled transactions were intra group sales of agricultural goods to related parties identified as CARGIL INTERNATIONAL S.A. (Switzerland), CARGIL N.V., CARGIL B.V., and CARGIL AGRICULTURA SRL. The dispute concerned whether the sales prices under these controlled transactions complied with the arm’s length principle. The tax authority carried out a tax audit and increased the company’s financial result for the related party sales of goods by 6 286 943,88 leva for 2016, by 4 226 549,26 leva for 2017, and by 2 556 103,41 leva for 2018, leading to additional corporate tax for 2016, 2017, and 2018 in a total amount of 1 061 752,73 leva plus late payment interest in a total amount of 629 516,45 leva. In the audit the tax authority reviewed the Cost Plus ... Read more

SNA Europe France was a French distributor within the SNA group. It bought DIY, tools and gardening products from a Swedish related company, SNA Europe Services AB, which sourced the goods from manufacturers. The goods were stored in Spain and the Netherlands and shipped directly to customers of SNA Europe France in France. The French company invoiced French retailers and earned a margin as a reseller. Its internal transfer pricing policy was designed to give it a profit margin of about 3 percent of turnover. To support the pricing of the controlled transactions, it relied on a set of 22 external comparable companies and used a gross margin based approach. The tax administration challenged the pricing. It accepted the external comparables from 2010 onwards but argued that the way SNA Europe France calculated its gross margin was incorrect because it excluded large discounts it granted to customers. Once those discounts were taken into account, the administration found that the French ... Read more

De Grisogono Italia s.r.l. is an Italian company that sells luxury watches and jewellery through its boutiques in Rome and Porto Cervo. It purchases jewellery and watches from its Swiss parent company, De Grisogono SA, for resale on the Italian market. For the years 2014–2016, the company documented its transfer pricing using the TNMM with a net cost plus indicator, treating itself as a limited risk distributor. Following a tax audit, the Revenue Agency issued additional tax and VAT assessments for 2014–2016. On transfer pricing, it accepted the use of TNMM but rejected the taxpayer’s profit level indicator and comparables. Using the AIDA database, it built its own set of external comparables and tested De Grisogono Italia’s results with EBIT margins, concluding that the company’s persistent losses showed that the prices paid to the Swiss parent were far from the arm’s length price. The assessments also challenged amortisation of goodwill and the VAT treatment of certain sales as exports. De ... Read more

De Grisogono Italia s.r.l. is an Italian company that sells luxury watches and jewellery through its boutiques in Rome and Porto Cervo. It purchases jewellery and watches from its Swiss parent company, De Grisogono SA, which is the group’s sole manufacturing entity. For the years 2010–2013, the pricing of the controlled transactions was determined using the CUP method, resulting in losses for the Italian company. Following a tax audit, the Revenue Agency issued additional tax assessments for the years in question totalling EUR 4,689,952. This was based on the premise that the prices paid for purchases from the Swiss parent were far from those applied by comparable companies. The tax authority applied the TNMM with ROS (return on sales) as the profit level indicator. Having selected comparable companies and determined an arm’s length ROS range, it concluded that De Grisogono Italia’s margins indicated that the transfer prices for intra-group purchases differed from the arm’s length price. De Grisogono Italia challenged ... Read more

A Hungarian company had a permanent establishment (PE) in Germany. The PE carried out meat cutting work on the basis of work contracts dated 23 February 2017 with the Hungarian company Z Kft. The PE concluded a service agreement with A Kft. in which A Kft. undertook to provide administrative services in the area of support for employees in Germany and was to receive a fee calculated as a percentage of net sales in return. Following an audit of the PE the German tax authorities issued an assessment of additional taxabel income based on the German ordinance on allocation of profits to permanent establishments. In the assessment the service fee was instead determined using the cost plus method. Not satisfied with the assessment a complaint was filed by the PE with the Tax Court. In its complaint the PE argued that the tax authorities corrected all of the PE’s sales in Germany without a corresponding legal basis. Contrary to the ... Read more

PT Acer Indonesia is an Indonesian distributor of computer and electronics products. For 2019 it had controlled transactions with related parties that it tested under TNMM using return on sales as the profit level indicator, alongside third party sales where it granted settlement discounts and channel rebates reflected at invoice level. The tax authority accepted TNMM in principle but rejected most of the taxpayer’s selected comparable companies and replacing them with a new set of comparables it considered more appropriate. On that basis it concluded that the taxpayer’s profitability was not arm’s length. Separately, it also increased turnover by treating settlement discounts and channel rebates as income due to alleged lack of substantiation. The taxpayer appealed and argued that the authority applied an overly rigid and unsupported comparability standard, while its own comparables were appropriate for a TNMM analysis and the authority’s replacement set was not shown to be better. It also argued that, on the results, its return on ... Read more

Ferroli España, S.L.U. is a Spanish manufacturer manufacture of cookers and heaters. In FY 2010 and 2011 the company had various transactions with other companies in the Ferroli Group and reported negative profit margins on these transactions. According to the company this was due to the financial crises in Spain. Following an audit, the tax authorities issued a notice of assessment where the profit of Ferrolia had been adjusted resulting in additional taxable income. The TNN method had been used and profits were adjusted to the median. An appeal was filed by Ferroli. Judgment of the Court The Court largely ruled in favor of the tax authorities, but according to the Court, an adjustment to the median could only be made where the tax authorities established the existence of comparability defects. Since sufficient proof of such defects had not been established, the adjustment was reduced to the lower quartile (3 % ROS). Excerpts “We are therefore within the scope of ... Read more

“Soybean-oil” had purchased crude soybean oil from a related party and used the CUP method to price the controlled transactions. The tax authorities disagreed with the choice of method and instead applied a TNMM. On that basis an assessment of additional taxable profits was issued. Not satisfied with the assessment, “Soybean-oil” appealed to the Tax Court. Decision of the Court The Court set aside the assessment and ruled in favour of “Soybean-oil”. Click here for English Translation ... Read more

Burkert Contromatic Italiana s.p.a. is engaged in sale and services of fluid control systems. The italian company is a subsidiary of the German Bürkert Group. Following a tax audit, the Italian tax authorities issued a notice of assessment for FY 2007 on the grounds that the cost resulting from the transactions with its parent company (incorporated under Swiss law) were higher than the arms length price of these transactions. The company challenged the tax assessment, arguing that the analysis carried out by the Office had been superficial, both because it had examined accounting documents relating to tax years other than the one under examination (2007), and because the Office, in confirming that the Transactional Net Margin Method (TNMM) was the most reliable method, in order to verify whether the margin obtained by the company corresponded to the arm’s length value, had carried out a comparability analysis (aimed at identifying the net remuneration margin obtained by independent third parties in similar ... Read more

“TP Packaging” is mainly engaged in the marketing of packaging materials, which in 2013 required a number of goods and services provided by its related companies. The transfer pricing analysis of the controlled transactions was carried out with “TP Packaging” as the tested party. The transactional net margin method (TNMM) was applied using the profitability indicator ROS (return on sales) and external comparables (eleven comparables). “TP Packaging”‘s financial information for the years 2011 to 2013 was used but certain adjustments had been made to the 2013 financial results. The results showed that “TP Packaging”‘s profitability in 2013 was within the interquartile range. The tax authorities agreed with the study presented in the transfer pricing analysis. However, they did not accept the use of multi-year financial information (years 2011 to 2013) and the adjustments made to the financial results. As a result, “TP Packaging”‘s profitability in 2013 was now below the interquartile range. A transfer pricing adjustment was therefore made to ... Read more

BIOMERIEUX ESPAÑA SA is active in the business of clinical and biological analysis, production, distribution, training and technical assistance. Likewise, the provision of computer services and, in particular, the computer management of laboratories. Following an audit the tax authorities found that the controlled prices agreed for the acquisition of instruments and consumables between bioMérieux España and its related entities, bioMérieux SA and bioMérieux Inc, did not provided bioMérieux España with an arm’s length return on is controlled activities. A tax assessment was issued for FY 2008 on the basis af a thorough critical analysis of the benchmark study provided by the BIOMERIEUX, and detailed reasoning and analysis in regards to comparability and market developments. Judgment of the National Court The Audiencia Nacional dismissed the appeal of Biomerieux España SA and decided in favour of the tax authorities. Excerpts “As we already reasoned in our SAN (2nd) of 6 March 2019 (Rec. 353/2015 ), it is legitimate to resort to what ... Read more

The tax administration had issued an adjustment to the taxable profit of IKEA’s subsidiary in Spain considering that taxable profit in years 2007, 2008, and 2009 had not been determined in accordance with the arm’s length principle. In 2007 taxable profits had been below the interquartile range and in 2008 and 2009 taxable profits had been within the interquartile range but below the median. In all years taxable profits had been adjusted to the median in the benchmark study. Judgment of the Court In regards to the adjustment mechanism – benchmark study, interquartile range, median – the Court provide the following reasoning “However, the OECD Guidelines in point 3.60 provide that “if the relevant terms of the controlled transaction (e.g. price or margin) are within the arm’s length range, no adjustment is necessary”. Conversely, under rule 3.61, if the relevant terms of the controlled transaction “(e.g., price or margin) are outside the arm’s length range determined by the tax administration, ... Read more

It is up to the Tax Administration to prove the existence of transactions between related companies with clear discrepancies compared to transactions of the same kind on an independent market, while the taxpayer bears the burden of proving that the transactions took place for market values to be considered normal. This is the division of the burden of proof at the basis of the decision of the Milan Regional Tax Commission (CTR) rejecting the appeal lodged by the Tax Revenue Office. The taxpayer, in the case in question, has in fact fulfilled its burden by describing and documenting in the records that the functions and organization chart of the German subsidiary were such as to give an exhaustive account of the peculiarities of the latter and of the reliability of the CUP method (Comparable Uncontrolled Price Method) used. On the contrary, however, the comparables used by the Revenue Office to prove the validity of its assessment were incorrect because they ... Read more

N. S.P.A. was issued a notice of assessment in regards of transfer pricing. The PLI initially taken into consideration by the tax authorities was the return on sales (ROS). The company observed that, since the uniform application of such a PLI to the amount of all revenues was not possible, it was necessary to take into consideration only the revenues deriving from intra-group transactions. At this point, the tax authorities, instead of simply requesting the income statement for these transactions, proceeded to the assessment on the basis of a completely different PLI, the ROA (return on assets: operating profit to total assets). An appeal was filed by N. S.P.A with the Provincial Tax Commission and in a judgment issued in 2015 the commission concluded that the tax authorities had failed to comply with its duty of fairness and that it had used a different method in the assessment without exploring the possibility of correcting the initial objection, thus completely nullifying ... Read more