The rate of return on capital employed is the ratio of operating profit to operating assets. The reliability of this profit level indicator increases as operating assets play a greater role in generating operating profits for both the tested party and the uncontrolled comparable. In addition, reliability under this profit level indicator depends on the extent to which the composition of the tested party’s assets is similar to that of the uncontrolled comparable. Finally, difficulties in properly valuing operating assets will diminish the reliability of this profit level indicator ... Read more

“Tobacco S.A.” is the parent company of a group active in the tobacco industry. C. SA is a subsidiary of the group and operates as a toll manufacturer (Toller) on behalf of another subsidiary, B S.A. For the manufacturing services provided C S.A receives a “toll fee” from B S.A. According to the manufacturing service agreement the toll fee is calculated, based on Toller’s production costs plus and the capital invested by Toller in the production. Following an audit the tax authorities issued an additional assessment of corporate income tax and compensatory interest, relating to FY 2009, in the amount of EUR 1,395,039.79. The tax authorities considered that i) to correct the value of the production costs of the year 2009, in the amount corresponding to the deduction of the income with the “Write Off” of several credit balances of third parties over the company, since these deductions were not provided for in the contract; ii) to correct the value ... Read more

A Danish HQ acquired goods from an affiliated contract manufacturing company. The Danish tax authorities issued an adjustment of the prices based on the Danish arm’s length provisions contained in section 2 of the Tax Assessment Act. Decision of the Tax tribunal The Tax Tribunal found that the tax authorities had proved that the company’s method for pricing the controlled transactions contained too many uncertainties. The Tax Tribunal further found that the method applied by the tax authorities was in accordance with the OECD Transfer Pricing Guidelines, as the contract manufacturing activities could be equated with a service. Finally, the Tax Tribunal did not find that the pricing of controlled transactions of goods or services could be based on a return on capital employed (ROCE). Pricing of controlled transactions of goods or services was to be based on a comparability analysis of similar transactions between independent companies, cf. OECD Transfer Pricing Guidelines 2010, p. 1.33 and 1.38. Click here for ... Read more