Tag: Service fees

Fees for the rendering of services is generally regarded as income from business activities or, in the case of a liberal profession, as income from independent personal services.

Zimbabwe vs Delta Beverages LTD, Court Case No HH664-19

Zimbabwe vs Delta Beverages LTD, Court Case No HH664-19

Delta Beverages LTD had been issued a tax assessment where various fees for service, technology license of trademarks, technology and know-how had been disallowed by the tax authorities (Zimra) of Zimbabwe. Among the issues contented by the tax authorities were technical service fees calculated as 1.5 %  of turnover. “The sole witness confirmed the advice proffered to the holding company’s board of directors in the minutes of 17 May 2002 that such an approach was common place across the world. This was confirmed by the approvals granted by exchange control authority to these charges. It was further confirmed by the very detailed 19 page Internal Comparable Analysis Report dated 5 October 2010 conducted by a reputable international firm of chartered  accountants, which was commissioned by the Dutch Company to assess internal compliance with the arm’s length principles in its transfer pricing policy for trademark royalties of its cross border brands. The commissioned firm looked at 20 comparative agreements, which were ... Continue to full case
Wheaton Precious Metals Reaches Settlement on Canadian Tax Dispute Regarding Foreign Income

Wheaton Precious Metals Reaches Settlement on Canadian Tax Dispute Regarding Foreign Income

Wheaton Precious Metals Corp. has reached a settlement with the Canada Revenue Agency which provides for a final resolution of Wheaton’s tax appeal in connection with the reassessment under transfer pricing rules of the 2005 to 2010 taxation years related to income generated by the Company’s wholly-owned foreign subsidiaries, Wheaton International, outside of Canada. Wheaton is the leading company in the precious metals streaming business, essentially providing up-front financing to mining companies looking to build mines. In return, it earns the right to buy silver and gold output from those mines at a heavily discounted price, which it sells on for a profit. When Wheaton earns money from mines outside Canada, income is reported through foreign subsidiaries and Wheaton does not pay tax on it in Canada. The CRA essentially thinks this is tax avoidance, and earnings should be taxed according to transfer pricing rules in Canada’s Income Tax Act. After the CRA went through Silver Wheaton’s records from 2005 ... Continue to full case
India vs. Gap International Sourcing Pvt. Ltd., May 2016, ITA No.1077/Del./2016

India vs. Gap International Sourcing Pvt. Ltd., May 2016, ITA No.1077/Del./2016

Gap International Sourcing was engaged in sourcing products from India to other group companies. The activity comprised of assistance in identification of vendors, provision of assistance to vendors in procurement of apparel, inspection and quality control and coordination with vendors to ensure delivery of goods to group companies. The necessary technical and intellectual basis for provision of these services were provided by the group companies. The Indian company used TNMM to benchmark the service fee at full cost plus 15%. The tax administration disregarded the functional profile and characterisation of Gap International Sourcing by assuming that the functional profile was substantially higher than those of limited risk support service providers. The tax administration found that a cost plus form of remuneration did not take into account substantial intangible assets owned by the taxpayer. Intangibles were identified to be human asset intangibles, supply chain intangibles and location savings. Based on above, the tax administration set the arm’s length remuneration at a ... Continue to full case
Canada vs Alberta Printed Circuits Ltd., April 2011, Tax Court of Canada, Case No 2011 TCC 232

Canada vs Alberta Printed Circuits Ltd., April 2011, Tax Court of Canada, Case No 2011 TCC 232

Alberta Printed Circuits Ltd (APC, the taxpayer) was a Canadian manufacturer of custom prototype circuit boards. The manufacturing process was initially manual and later automated. In 1996, a Barbados company, APCI Inc.,  was formed via a complex ownership structure. The Barbados company provided services to Alberta Printed Circuits Ltd. by performing setup functions, software and website development, and maintenance services. APCI charged the appellant a fixed fee for the setup services and a square-inch fee for non-setup services. Alberta Printed Circuits Ltd charged the same fee for the same services to third-party customers. The tax authorities asserted that the Alberta Printed Circuits Ltd overpaid APCI $3.4 million because the terms and conditions of the agreements differed from those that would have been entered at arm’s length. Alberta Printed Circuits Ltd provided evidence of internal comparable transactions and transfer prices were determined by the comparable uncontrolled price (CUP) method. The court held that the price paid to APCI for the setup fees was arm’s length. It ... Continue to full case

Czech Republic vs. Corp. February 2011, Supreme Administrative Court, Afs 19/2010-125

A Czech company (the lessor) owned real estate and rented it to independent parties. An Austrian related company provided management and consulting services to the lessor The service fees significantly increased each year, although the income of the Czech company and the number of lease contracts were constant in the examined years The tax authorities required that the taxpayer prove the actual provision of the services and their relationship to taxable income. The tax authorities rejected this explanation and concluded that the taxpayer had not proven the real condition of the real estate in the examined period. The legal question was: the scope of the burden of proof that rests with the taxpayer with respect to services received from related party The court ruled that: the taxpayer was obliged to prove the relationship of the expensed service fees to its taxable income. Tangible evidence of the provided services, including reports, correspondence and confirmation of business trips should be provided by ... Continue to full case
US vs Seagate Tech, 1994, US Tax Court 102 T.C. 149

US vs Seagate Tech, 1994, US Tax Court 102 T.C. 149

In the Seagate Tech case the US Tax Court was asked to decide on several distinct transfer pricing issues arising out of a transfer pricing adjustments issued by the IRS. Whether respondent’s reallocations of gross income under section 482 for the years in issue are arbitrary, capricious, or unreasonable; whether respondent should bear the burden of proof for any of the issues involved in the instant case; whether petitioner Seagate Technology, Inc. (hereinafter referred to as Seagate Scotts Valley), paid Seagate Technology Singapore, Pte. Ltd. (Seagate Singapore), a wholly owned subsidiary of Seagate Scotts Valley, arm’s-length prices for component parts; whether Seagate Scotts Valley paid Seagate Singapore arm’s-length prices for completed disk drives; whether Seagate Singapore paid Seagate Scotts Valley arm’s-length royalties for the use of certain intangibles; whether the royalty fee Seagate Singapore paid Seagate Scotts Valley for disk drives covered under a section 367 private letter ruling applies to all such disk drives shipped to the United States, ... Continue to full case