Tag: Substantial decrease in profit potential

Netherlands vs "BR-AGRI B.V.", September 2022, Rechtbank Noord-Holland, Case No ECLI:NL:RBNHO:2022:9062

Netherlands vs “BR-AGRI B.V.”, September 2022, Rechtbank Noord-Holland, Case No ECLI:NL:RBNHO:2022:9062

A Dutch company “BR-AGRI B.V.” had transferred functions, assets and risks to a Swiss sister company as part of a business restructuring. The profit resulting from the transfer had been determined by the group to be EUR 1,831,037. The Dutch tax authorities found that the arm’s length value of the assets transferred was EUR 350 million and issued an assessment of additional taxable profits of EUR 320 million. An appeal was filed by “BR-AGRI B.V.”. Judgement of the Court The Court set the value of the assets at EUR 85 million in accordance with an expert report. Click here for English translation Click here for other translation ... Read more

TPG2022 Chapter IX paragraph 9.22

In any analysis of risks in controlled transactions, one important issue is to assess whether a risk is economically significant, i.e. it carries significant profit potential, and, as a consequence, whether that risk may explain a significant reallocation of profit potential. The significance of a risk will depend on the likelihood of the risk materialising and the size of the potential profits or losses arising from the risk. Accounting statements may provide useful information on the probability and quantum of certain risks (e.g. bad debt risks, inventory risks), if past performance is an indicator of current risks, but there are also economically significant risks that may not be separately recorded as such in the financial accounts (e.g. market risks). If a risk is assessed to be economically insignificant for the entity, then that risk would not explain a substantial amount of the entity’s profit potential. At arm’s length a party would not be expected to lay off a risk that ... Read more