Cyanamid Philippines, INC was engaged in the marketing of various products in the areas of pharmaceutical, animal health and nutrition, and crop protection chemicals as well as medical devices. The tax authorities issued an assessment for deficiency income tax, arising from (a) overstatement of cost of goods due to transfer pricing of products, namely; aurofac and minocycline, which petitioner purchased from its parent company, American Cyanamid; and (b) unnecessary and unreasonable payment of royalties to the latter company for the supply of technical know-how. Judgement of the Tax Court The Court decided in favour of Cyanamid Philippines. According to the court, the tax authorities had acted in an arbitrary, unreasonable, and capricious manner. There were no apparent attempt to verify the comparability of the pharmaceutical products being compared under a comparable uncontrolled price (CUP) method analysis. “It can be gleaned readily from the facts that the physical property and circumstances in the processing and sale of petitioner’s products are not “identical” or ...
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