Tag: Use of other methods

India vs Kellogg India Private Limited, February 2022, Income Tax Appellate Tribunal - Mumbai, Case NoITA No. 7342/Mum/2018

India vs Kellogg India Private Limited, February 2022, Income Tax Appellate Tribunal – Mumbai, Case NoITA No. 7342/Mum/2018

Kellogg India Private Limited is engaged in manufacturing and sales of breakfast cereals and convenience foods and it operates as a licensed manufacturer under the Kellogg brand. During the year under consideration, Kellogg India had commenced business of distributing Pringles products in the Indian markets. Kellogg India purchases the pringles product from its AE Pringles International Operations SARL, based in Singapore. Singapore AE does not manufacture pringles, but in turn gets it manufactured from a third party contract manufacturer. Thereafter, the goods are supplied at a cost plus mark up of 5% on third party manufacturer’s cost. These Pringles are later imported by Kellogg India from its AE and distributed in the Indian market. Kellogg India characterised itself as a distributor of Pringles products and is responsible for the strategic and overall management of Pringles business in India. Singapore AE, being the least complex entity, was selected as the tested party for benchmarking the international transaction of import of finished ... Read more

TPG2022 Chapter IV Annex II paragraph 41

The MAP APA proposal should provide a full description of the chosen methodology. In cases involving associated enterprises, the chosen methodology should also respect the guidance found in the Guidelines on applying the arm’s length principle of Article 9 of the OECD Model Tax Convention. It is stated at paragraph 2.11 of the Guidelines that “further, any method should be permitted where its application is agreeable to the members of the MNE group involved with the transaction or transactions to which the methodology applies and also to the tax administrations in the jurisdictions of all those members.” That guidance on use of transfer pricing methods is particularly relevant in the context of a MAP APA, because of the opportunity to obtain advance agreement on the method to be used. The application of the methodology should be supported by data which can be obtained and updated over the period of the MAP APA without imposing too great a burden on the ... Read more

TPG2022 Chapter II paragraph 2.11

It is not possible to provide specific rules that will cover every case. Tax administrators should hesitate from making minor or marginal adjustments. In general, the parties should attempt to reach a reasonable accommodation keeping in mind the imprecision of the various methods and the preference for higher degrees of comparability and a more direct and closer relationship to the transaction. It should not be the case that useful information, such as might be drawn from uncontrolled transactions that are not identical to the controlled transactions, should be dismissed simply because some rigid standard of comparability is not fully met. Similarly, evidence from enterprises engaged in controlled transactions with associated enterprises may be useful in understanding the transaction under review or as a pointer to further investigation. Further, any method should be permitted where its application is agreeable to the members of the MNE group involved with the transaction or transactions to which the methodology applies and also to the ... Read more

TPG2022 Chapter II paragraph 2.9

Moreover, MNE groups retain the freedom to apply methods not described in these Guidelines (hereafter “other methods”) to establish prices provided those prices satisfy the arm’s length principle in accordance with these Guidelines. Such other methods should however not be used in substitution for OECD-recognised methods where the latter are more appropriate to the facts and circumstances of the case. In cases where other methods are used, their selection should be supported by an explanation of why OECD-recognised methods were regarded as less appropriate or non- workable in the circumstances of the case and of the reason why the selected other method was regarded as providing a better solution. A taxpayer should maintain and be prepared to provide documentation regarding how its transfer prices were established. For a discussion of documentation, see Chapter V ... Read more
Bulgaria vs KEY END ES ENERGY, April 2020, Supreme Administrative Court, Case No 4972

Bulgaria vs KEY END ES ENERGY, April 2020, Supreme Administrative Court, Case No 4972

Key End Es Energy concluded a share purchase and sale agreement of 20.12.2012 with a related party LUKERG BULGARIA GmbH, under which KEY END EU ENERGY transferred to its parent company LUKERG BULGARIA GmbH the ownership of the shares in eight subsidiaries. The subsidiaries owned a total of 15 wind turbines for the production of electricity and operated them on the Bulgarian energy market. According to the Purchase and Sale Agreement the price of the shares were BGN 20 935 937,75. Following an audit of the transaction the tax authorities issued an assessment of additional taxable income for FY 2012 related to the sale of shares. According to the authorities the arm´s length value of the shares were BGN 38 609 215,00. This value was determined based on a CUP/CUT method. As support/sanity check for the valuation the DCF method and the DuPont Analysis was also applied. The additional value was added to the taxable income of Key End Es ... Read more
Hungary vs "Lender" Kft, February 2020, Budapest Administrative Court, Case No. 16.K.33.691/2019/18

Hungary vs “Lender” Kft, February 2020, Budapest Administrative Court, Case No. 16.K.33.691/2019/18

In 2008 Lender Kft. entered into a loan agreement with its foreign domiciled affiliated company Kft. 1. According to the terms of the contract, the loan amounted to 53,174,516, the maturity date of the loan was 31 January 2013 and the interest was paid semi-annually at the semi-annual CDI rate fixed in the contract plus 200 basis points per annum. In the years 2009-2011, Kft. 1 paid 15 % of the interest as withholding tax, and Lender Kft. received 85 % of the interest. In its books, Lender Kft. entered 100 % of the interest as income, while the 15 % withholding tax was recorded as other expenses. According to Lender Kft’s transfer pricing records, the normal market interest rate range was 8,703 % to 10,821 % in FY 2009, 10,704 % to 12,598 % in the FY 2010 and 10,704 % to 12,598 % in FY 2001, and the interest rates applied in the loan transaction were 10,701 % ... Read more
Russia vs Ashin Steel Trading House, February 2019, Court of Appeal, Case No. A76-19287/2018

Russia vs Ashin Steel Trading House, February 2019, Court of Appeal, Case No. A76-19287/2018

A group company, PI, purportedly provided management services to the Ashin Steel Trading House. During the audit for FY 2013-2015 the tax authority came to the conclusions that Ashin Steel Trading House and the PI had “deliberately created a management relationship scheme so that service providers are listed on the staff of an entrepreneur who pays tax on the ONS with the object of taxation “income””. Significant sums of money was transferred to PIs in the form of payments for the provision of management services for their subsequent withdrawal and to the accounts of an individual (from the accounts of the PI), which allowed the Company to minimize tax revenues. The tax authority recalculated the Company’s expenses for the management services, using a combination of transfer pricing methods – cost plus and comparable profitability. The Decision of the Court of Appeal: The CUP method has priority, but in cases where it is not subject to application, the tax authority has ... Read more

TPG2017 Chapter II paragraph 2.11

It is not possible to provide specific rules that will cover every case. Tax administrators should hesitate from making minor or marginal adjustments. In general, the parties should attempt to reach a reasonable accommodation keeping in mind the imprecision of the various methods and the preference for higher degrees of comparability and a more direct and closer relationship to the transaction. It should not be the case that useful information, such as might be drawn from uncontrolled transactions that are not identical to the controlled transactions, should be dismissed simply because some rigid standard of comparability is not fully met. Similarly, evidence from enterprises engaged in controlled transactions with associated enterprises may be useful in understanding the transaction under review or as a pointer to further investigation. Further, any method should be permitted where its application is agreeable to the members of the MNE group involved with the transaction or transactions to which the methodology applies and also to the ... Read more

TPG2017 Chapter II paragraph 2.9

Moreover, MNE groups retain the freedom to apply methods not described in these Guidelines (hereafter “other methods”) to establish prices provided those prices satisfy the arm’s length principle in accordance with these Guidelines. Such other methods should however not be used in substitution for OECD-recognised methods where the latter are more appropriate to the facts and circumstances of the case. In cases where other methods are used, their selection should be supported by an explanation of why OECD-recognised methods were regarded as less appropriate or non- workable in the circumstances of the case and of the reason why the selected other method was regarded as providing a better solution. A taxpayer should maintain and be prepared to provide documentation regarding how its transfer prices were established. For a discussion of documentation, see Chapter V ... Read more