Tag: Working capital adjustment

TPG2022 Chapter III paragraph 3.49

An example of a working capital adjustment designed to reflect differing levels of accounts receivable, accounts payable and inventory is provided in the Annex to Chapter III. The fact that such adjustments are found in practice does not mean that they should be performed on a routine or mandatory basis. Rather, the improvement to comparability should be shown when proposing these types of adjustments (as for any type of adjustment). Further, a significantly different level of relative working capital between the controlled and uncontrolled parties may result in further investigation of the comparability characteristics of the potential comparable ... Read more

TPG2022 Chapter II paragraph 2.87

In those cases where there is a correlation between the credit terms and the sales prices, it could be appropriate to reflect interest income in respect of short-term working capital within the calculation of the net profit indicator and/or to proceed with a working capital adjustment, see paragraphs 3.47-3.54. An example would be where a large retail business benefits from long credit terms with its suppliers and from short credit terms with its customers, thus making it possible to derive excess cash that in turn may make it possible to have lower sales prices to customers than if such advantageous credit terms were not available ... Read more
India vs ST Microelectronics Pvt. Ltd., September 2020, Income Tax Tribunal, ITA No.6169/Del./2012

India vs ST Microelectronics Pvt. Ltd., September 2020, Income Tax Tribunal, ITA No.6169/Del./2012

ST Microelectronics Pvt. Ltd. is a subsidiary of ST Microelectronics Pte. Ltd. which in turn is a wholly owned subsidiary of ST Microelectronics NV, Netherlands. ST Microelectronics Pvt. Ltd. is into the business of Integrated Circuit Design, CAD Tools and software development for its overseas group concerns. It also provides marketing support services to a group company and software development services related to design implementation and maintenance with respect to Integrated Circuits as required by guidelines/instructions. During the year under assessment, the taxpayer entered into various transactions with its Associated Enterprises. In order to benchmark its international transactions qua provision of software development services and qua provision of marketing support services ST Microelectronics used Transactional Net Margin Method (TNMM) with Operating Profit/Operating Cost as the Profit Level Indicator (PLI) being the Most Appropriate Method (MAM), computed its own margin at 11.11% as against weighted average arithmetic mean margin of 19 comparables at 11.31% and found its international transactions at arm’s ... Read more
Argentina vs Volkswagen Argentina S.A., December 2019, Court of Appeal, Case No CAF 057064/2013/CA001 - CA002

Argentina vs Volkswagen Argentina S.A., December 2019, Court of Appeal, Case No CAF 057064/2013/CA001 – CA002

The case of Volkswagen Argentina S.A. revolves around benchmarking and comparability adjustments. In the transfer pricing analysis Volkswagen adjusts the results of the tested party (local entity) for extraordinary losses due to local economic conditions. The Federal Court of Appeals supports the adjustment to the results of the tested party and also the approach of averaging out the results of the tested party over a period of three year. Click here for English Translation ARGVW dec 2019 ... Read more

TPG2017 Chapter III paragraph 3.49

An example of a working capital adjustment designed to reflect differing levels of accounts receivable, accounts payable and inventory is provided in the Annex to Chapter III. The fact that such adjustments are found in practice does not mean that they should be performed on a routine or mandatory basis. Rather, the improvement to comparability should be shown when proposing these types of adjustments (as for any type of adjustment). Further, a significantly different level of relative working capital between the controlled and uncontrolled parties may result in further investigation of the comparability characteristics of the potential comparable ... Read more

TPG2017 Chapter II paragraph 2.87

In those cases where there is a correlation between the credit terms and the sales prices, it could be appropriate to reflect interest income in respect of short-term working capital within the calculation of the net profit indicator and/or to proceed with a working capital adjustment, see paragraphs 3.47-3.54. An example would be where a large retail business benefits from long credit terms with its suppliers and from short credit terms with its customers, thus making it possible to derive excess cash that in turn may make it possible to have lower sales prices to customers than if such advantageous credit terms were not available ... Read more
India vs. Adaptec (India) P. Ltd., March 2015, Income Tax Appellate Tribunal, ITA.No. 206/Hyd/2014

India vs. Adaptec (India) P. Ltd., March 2015, Income Tax Appellate Tribunal, ITA.No. 206/Hyd/2014

Adaptec. Ltd. is engaged in the business of software, design and development and testing in the field of storage solutions. It filed its tax return declaring income of Rs.89,51,330. Since assessee is functioning as service provider to it’s group parent on cost + 10% margin basis. Following an audit, the tax authorities selected 17 comparable companies, and arrived at an arithmetic mean of 25.26% and issued an assessment of additional taxable income of Rs.63,53,365. Adaptec filed an appeal with the Income Tax Appellate Tribunal. Judgement of the Court The Court ruled predominantly in favour of the tax authorities but remanded the case for recalculations. India vs Adaptec_India_P_Ltd 206-Hyd-2014 ... Read more