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Database of Transfer Pricing Case Laws

Türkiye vs “Service Provider”, May 2022, Danıştay Üçüncü Dairesi, Esas No : 2022/433, Karar No : 2022/2278

Posted on May 16, 2022 | By Courts of Turkey | No comments

Category: Comparability Analysis, Services and Fees | Tag: Comparability analysis, Comparability factors, Comparables search, Hidden distribution of profits, Intra-group services

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In this case, the Turkish Council of State reviewed an appeal by the Tax Office against a Tax Court decision that had annulled an additional VAT penalty imposed on a Turkish company.

The penalty was based on claims that the company had distributed hidden profits to its foreign affiliate by providing services at undervalued prices, violating transfer pricing rules.

The lower court found the comparability analysis used in the tax authority’s report insufficient, noting that only 2 of 8 companies were comparable and that key comparability factors had not been properly considered.

Judgment

The Council of State agreed with the lower court, finding no legal basis to reverse the decision, and thus dismissed the appeal and upheld the annulment of the tax penalty

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Related Guidelines

TPG2022 Chapter III paragraph 3.47The need to adjust comparables and the requirement for accuracy and reliability are pointed out in these Guidelines on several occasions, both for the general application of the arm’s length principle and more specifically in the context of each method. To be comparable means that none of the differences (if...

TPG2022 Chapter III paragraph 3.46The process followed to identify potential comparables is one of the most critical aspects of the comparability analysis and it should be transparent, systematic and verifiable. In particular, the choice of selection criteria has a significant influence on the outcome of the analysis and should reflect the most meaningful economic...

TPG2022 Chapter III paragraph 3.45It would not be appropriate to give systematic preference to one approach over the other because, depending on the circumstances of the case, there could be value in either the “additive” or the “deductive” approach, or in a combination of both. The “additive” and “deductive” approaches are often not used...

TPG2022 Chapter III paragraph 3.44One advantage of the “deductive” approach is that it is more reproducible and transparent than the “additive”. It is also easier to verify because the review concentrates on the process and on the relevance of the selection criteria retained. On the other hand, it is acknowledged that the quality of...

TPG2022 Chapter III paragraph 3.43In practice, both quantitative and qualitative criteria are used to include or reject potential comparables. Examples of qualitative criteria are found in product portfolios and business strategies. The most commonly observed quantitative criteria are: Size criteria in terms of Sales, Assets or Number of Employees. The size of the transaction...

TPG2022 Chapter III paragraph 3.42The second possibility, the “deductive” approach, starts with a wide set of companies that operate in the same sector of activity, perform similar broad functions and do not present economic characteristics that are obviously different. The list is then refined using selection criteria and publicly available information (e.g. from databases,...

TPG2022 Chapter III paragraph 3.41The first one, which can be qualified as the “additive” approach, consists of the person making the search drawing up a list of third parties that are believed to carry out potentially comparable transactions. Information is then collected on transactions conducted by these third parties to confirm whether they are...

TPG2022 Chapter III paragraph 3.40There are basically two ways in which the identification of potentially comparable third party transactions can be conducted....

TPG2022 Chapter III paragraph 3.28On the other hand, internal comparables are not always more reliable and it is not the case that any transaction between a taxpayer and an independent party can be regarded as a reliable comparable for controlled transactions carried on by the same taxpayer. Internal comparables where they exist must satisfy...

TPG2022 Chapter I paragraph 1.50The following example illustrates the concept of determining the actual transaction where a transaction has not been identified by the MNE. In reviewing the commercial or financial relations between Company P and its subsidiary companies, it is observed that those subsidiaries receive services from an independent party engaged by Company...

Supplemental Guidance

Switzerland vs “A.”, March 2019, Court of Justice, Case No ATA/222/2019A Swiss trust and company manager paid its 99%-owned Seychelles subsidiary for corporate registration services under a 2009 contract. The Geneva tax authority capped allowable remuneration at 5% of the subsidiary's expenses, adding the remainder to taxable income as a hidden profit distribution. The Court of Justice overturned the Administrative...

Türkiye vs Pharmaceutical Industry and Trade Corporation, December 2011, Danıştay Üçüncü Dairesi, E. 2009/2352, K. 2011/7637, UYAP, 20.12.2011.A Turkish pharmaceutical company purchased active ingredients from foreign group companies at prices the tax authority deemed above market, alleging hidden profit distribution with deviations of 150–975%. The tax court ruled in favour of the taxpayer in December 2011, finding that the CUP analysis lacked sufficient comparability data, as ingredient...

Panama vs “Construction S.A.”, December 2021, Administrative Tribunal, Case No TAT- RF-111 (112/2019)A Panamanian construction company paid management and construction service fees to related parties during 2011–2013. The tax authority challenged the benchmark studies in the transfer pricing documentation, citing comparability defects and insufficient proof of service delivery. The Panama Administrative Tribunal ruled in favour of the taxpayer in December 2021, revoking...

Switzerland vs “A AG”, September 2023, Federal Administrative Court, Case No A-4976/2022A Swiss company paid related parties for intra-group services priced using the internal CUP method. Tax authorities rejected this approach and applied the cost-plus method instead, issuing a revised assessment. The Federal Administrative Court overturned this in 2023, ruling that the CUP method takes precedence under OECD guidelines when comparable...

Tanzania vs Williamson Diamonds Limited, July 2025, Court of Appeal, Case No. 2025 TZCA 720 (Civil Appeal No 436 of 2023)Williamson Diamonds Limited, operator of a major Tanzanian diamond mine, disputed transfer pricing adjustments made by the tax authorities over intra-group diamond sales and management fees paid abroad. The authorities disallowed deductions for inadequately documented service charges. The Tax Appeals Tribunal and Tanzania Court of Appeal upheld the assessments in...

Poland vs F. S.A., August 2025, Supreme Administrative Court, Case No II FSK 1463/22A Polish company specialising in e-grocery logistics was assessed for additional taxable income after tax authorities applied the transactional net margin method and challenged its intra-group service pricing. The Tax Administration Chamber and Administrative Court annulled the assessment over inappropriate comparables. The Supreme Administrative Court, ruling in August 2025, rejected...

Italy vs “TNMM S.r.l.”, September 2025, Tax Court, Case No 454/2025An Italian company receiving intra-group services was assessed for additional taxable income after tax authorities applied TNMM benchmarking and set arm's length profitability at the third quartile. The taxpayer challenged the comparability of selected European companies, citing differences in business models and asset structures, including fleet ownership. The Italian Tax...

Poland vs “Blueberry Factory” Sp z.o.o., June 2018, Supreme Administrative Court, II FSK 1665/16A Polish blueberry processing company purchased fruit from related shareholders at prices the tax authority deemed excessive, inflating deductible costs and generating losses across 2011–2013. Authorities applied the resale price method and disallowed PLN 347,845 in expenses. The Supreme Administrative Court in 2018 ruled mostly in favour of the taxpayer...

TPcases

Türkiye vs “Service Provider”, May 2022, Danıştay Üçüncü Dairesi, Esas No : 2022/433, Karar No : 2022/2278

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