Following an audit, the tax authority determined that prices for controlled transactions had been below the arm’s length price and issued an assessment of additional taxable income.
According to the tax authority, the correct application of the arm’s length principle in this case required the price of the controlled transaction to be compared with the prices (price range) of comparable uncontrolled transactions on the basis of the information available on the date closest to the date of the controlled transaction – and not on the date where the controlled contract had been concluded.
An appeal was filed by Dniproazot with the Administrative Court of Appeal, which was later dismissed.
An appeal was then filed with the Supreme Court.
Judgment
The Supreme Court upheld the decision of the Administrative Court of Appeal.
The Court agreed with the conclusions of the tax authority that the information regarding commodity exchanges could not be applied, since the exchange is used for transactions with derivative financial instruments, rather than agreements for the supply of real goods.
The Court altso supported the tax authority’s position that the arm’s length price should be determined at the date of the controlled transaction (the date of the transfer of ownership of the goods) and not at the date of the conclusion of the controlled contract.
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