Viva Decor TOV, is part of the Sintra Group, which manufactures and sells wallpaper. Viva Decor challenged two tax assessments issued by the tax authorities in February 2020, which assessed additional corporate income tax and reduced VAT refunds, due to mispricing of controlled transactions in FY 2013–2015. The dispute focused on the correct period to use for calculating profit level indicators under the TNMM.
The tax authority claimed Viva Decor improperly calculated its profitability for the relevant periods—using full-year figures (2013, 2015)while the tax authorities insisted only data from the months when the transactions were officially recognized as “controlled” (September–December 2013 and January–May 2015) should be used. The tax authorities also alleged flaws in Viva Decor’s transfer pricing documentation and accounting errors, including the treatment of exchange rate differences and the valuation of inventories.
Viva Decor argued that full-year financial data should be used because the wallpaper market is seasonal, and that the databases used for comparables only offer annual figures. The company also maintained that its accounting treatment followed national standards and that the tax authority’s adjustments were flawed.
The Administrative Court sided with Viva Decor in 2021, ruling that the tax notices were unlawful. It held that the seasonal nature of wallpaper demand justified the use of full-year data and that the tax authority had failed to appropriately adjust for this. The court also found errors in the authorities’ adjustments and agreed with Viva Decor’s accounting treatment regarding inventory write-downs and exchange rate gains. .
The Administrative Court of Appeal initially overturned the lower courts decision but, following a partial remand from the Supreme Court in April 2023, re-heard the case and reinstated the original ruling in October 2023. The Court of Appeal confirmed the importance of seasonality in the wallpaper market, which the tax authorities had failed to properly consider, and agreed that Viva Decor’s use of annual profitability figures was justified in the absence of more granular comparable data.
The tax authority filed a cassation appeal, arguing that the courts misapplied the law and failed to follow prior case law.
Judgment
The Supreme Court dismissed the appeal of the tax authorities and upheld the decision of the Court of Appeal. It held that seasonality of demand is a relevant economic factor for comparability under Article 39 of the Ukrainian Tax Code and that using full-year data is acceptable when no quarterly comparable data exists. The Court emphasized that the taxpayer’s financial results must be compared with those of comparable companies under conditions that ensure a reliable analysis, including appropriate consideration of seasonal trends. It also clarified that references to unrelated prior Supreme Court decisions did not concern similar legal issues.
The Supreme Court found no procedural or substantive errors in the lower courts’ decisions and concluded that the tax authority’s cassation appeal merely expressed disagreement with the assessment of evidence, which is beyond the scope of cassation review.
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