Central Economic-Administrative Tribunal

FIRST CHAMBER

DATE: 26 May 2021

 

 

PROCEEDINGS: 00-02545-2019; 00-06926-2019

CONCEPT: CORPORATE INCOME TAX. I.SDES.

NATURE: SINGLE GENERAL INSTANCE CLAIM

CLAIMANT: XZ SL - NIF ....

REPRESENTATIVE: ... - NIF ...

ADDRESS: ... - Spain

At Madrid, the Court was convened as indicated above to rule in sole instance on the above-mentioned claim, which is being processed under the general procedure.

The present claim has been heard against the settlement agreement issued by the Regional Inspection Unit of the Special Delegation of the AEAT of Madrid, for the concept of CORPORATE TAX, years 2011 to 2013, derived from the non-conformity report with reference number ..., with a tax debt to be paid in the amount of 1,570,291.77 euros, of which 1,339,429.59 correspond to tax and 230,862.18 to late payment interest.

FACTUAL BACKGROUND

FIRST.- On 17/05/2019 the present claim, filed on 14/05/2019, was received by this Court.

SECOND.- The commencement of the verification and investigation proceedings was carried out by means of a communication dated 08/02/2017, notified on 08/02/2017.

Insofar as in the course of the proceedings a procedure to check the market value of related transactions took place, the valuation adjustment resulting from the same not being the sole object of the regularisation carried out, two assessments were issued for the same concept and periods -Corporate Income Tax periods 2011-2012-2013, initiated on the same day: a first Assessment -Act A02 no. . ...5-, which is the basis for the contested agreement, limited to the settlement proposal arising from the valuation adjustment made in the related transaction between the company XT SA (included in the tax consolidation group a/07) and the Portuguese entity XZ SA, and a second assessment A02-..., which documents the other elements resulting from the tax adjustment made.

XZ SL's corporate purpose is to participate in the businesses of other companies, to prepare and carry out commercial, tax, financial, accounting and economic analyses and studies, to provide IT services, to finance operations and businesses, to grant loans and similar and to carry out leasing and similar operations. In addition to the functions it performs directly, the company is the parent company of a group of entities engaged mainly in the manufacture, distribution and sale of pharmaceutical and cosmetic products and products intended for human consumption, and the production of wine.

Of all the entities making up the group, the following were audited:

- XZ SL, as the parent company.

- XW SA (...) and

- XT SA (...).

The disputed adjustment in the present complaint refers to the prices agreed in the sales of generic medicines made by XT SA to a Portuguese subsidiary in the years under review, on the grounds that the prices agreed do not correspond to those that would have been agreed between independent parties under conditions of free competition.

THIRD.- On 22/04/2019 the settlement agreement was notified, which resulted in a tax debt to be paid in the amount of 1,570,291.77 euros, of which 1,339,429.59 corresponds to the tax liability and 230,862.18 to late payment interest.

As a result of the verification carried out, disciplinary proceedings were initiated which ended with the agreement notified on 23/10/2019, which resulted in a fine of 252,814.23 euros to be paid.

FOURTH - On 14/05/2019 and 14/11/2019, economic-administrative claims were lodged against both resolutions, presenting the allegations that are analysed below.

GROUNDS OF LAW

FIRST.- This Court is competent to rule in accordance with the provisions of Law 58/2003, of 17 December, General Taxation Law (LGT), as well as the General Regulations for the development of Law 58/2003, of 17 December, General Taxation Law, in matters of administrative review (RGRVA), approved by Royal Decree 520/2005, of 13 May. None of the causes of inadmissibility foreseen in article 239.4 of the LGT are present.

SECOND.- The aforementioned claims are resolved cumulatively in accordance with the provisions of article 230 of the LGT.

THIRD.- This Court must rule on the following:

-Limitation due to excess of the duration of the inspection period.

-Valuation of transactions between related entities.

-Error in the calculation of late payment interest.

FOURTH.- The claimant firstly alleges that the inspection proceedings have exceeded the legally authorised period and, therefore, the right to settle and demand the tax debts corresponding to financial years 2011 and 2012 is time-barred. On 22 June 2015, the entity and the subsidiaries XW and XT were notified of the commencement of partial verification and investigation proceedings in respect of the IS corresponding to the 2010 financial year, limited to the verification of the corrections to the accounting result. During the course of the inspection proceedings, the Inspectorate agreed to extend the scope to various items and years (2011 and 2012). On 20 July 2016, the inspection proceedings were concluded by means of a Settlement Agreement. On 8 February 2017, the entity received from the same Regional Inspection Unit of the Special Delegation of Madrid a communication from the same Regional Inspection Unit of the Special Delegation of Madrid to initiate general verification and investigation proceedings relating to the IS for the 2011-2012-2013 financial years. On 22 April 2019, it was notified of the Settlement Agreement for the years 2011, 2012 and 2013. It argues that the Inspectorate had more than 38 months to carry out the inspections for the years 2011 and 2012, which were carried out partially in the first stage and in a general manner in the second stage. It takes the view that it should not be acceptable that the same tax year can be the subject of successive partial inspections which, taken together, exceed that maximum limit of 27 months. In the applicant's view, the principle of a single procedure has been infringed in that, instead of extending the inspection procedures of the first procedure, the administration has combined two quasi-consecutive inspection procedures. This way of acting constitutes a procedural fraud of the rules that determine the maximum duration of the proceedings.

Article 150 of Law 58/2003 General Tax Law, as amended by Law 34/2015, states the following with regard to the duration of inspection proceedings:

Term of inspection proceedings.

1. The inspection proceedings must be concluded within a period of:

a) 18 months, in general.

b) 27 months, when any of the following circumstances apply to any of the tax obligations or periods subject to verification:

1.º That the taxpayer's Annual Turnover is equal to or greater than that required to audit its accounts.

2. The taxpayer is part of a group subject to the tax consolidation system or the special system for groups of entities that are being audited.

When audits are carried out with various persons or related entities in accordance with the provisions of Article 18 of Law 27/2014, of 27 November, on Corporate Income Tax, the concurrence of the circumstances provided for in this letter in any of them shall determine the application of this period to the inspection procedures carried out with all of them.

The period of duration of the procedure referred to in this paragraph may be extended in the terms indicated in paragraphs 4 and 5.

According to the contested settlement agreement, on 13 April 2016, an inspection report A02 ...3 was issued to the claimant for corporate income tax for the years 2010, 2011 and 2012, relating to a partial tax group audit No. a/07. With regard to Corporate Income Tax for 2010, the audit was limited to the verification of:

- The negative adjustments to the Taxable Base made in the determination of their respective individual Taxable Bases by the following entities of Group a/07: XZ SL ..., XW SA ... and XT SA ....

- The reinvestment deduction credited by ...

- The Double Internal Taxation Deduction and deductions for export activities, if any, generated in 2010 by XZ SL.

- The deductible amount for impairment of securities representing the shareholdings in the capital of other entities by XZ SL.

- The income attributable to the tax base of XT SA and the Tax Group corresponding to transactions under the concept of co-developments that have involved the transfer of dossiers relating to pharmaceutical specialities, between the entity ZT SA ... and other non-resident entities, dependent on the entity XZ SL ...

- Verification of the deductions from the tax liability for export activity, pending application, originating in the entities XZ SL (...) and XT SA (...).

With regard to corporate income tax for 2011 and 2012, the sole scope of the verification was: "The verification of the tax credits applied in 2011 and 2012, corresponding to the deduction for export activities declared as having been generated in previous periods".

The claimant argues that the duration of this partial verification procedure should be added to the one now under challenge, on the basis of the single procedure principle that this Court has upheld.

It is true that this Court has repeatedly ruled on the principle of the single procedure alleged by the claimant, although these were cases in which, after the commencement of an inspection procedure, the scope of the proceedings was extended to other items or years; in these cases, we stated that the duration of the proceedings is calculated from the first notification, that of the commencement of the proceedings, but this is not the case here.

The claimant also refers to our Resolution 5221/2010, dated 15/11/2012, but in this case the issue raised was different, as it involved a case in which partial inspection proceedings were initiated and, subsequently, without finalising these proceedings, a new general proceeding was initiated which was extended, in addition to the concept and exercise of the partial proceedings that were not finalised, to other concepts and financial years. We stated that, in the context of a single procedure initiated on a partial basis, it was not possible to consider two procedures to have been opened, and we should therefore have understood that the second notification had extended the scope of the proceedings already initiated (from partial to general), as well as modifying their scope, covering other concepts and financial years, without there being, therefore, a new notification of initiation, which meant that the calculation of the period of duration of the single procedure should be carried out from the time of the first notification.

Our case is different, since there is nothing to prevent the inspectorate, after completing a partial verification procedure, from initiating another general verification procedure, and the periods of duration should be calculated independently, since these are two different procedures. This Court does not observe the procedural fraud alleged in the actions of the inspectorate in these proceedings that would suggest that this way of proceeding has been carried out with the aim of unduly delaying the duration of the proceedings.

Thus, in the proceedings that ended with the contested agreement, the maximum duration of the inspection proceedings is 27 months, in accordance with section 1.b) 1 of article 150 of Law 58/2003, of 17 December, General Tax Law, as the annual turnover of the entity exceeds 5,700,000 euros, required to audit its accounts, in accordance with the provisions of article 263 of Royal Legislative Decree 1/2010, on Capital Companies. Consequently, and given that the date of commencement of the inspection activities was 08/02/2017, the maximum period of 27 months for the duration of the inspection activities, indicated in article 150 of the LGT, had not been exceeded when the settlement agreement was notified on 22/04/2019. We must therefore dismiss the claimant's claims on this point.

FIFTH.- Turning to the substantive issues raised, in relation to the valuation of related-party transactions, we must begin by pointing out the regulations applicable to the case:

1.- CONVENTION BETWEEN THE KINGDOM OF SPAIN AND THE PORTUGUESE REPUBLIC to avoid double taxation and prevent tax evasion in matters of income tax and protocol, signed in Madrid on 26 October 1993. Article 9 states

Article 9.1

ASSOCIATED ENTERPRISES

1. Where

(a) an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State, or

(b) the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and of an enterprise of the other Contracting State,

and in either case the two enterprises are, in their commercial or financial relations, bound together by conditions accepted or imposed which differ from those which would be agreed between independent enterprises, profits which would have been realised by one of the enterprises in the absence of those conditions, and which have not in fact arisen by reason of those conditions, may be included in the profits of that enterprise and taxed accordingly.

2.- ROYAL LEGISLATIVE DECREE, 4/2004, OF 5 MARCH, APPROVING THE REPEALED TEXT OF THE CORPORATE TAX LAW (hereinafter, TRLIS), in the wording given by Law 36/2006, of 29 November, on measures for the prevention of tax fraud (applicable to tax periods beginning on or after 1 December 2006).

"Article 16. Related transactions

1. 1. Transactions carried out between related persons or entities shall be valued at their normal market value. Normal market value shall be understood to be that which would have been agreed by independent persons or entities under conditions of free competition.

2. The tax authorities may check that transactions carried out between related persons or entities have been valued at their normal market value and shall, where appropriate, make the necessary valuation adjustments in respect of transactions subject to this Tax, Personal Income Tax or Non-Resident Income Tax which have not been valued at their normal market value, using the documentation provided by the taxpayer and the data and information available to it. The Tax Administration shall be bound by this value in relation to the rest of the related persons or entities.

(...)

2. The related persons or entities shall keep at the disposal of the Tax Administration the documentation established by regulation.

3. The following shall be considered to be related persons or entities:

(a) An entity and its partners or participants.

(...)

d) Two entities belonging to a group.

(...)

3.- OECD GUIDELINES APPLICABLE TO MULTINATIONAL COMPANIES AND TAX ADMINISTRATIONS IN THE AREA OF TRANSFER PRICING in its 2010 version. With regard to these Guidelines, it should be noted that the explanatory memorandum of Law 36/2006 of 29 November, on measures for the prevention of tax fraud (which amends Spanish tax regulations on related-party transactions or transfer pricing) states that the Guidelines will have interpretative value for these regulations. The second objective is to adapt Spanish transfer pricing legislation to the international context, in particular to the OECD guidelines on the subject and to the European Forum on Transfer Pricing, in the light of which the amended legislation must be interpreted'.

According to the settlement agreement, in group X the manufacturing activity of generic medicines is carried out solely by the entity XT SA, which belongs to the Spanish tax consolidation group. This entity manufactures products both for its own marketing and for sale to foreign subsidiaries and to independent Spanish or foreign third parties.

The inspection notes that it has not found in the study of the margins obtained by XT SA on its sales of generic medicines to the Italian and French subsidiaries the discrepancies and inconsistencies that will be indicated below, and which result from the study of the margins applied in the sales of generic medicines to the Portuguese subsidiary of the group.

In the contracts signed between XT SA and the third-party marketing entities (not related), a Supply Price is established to guarantee a margin to the third-party marketing entity, which is usually, as explained in the documentation on transactions with related parties, around 60%-80% of the Laboratory Sales Price (LSP, which is set by the Administration) and a minimum price, as stated in the said documentation, below which the sale is not made and which is independent of the LSP. These conditions, in sales to third parties, differ substantially from those agreed with group companies through so-called 'intercompany supply' contracts.

In the case of the contract between XT SA and X PORTUGAL, it is stated that the supplier will invoice all the products delivered at "Ex - Works" prices, based on the total cost of the packaged product, increased by 8%, and that, additionally, the supplier will charge the cost of the wooden pallets used in the packaging, which will be invoiced at a price of 6.86 euros per pallet. The regularisation refers to sales of generic medicines to this subsidiary in Portugal.

On the other hand, the inspection notes that, in the case of the subsidiaries in France and Italy, the number of product references is very limited, reaching a total number of 27 product references in the case of France and 22 product references in the case of Italy; with regard to Portugal, the number of product references whose marketing is covered by the contract for the supply of medicines is much more numerous, reaching 158 references and formats of different generic medicines. In other words, the number of generic drug product references whose marketing and distribution is covered by the contract with Portugal is almost six times higher than the contracts with the subsidiaries in France and Italy, respectively. The differences in the number of products/packages also result in significant differences between the sales made by XT to the Portuguese subsidiary of group X, compared to those made to the group's subsidiaries in Italy and France, which are summarised in the tables on page 80 of the settlement agreement, from which the Commission concludes that they can hardly be considered equivalent or, as the case may be, comparable markets.

According to Article 16.1.1.1 of the TRLIS, "normal market value shall be understood to be that which would have been agreed by independent persons or entities under conditions of free competition". As regards the methods to be applied to determine the market value, the method considered by the entity to be the most appropriate for the market valuation in this related-party transaction is the "net margin of the set of transactions" method, as provided for in Article 16.4.2.2 b) of the TRLIS:

"(b) Net margin method of the set of transactions, whereby transactions carried out with a related person or entity are attributed the net result, calculated on costs, sales or the most appropriate magnitude depending on the characteristics of the transactions, which the taxpayer or, where appropriate, third parties would have obtained in identical or similar transactions carried out between independent parties, making, where necessary, the necessary corrections to obtain equivalence and consider the particularities of the transactions".

In relation to the selection of this method, the documentation on related-party transactions provided by the taxpayer states the following:

"Firstly, a search was carried out for TUFs that would allow the application of the CUP method to assess the market value of the transactions under analysis. Although XT SA carries out transactions with independent third parties, the products it sells to them and their affiliates are not always the same. Similarly, the geographic markets in which these products are distributed are different, which is important in this industry, given that the level of market penetration and the response of the health authorities in each country must be assessed. In addition, the volume of products sold to related third parties is very different, which implies that the terms and conditions of distribution are not comparable.

In this respect, the OECD guidelines state in paragraph 1.33 that "The application of the arm's length principle is generally based on a comparison of the terms and conditions of a tied transaction with the terms and conditions of transactions between independent enterprises. Comparability means that none of the differences (if any) between the situations being compared can significantly affect the terms and conditions analysed in the methodology.

Finally, the method selected in the documentation for fiscal year 2009 was applied. The method selected in the documentation was the TNMM, which takes into account the operating profit earned by functionally comparable independent companies.

For the application of this method, the Orbis database was used and a search was carried out based on the following criteria:

(...)"

These search criteria resulted in a final sample of 26 comparable companies.

The interquartile ranges determined in the taxpayer's own related-party transactions documentation for the case of the generic medicines manufacturing function for further distribution are as follows:

CFCMU 2011 2012 2013

Maximum 49.16% 46.31% 39.75% Upper quartile

Top Quartile 15.06% 13.06% 14.47% 14.47% Median 12.74% 10.06% 10.47% 10.47% 10.47% 10.47

Median 12.74% 10.43% 9.09% Middle 12.74% 10.43% 9.09% Lower quartile

Lower Quartile 7.58% 5.64% 4.00% 4.00% Minimum

Lowest -3.12% -7.02% -7.58% -7.58% -3.12% -7.02% -7.58% -7.58% -3.12

Accepting the method and the way in which the samples are selected by the taxpayer, but comparing these data with the results of the information supplied by the entity, the inspection analysis focused on the study of the costs incurred by XT SA in the manufacture of generic medicines and the margins obtained in the sale to subsidiaries.

On the basis of the information supplied by the taxpayer on the costs and prices of XT SA's supplies to the group's Portuguese subsidiary, the inspectorate obtained the gross margins, broken down by product, set out on pages 25 et seq. of the settlement agreement.

A statistical study of these values shows a wide disparity; for example, in 2011, from a margin of -47.99% as a minimum value to 284.37% as a maximum value. Thus, although the median of the values calculated in this financial year was 7.71%, close to the 8% that the taxpayer states in the transfer pricing documentation it applies, the inspection considers it necessary to calculate a more detailed and realistic analysis in which the study of margins takes into account the correct weighting according to the sales volume of each product.

As a result, for the 2011 financial year, an aggregate margin of 7.94% is obtained, considering the weighted weighting of the sales of each product, which is close to the median value obtained in the unweighted margin study of 7.71% and is also close to the value of 8%, which the taxpayer states is applied in the transfer pricing documentation.

A similar analysis was performed for 2012 and 2013, concluding that, for 2012, the data obtained implies a negative aggregate margin of -20.52%, which is far from both the median value obtained in the unweighted margin study, 8.03%, and the value of 8% that the taxpayer states is applied in the transfer pricing documentation. For the 2013 financial year, the data obtained imply obtaining a positive aggregate margin of 3.63%, considering the weighted weight of the sales of each product, which is very far from both the median value obtained in the study of unweighted margins, 8.25%, and the value of 8% stated by the taxpayer in the transfer pricing documentation.

Furthermore, it can be seen that, for 2011, the margin obtained is within the interquartile range determined in the taxpayer's own documentation on related-party transactions, as the average gross margin, weighted according to sales, is slightly higher than the 7.58% of the lower quartile obtained in the previous table; However, for the years 2012 and 2013 this circumstance does not occur, so that, in the opinion of the inspection, given that the margin effectively applied is outside the interquartile range, in order to adapt the margin to be applied to a central tendency value within the range, the central tendency magnitude considered appropriate is the median.

SIXTH.- The claimant argues that we are not faced with an improper determination of the transfer pricing policy. Firstly, it points out that there has been a one-off error that has been repeatedly explained to the inspectorate. The numerical disparity recorded for a given product is an error in the computer system in reflecting the production costs of a given product (and more specifically in the number of packing cases indicated in the recipe) which is sold to the subsidiary located in Portugal. It was that error in the number of packing cases which led to the appearance of a unit cost which did not correspond to reality. This error was subsequently corrected by the company. Annually (at the beginning of the year) the prices for each component are reviewed and updated and with the update the costs for the new year are calculated. This calculation is only modified during the year (the system only allows changes to be registered each month) to correct possible errors detected or to update the cost calculation as a consequence of important changes in the components (in the case of variations equal to or greater than 10%). Accordingly, the final production costs are usually more representative in the middle of the year, which is why the costs provided for inspection are as of June. As was stated at the hearing and again at the Preliminary Hearing, when a change in the bulk of the tablet was included in June 2012 (from "..." to "..."), the number of packing cases was also changed by mistake. In July 2012, when it was discovered that the prescription in question was inconsistent, the process department of the industrial area analysed it and found that 152,680 boxes had been entered for packing 10,000 units (units of boxes of medicine, the sales presentation of which is 60 tablets per box) in the prescription for material 10522. In accordance with the above, the complainant considers that it is sufficiently proven that, according to the volume of sales, it is illogical that 152,680.051 "3073" packaging units (boxes) are needed for 10,000 sales copies, which shows that it was a simple error in the entry of the number of boxes, the correct quantity being 152 packaging units for the 10,000 sales copies (65 sales units per 1 packaging box).

The complainant further alleges that the margin applied is in accordance with the transfer pricing policy, and that no other margin has been justified by the inspectorate. It considers that the margin actually applied was 8.03% in 2012 and 8.25% in 2013. The inspection carries out an analysis in which the margin study takes into account the weighting according to the sales volume of each product. However, even when calculating the margin obtained by weighting according to sales volume, the aggregate margins obtained are within the interquartile ranges applicable to the generic drug manufacturing activity defined in the transfer pricing study: In 2012, if we consider the weighted weighting of the sales of each product and calculate the result obtained by isolating the effect associated with the product data that has been provided to the Inspectorate in error, the overall gross margin obtained would have been 12.05%. In 2013, if the aggregate margin is below the range, an adjustment to the lower part of the interquartile range would be appropriate. In this case, taking into account that the positive aggregate profit margin is 3.63% and, as can be seen from the price report, the lower interquartile range in the 2013 financial year is 4.00%, the adjustment should have been made in respect of that 4% and not in respect of the median, since this adjustment to the median is only permitted in the event that defects in comparability have been duly accredited, which has not occurred in this case.

Thus, with regard to the alleged error, this is a question of proof. The interested party argues that the error explained has undermined the margin calculated by the inspection in 2012, but this Court, despite the detailed explanations given by the claimant in its written pleadings, cannot consider it proven that the data used by the inspection, previously provided by the taxpayer, contains the alleged error and that this has led to an error in the calculation of the margin of that product.

Examination of the file and the settlement agreement shows that the data on costs were requested by the inspectorate with reference to annual data, which is not consistent with the claimant's statements concerning a one-off error in a specific product in a specific month.

On the other hand, if in July 2012 the alleged error was detected and corrected, it is not logical that the information requested is provided as of June 2012, the month in which the error occurred, and the inspection was not warned on any of the three times that this data was requested.

With regard to the way in which the inspection carried out the calculation of the margin, weighting the costs of each product by the volume of sales, we consider that this way of carrying out the study is more in line with reality. As we have seen, the method applied is that of the net margin of the set of operations, so that the volume of sales, different for each product, determines to what extent the margin of each product contributes to the margin of the set of operations, and the product that has been sold more than the one that has been sold in smaller quantities must be taken into account to a greater extent, which in the study carried out by the inspection translates into the weighting of the margins by the volume of sales, a calculation that we understand to be more in line with reality than the one carried out by the taxpayer. This leads us not to accept, as indicated by the inspectorate, the 8% margin that the entity claims to have applied.

At this point, the claimant argues that the inspectorate has not justified the application of the median. We must turn to the OECD Transfer Pricing Guidelines in the analysis of this issue:

3.60 If the relevant terms of the controlled transaction (e.g. price or margin) are within the arm's length range, no adjustment is necessary.

This is what happened in 2011, so the inspection does not regularise this year. For the years 2012 and 2013, the margin calculated by the inspectorate is outside the range, so we should refer to the following paragraphs:

3.61 If the relevant terms of the controlled transaction (e.g. price or margin) are outside the arm's length range determined by the tax administration, the taxpayer should be given the opportunity to argue how the terms of the controlled transaction satisfy the arm's length principle, and whether the result falls within the arm's length range (i.e. the arm's length range is different from that determined by the tax administration). If the taxpayer is unable to demonstrate these facts, the tax administration must determine the point within the arm's length range to which to adjust the condition of the controlled transaction.

3.62 In determining this point, where the range comprises highly reliable and relatively equal results, it can be argued that either satisfies the arm's length principle. Where some defects in comparability persist, as discussed in paragraph 3.57, it may be appropriate to use measures of central tendency that allow this point to be determined (eg median, mean or weighted mean, depending on the specific characteristics of the data) in order to minimise the risk of error caused by defects in comparability that persist but are not known or cannot be quantified.

It is on the basis of this last paragraph that the Inspectorate justifies the application of the median for the years 2012 and 2013. However, the Guidelines provide for the application of the median "where defects in comparability persist, as discussed in paragraph 3.57":

3.57 It may also happen that, despite having made every effort to exclude items with a lower degree of comparability, a range of figures is reached for which it is considered that, taking into account the process used to select comparables and the limitations of the information available about them, they still contain some defects in comparability that cannot be identified or quantified, and are therefore not susceptible to adjustment. In these cases, if the range has been obtained across a large number of observations, statistical tools that allow the range to be narrowed by reference to central tendency (e.g. interquartile range or other percentiles) can help to improve the reliability of the analysis.

In the present case, the inspectorate has accepted the comparability study of the company without noting any shortcomings in the study. It only notes, perhaps as a justification for the unreliability of the company's information, that:

It should be clear, therefore, that, according to the background information in the file, at no time has group X commissioned or agreed to have its costs and other elements determining the group's internal data, including its own costs, verified by an independent third party, prior to their provision to the entity responsible (...) for preparing the documentation on related-party transactions, provided in the course of this verification.

This observation, in any event, referring to the entity's costs, does not constitute a defect in the comparability of the study carried out by the taxpayer, since, as we have seen, the method and the search for comparable companies have been admitted by the inspection, as have the interquartile ranges resulting from this selected sample.

In conclusion, once it has been established that the appellant's margins in the years under discussion are outside the lowest interquartile range, the corresponding adjustment should indeed be made. However, the fact that this is the case does not, without more, allow the median to be applied in the terms provided for in Rule 3.62, since the application of that rule is not justified by the fact of being outside the arm's length range, but by the existence of 'shortcomings in comparability', which have not been explained by the inspectorate, so that the application of the median is not justified.

This is in line with what is stated in the Judgment of the Audiencia Nacional of 06-03-2019 (appeal number 353/2015), which, after some illustrative reasoning in this regard, concludes (only this conclusion is extracted, without prejudice to the interest of the full Judgment, to which we refer):

"Now, in our opinion, it is clear that, if the ROS is outside the limits of the inter-quantile range, the corresponding adjustment must be made, since only from 2.1% is the company within the comparable market margins. In order for the median to be applied, however, there must also be 'comparability defects'.

In the present case, no defects of comparability have been revealed in the study carried out by the taxpayer, which, as we have said, has been accepted by the inspectorate, so that the application of the median is not in accordance with the law and, consequently, we must uphold the claimant's claims and annul the settlement.

SEVENTH- The interested party also alleges errors in the calculation of interest for late payment.

Once the settlement has been annulled, it is not appropriate to analyse the calculation of the interest for late payment.

EIGHTH - Once the assessment has been annulled, the penalty arising therefrom must also be annulled.

 

 

In view of the foregoing

This Economic-Administrative Tribunal agrees to uphold the present complaint, annulling the contested acts.