However, the written contracts alone are unlikely to provide all the information necessary to perform a transfer pricing analysis, or to provide information regarding the relevant contractual terms in sufficient detail. Further information will be required by taking into consideration evidence of the commercial or financial relations provided by the economically relevant characteristics in the other four categories (see paragraph 1.36): the functions performed by each of the parties to the transaction, taking into account assets used and risks assumed, together with the characteristics of property transferred or services provided, the economic circumstances of the parties and of the market in which the parties operate, and the business strategies pursued by the parties. Taken together, the analysis of economically relevant characteristics in all five categories provides evidence of the actual conduct of the associated enterprises. The evidence may clarify aspects of the written contractual arrangements by providing useful and consistent information. If the contract neither explicitly nor implicitly (taking into account applicable principles of contract interpretation) addresses characteristics of the transaction that are economically relevant, then any information provided by the contract should be supplemented for purposes of the transfer pricing analysis by the evidence provided by identifying those characteristics.
TPG2017 Chapter I paragraph 1.43
Category: D. Guidance for applying the arm's length principle, OECD Transfer Pricing Guidelines (2017), TPG2017 Chapter I: The Arm's Length Principle | Tag: Actual conduct, Comparability analysis, Comparability factors, Contractual terms, Delineation, Economically relevant characteristics, Written Agreement/Contract
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- TPG2022 Chapter I paragraph 1.43However, the written contracts alone are unlikely to provide all the information necessary to perform a transfer pricing analysis, or to provide information regarding the relevant contractual terms in sufficient detail. Further information will be required by taking into consideration evidence of the...
- TPG2022 Chapter I paragraph 1.49Where no written terms exist, the actual transaction would need to be deduced from the evidence of actual conduct provided by identifying the economically relevant characteristics of the transaction. In some circumstances the actual outcome of commercial or financial relations may not have...
- TPG2022 Chapter I paragraph 1.48The following example illustrates the concept of differences between written contractual terms and conduct of the parties, with the result that the actual conduct of the parties delineates the transaction. Company S is a wholly-owned subsidiary of Company P. The parties have entered...
- TPG2022 Chapter I paragraph 1.45If the characteristics of the transaction that are economically relevant are inconsistent with the written contract between the associated enterprises, the actual transaction should generally be delineated for purposes of the transfer pricing analysis in accordance with the characteristics of the transaction reflected...
- TPG2022 Chapter I paragraph 1.42A transaction is the consequence or expression of the commercial or financial relations between the parties. The controlled transactions may have been formalised in written contracts which may reflect the intention of the parties at the time the contract was concluded in relation...
- 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...
Related Case Law
- Panama vs “Construction S.A.”, December 2021, Administrative Tax Court, Case No TAT- RF-111 (112/2019)“Construction Service S.A.” is active in Design, Repair and Construction of buildings. During the FY 2011-2013 it paid for services – management services and construction services – rendered from related parties. Following an audit the tax authorities issued an assessment where payments for...
- Italy vs Terex Italia S.r.l., January 2024, Supreme Court, Cases No 2853/2024Terex Italia s.r.l. is a manufacturer of heavy machinery and sold these products to a related distributor in the UK. The remuneration of the distributor had been determined based on application of the TNM-method. Following an audit for FY 2009 and 2010 the...
- Italy vs UFI Filters, April 2024, Supreme Court, Case No 10499/2024UFI Filters SpA had paid two related companies in China for the supply of filters in 2009 and deducted the costs from its taxable income. Following an audit, the tax authorities found, on the basis of a benchmark study of six comparable companies,...
- Switzerland vs “A.”, March 2019, Court of Justice, Case No ATA/222/2019CCompany A was active in the management and administration of trusts and companies; related advice and services. A held 99% of the shares in E, a Seychelles-based company. This subsidiary acted as a sub-contractor for company registrations and corporate affairs in the Seychelles....
- Israel vs eBay Marketplace Israel Ltd., April 2024, District Court, Case No AM 47399-04-18, AM 54654-05-19An assessment was issued by the tax authorities in Israel where they had determined the income of eBay Israel based on the TNMM method using the operating margin as the profit level indicator. eBay Marketplace Israel Ltd. disagreed with the assessment and filed...