The transaction in question involved intra-group transactions carried out in 2011 by FCA Greece S.A., a Greek company specialising in the import and sale of passenger cars, light commercial vehicles and spare parts. The company documented its transfer pricing using a TNMM and a set of comparables, reporting a significant tax loss for the year.
The tax authorities rejected the transfer pricing documentation, excluded certain comparables and adjusted the results to the median of the interquartile range. Based on this, they made a transfer pricing adjustment of €6,535,444.21, which substantially reduced the declared loss and resulted in a corrective income tax assessment being issued.
The company challenged this before the Administrative Court of Appeal, arguing that the adjustment to the median of the interquartile range was unlawful and that minor deviations from the arm’s length range should not trigger an adjustment. The company also argued that its documentation complied with the applicable rules. The court accepted the company’s arguments and annulled the transfer pricing adjustment and the resulting assessment.
The tax authority appealed to the Supreme Administrative Court.
Judgment
The Supreme Administrative Court upheld the annulment of the lower court’s decision. It confirmed that, under the applicable legal framework, an adjustment to the median of the interquartile range alone is not permissible without specific justification where the taxpayer’s results fall within the arm’s length range. Consequently, the transfer pricing adjustment was annulled. The Court also confirmed the application of the more favourable penalty regime.
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