Greece vs “Pharma Distributor Ltd.”, November 2022, Tax Court, Case No ΔΕΔ 3712/2022

Category: Benchmark, Range and Median, Limited Risk Distributor, Services and Fees, Transfer Pricing Methods | Tag: , , , , , , , , , , ,
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Following an audit, the Greek tax authorities determined that the profit of “Pharma Distributor Ltd” for sales and service activities had not been determined in accordance with the arm’s length principle.

The tax authorities issued an assessment of additional taxable income, rejecting the resale price method used by “Pharma Distributor Ltd” and instead applying the TNMM.

An appeal was filed by “Pharma Distributor Ltd”.

Judgement of the Tax Court

The Court dismissed the appeal in part and allowed it in part.

The tax authorities’ assessment was largely upheld in relation to sales activities, where it was found that the prices charged by “Pharma Distributor Ltd” were outside the interquartile range.

In relation to the service activities, the Court found that the remuneration for these activities was within the arm’s length range and therefore annulled the assessment.

Excerpts

“In the light of the above, as regards the applicant company’s intra-group transactions Nos 1 to 4, there is a question of non-compliance with the arm’s length principle, since the ratio of net profit margin (partial result) to sales for the applicant company’s trading sector, for the tax period 01/01/2019-31/12/2019, amounts to 1.45%, i.e. it is outside the limits of the 1st (2.38%) and the 3rd quartile (7.11%) of the net profit margin to total sales ratios of the comparable companies in the sample.
As regards the applicant’s intra-group transaction No 5, its pricing is in line with the principle of equidistance, as the ratio of net profit margin (partial result) to sales for the applicant’s industrial sector, for the tax period 01/01/2019-31/12/2019, amounts to 2.86%, i.e. it is within the limits of the 1st (2.21%) and the 3rd quartile (13.91%) of the net profit margin to total sales ratios of the comparable companies in the sample.
Therefore, the following accounting difference is calculated for compliance with the arm’s length principle, which is added to the accounting differences of the financial year in application of article 50 of Law4172/2013.”

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Related Guidelines

  1. TPG2022 Chapter VI paragraph 6.198In a transfer pricing analysis where the most appropriate transfer pricing method is the resale price method, the cost-plus method, or the transactional net margin method, the less complex of the parties to the controlled transaction is often selected as the tested party....
  2. TPG2022 Chapter III paragraph 3.57It may also be the case that, while every effort has been made to exclude points that have a lesser degree of comparability, what is arrived at is a range of figures for which it is considered, given the process used for selecting...
  3. TPG2022 Chapter VI paragraph 6.105The need to consider the use of intangibles by a party to a controlled transaction involving a sale of goods can be illustrated as follows. Assume that a car manufacturer uses valuable proprietary patents to manufacture the cars that it then sells to...
  4. TPG2022 Chapter II paragraph 2.110See in particular paragraphs 3.18-3.19 for guidance on the tested party, paragraphs 3.55-3.66 for guidance on the arm’s length range, and paragraphs 3.75-3.79 for guidance on multiple year data....
  5. TPG2022 Chapter VI paragraph 6.196This section provides supplemental guidance for applying the rules of Chapters I – III in situations where one or both parties to a controlled transaction uses intangibles in connection with the sale of goods or the provision of services, but where no transfer...
  6. TPG2022 Chapter IX paragraph 9.53The choice of the appropriate transfer pricing method depends in part on which part of the transaction is the less complex and can be evaluated with the greater certainty (the functions performed, assets used and risks assumed by the manufacturer, or the marketing...
  1. IRS – APA Study Guide issued in early 2000sIn the early 2000s the IRS issued a “APA study guide” where guidance is provided in relation to various practical issues in the area of transfer pricing. The study guide is part of a large collection of IRS practices and statistics from working...
  2. Spain releases note on arm’s length range and benchmarking.On 25 February 2021, a note was released by the Spanish Tax Agency on number of practical issues relating to application of the arm’s-length range. The note – which is based on the OECD transfer Pricing Guidelines, guidance on benchmark studies issued by...

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