TRMSB is a company incorporated in Malaysia and part of the Thomson Reuters Group. Thomson Reuters Global Resources (“TRGR”) entered into the Local Distribution Agreement with TRMSB. Pursuant to the agreements, TRMSB was appointed to market and sell TRGR’s products in the form of “Information Services” and “Dealing Services” in Malaysia. The arm’s length remuneration for its distribution activities was determined to an operating margin of 2% by applying the TNMM where nine companies had been selected as comparables.
Following an audit, the tax authorities (DGIR) rejected five of the nine selected companies and replaced them with three new comparables. The tax authorities also rejected TRMSB’s target operating margin of 2% by including SG&A costs in the calculation of TRMSB’s margin.
Not satisfied with the assessments, TRMSB appealed to the Special Commissioner of Income Tax (SCIT). It argued that paragraph 2.80 of the OECD Guidelines provides that non-operating income and expenses should be considered as “exceptional and extraordinary” and should not be included in the determination of the taxpayer’s operating profit margin. TRMSB also argued that pan-Asian comparables could be used in the comparability analysis if they were sufficiently comparable.
Decision
The Special Commissioner upheld the tax authorities’ assessment and dismissed TRMSB’s appeal. The tax authorities had shown that TRMSB’s operating margin was below the interquartile range and TRMSB had failed to prove that the assessments were excessive and wrong.
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