The tax authorities issued a transfer pricing adjustment of USD 1.4 million for FY2013, claiming that the remuneration of “Tech Distributor S.A.” had not been determined in accordance with the arm’s length principle.
According to the tax authorities, there were inconsistencies between the amounts of controlled transactions reported in the transfer pricing documentation and the income tax return. The tax authorities also found that “Tech Distributor S.A.” had incorrectly included “other income” in the calculation of its operating margin for the purposes of applying the Transactional Net Margin Method (TNMM). Finally, some of the companies selected as comparables were rejected and “comparability adjustments” were also disregarded.
After making these adjustments to the benchmark analysis, the profit margin of “Tech Distributor S.A.” was outside the interquartile range and therefore the profit was adjusted to the median.
“Tech Distributor S.A. appealed to the Tax Tribunal.
Decision of the Tax Tribunal
The Tribunal dismissed the appeal and upheld the assessment of the tax authorities.
According to the Tribunal, ‘other income’ should not be included in the calculation of the operating margin.
The court also upheld the tax authorities’ rejection of some of the comparables and agreed that the comparability adjustments made by the company were incorrect.
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