Peru vs “TP-Packaging”, July 2021, Tax Court, Case No RTF 06526-1-2021

Category: Benchmark, Range and Median, Comparability Analysis | Tag: , , , , ,
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“TP Packaging” is mainly engaged in the marketing of packaging materials, which in 2013 required a number of goods and services provided by its related companies. The transfer pricing analysis of the controlled transactions was carried out with “TP Packaging” as the tested party. The transactional net margin method (TNMM) was applied using the profitability indicator ROS (return on sales) and external comparables (eleven comparables). “TP Packaging”‘s financial information for the years 2011 to 2013 was used but certain adjustments had been made to the 2013 financial results. The results showed that “TP Packaging”‘s profitability in 2013 was within the interquartile range.

The tax authorities agreed with the study presented in the transfer pricing analysis. However, they did not accept the use of multi-year financial information (years 2011 to 2013) and the adjustments made to the financial results. As a result, “TP Packaging”‘s profitability in 2013 was now below the interquartile range. A transfer pricing adjustment was therefore made to the median, which resulted in an assessment of additional taxable income.

Not satisfied with the assessment, “TP Packaging” appealed to the Tax Court.

Decision of the Tax Court

The Court upheld the assessment issued by the tax authorities and dismissed the appeal of “TP Packaging”.

Excerpts

“It should be reiterated that the purpose of the accounting adjustment referred to by the appellant was to prepare and present its financial statements in accordance with the IFRS accounting standard, this not having been an aspect taken into account in the search for and selection of comparable companies, given that independent companies were identified as such which adopted in some cases a different accounting standard (US GAAP) and in others the same accounting standard (IFRS), it is therefore not apparent that the exclusion of the accounting adjustment referred to by the appellant helped to improve comparability with the abovementioned companies, the argument that the comparable companies did not make an accounting adjustment to their financial information is not a valid reason, since, as mentioned above, the exclusion of that accounting adjustment would mean that the appellant’s financial information would no longer be shown in accordance with IFRS, which would be justified in the transfer pricing analysis if it were intended to bring the appellant’s accounting standard, as the party under analysis, into line with the accounting standards used by the independent third parties selected as comparable, which has not been verified in the present case.
On the other hand, the transfer pricing analysis under the application of the TNM method performed by the submitted study, as well as the analysis performed by the Administration, used the financial information of the Appellant’s complete financial statements as the examined part, i.e. both parties considered it appropriate for the comparability analysis not to segment the Appellant’s financial information (which excludes income and expenses not related to the related transactions under examination)”, Therefore, the Appellant’s claim that the accounting adjustment for the adoption of IFRS relates to other transactions (machine leases) and that its exclusion for the transfer pricing analysis would therefore improve comparability with the independent companies selected as comparables is not supportable.
From the foregoing, it is established that the relevance of the comparability adjustment proposed by the appellant (exclusion of the accounting adjustment for the adoption of IFRS) for the purposes of the transfer pricing analysis is not substantiated, and therefore the rejection by the Administration of said adjustment is in accordance with the law.”

 
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