Russia vs Togliattiazot, September 2018, Russian Arbitration Court, Case No. No. А55-1621 / 2018

Category: Commodity Transactions, Tax Avoidance Schemes, Transfer Pricing Methods | Tag: , , , , , ,
« | »

A Russian company, Togliattiazot, supplied ammonia to the external market through a Swiss trading hub, Nitrochem Distribution AG.

The tax authority found that the selling price of the ammonia to Nitrochem Distribution AG had not been determined by Togliattiazot in accordance with the arm’s length principle but had been to low. Hence, a transfer pricing assessment was issued where the CUP method was applied.

At first, the company argued that Togliattiazot and Nitrochem Distribution AG were not even affiliates. Later, the company argued that transfer prices had been determined in accordance with the TNM-method.

The court ruled in favor of the Russian tax authority.

Based on information gathered by the tax authorities – SPARK-Interfax and Orbis Bureau Van Djik bases, Switzerland’s trade register, Internet sites, and e-mail correspondence etc – the tax authorities were able to prove in court, the presence of actual control between Togliattiazot and Nitrochem.

The TNMM method applied by Togliattiazot was rejected by the court because “the method applied by the taxpayer, based on the conditions of the controlled transaction, did not allow determining the comparability with the conditions of comparable transactions between non-related parties”.

Click here for other translation






Related Guidelines

  1. TPG2022 Chapter II paragraph 2.64The transactional net margin method examines the net profit relative to an appropriate base (e.g. costs, sales, assets) that a taxpayer realises from a controlled transaction (or transactions that are appropriate to aggregate under the principles of paragraphs 3.9-3.12). Thus, a transactional net...
  2. TPG2022 Chapter II paragraph 2.26As another example, assume a taxpayer sells 1000 tons of a product for $80 per ton to an associated enterprise in its MNE group, and at the same time sells 500 tons of the same product for $100 per ton to an independent...
  3. TPG2022 Chapter II paragraph 2.25One illustrative case where adjustments may be required is where the circumstances surrounding controlled and uncontrolled sales are identical, except for the fact that the controlled sales price is a delivered price and the uncontrolled sales are made f.o.b. factory. The differences in...
  4. TPG2022 Chapter II paragraph 2.24The CUP method is a particularly reliable method where an independent enterprise sells the same product as is sold between two associated enterprises. For example, an independent enterprise sells unbranded Colombian coffee beans of a similar type, quality, and quantity as those sold...
  5. TPG2022 Chapter II paragraph 2.22A particularly relevant factor for commodity transactions determined by reference to the quoted price is the pricing date, which refers to the specific time, date or time period (e.g. a specified range of dates over which an average price is determined) selected by...
  6. TPG2022 Chapter II paragraph 2.21In order to assist tax administrations in conducting an informed examination of the taxpayer’s transfer pricing practices, taxpayers should provide reliable evidence and document, as part of their transfer pricing documentation, the price-setting policy for commodity transactions, the information needed to justify price...


Related Case Law

  1. Russia vs PJSC Uralkali, November 2019, Supreme Court Review Panel, Case No. А40-29025/2017PJSC Uralkali, produced and sold fertilizers (“potassium chloride”) through a related Swiss trader. Uralkali had informed the authorities about the controlled transaction and submitted the required TP documentation. To substantiate the pricing of the transaction they had applied the transactional net margin method...
  2. Russia vs PJSC Uralkali, April 2019, Court of Appeal, Case No. А40-29025/2017PJSC Uralkali, produced and sold fertilizers (“potassium chloride”) through a related Swiss trader. Uralkali had informed the authorities about the controlled transaction and submitted the required TP documentation. To substantiate the pricing of the transaction they had applied the transactional net margin method...
  3. Russia vs Uralkaliy PAO, July 2017, Moscow Arbitration Court, Case No. A40-29025/17-75-227A Russian company, Uralkaliy PAO, sold potassium chloride to a related trading company in Switzerland , Uralkali Trading SA. Following an audit, the Russian tax authority concluded that Uralkaliy PAO had set the prices at an artificially low level. A decision was therefore issued, ordering...
  4. Russia vs ZAO NK Dulisma, January 2017, Court of Appeal, Case No. А40-123426/2016In 2012, ZAO NK Dulisma, a Russian oil and gas company, sold crude oil via an unrelated Hong Kong-based trader. In Russia, transactions with unrelated parties may be deemed controlled transactions for Transfer Pricing purposes, provided certain conditions are met. The Russian Tax...
  5. Slovenia vs “VAT Corp”, Februar 2018, Administrative Court, Case No I-U-861/2016-14The court ruled that, based on all the findings in the proceedings (the plaintiff did not provide documentation, did not follow the tax authority’s instructions), the tax authority had the possibility to establish the tax base by assessment pursuant to Article 68 of...