Russia vs ZAO NK Dulisma, January 2017, Court of Appeal, Case No. А40-123426/2016

Category: Commodity Transactions, Tax Avoidance Schemes, Transfer Pricing Methods | Tag: , , , , , ,
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In 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 Authorities audited the transactions with the Hong Kong trader and found that the price had been understated.

The arm’s length price was determined using a CUP method, based on data from Platts quote for Dubai grade oil, adjusted for quality and terms of delivery etc.

The court ruled in favor of the tax authorities, confirming that the application of the CUP method and the use of Platts data was justified.

 

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A40-123426-2016





Related Guidelines

  1. TPG2022 Chapter II paragraph 2.18Subject to the guidance in paragraph 2.2 for selecting the most appropriate transfer pricing method in the circumstances of a particular case, the CUP method would generally be an appropriate transfer pricing method for establishing the arm’s length price for the transfer of...
  2. TPG2022 Chapter II paragraph 2.19Under the CUP method, the arm’s length price for commodity transactions may be determined by reference to comparable uncontrolled transactions and by reference to comparable uncontrolled arrangements represented by the quoted price. Quoted commodity prices generally reflect the agreement between independent buyers and...
  3. TPG2022 Chapter II paragraph 2.20For the CUP method to be reliably applied to commodity transactions, the economically relevant characteristics of the controlled transaction and the uncontrolled transactions or the uncontrolled arrangements represented by the quoted price need to be comparable. For commodities, the economically relevant characteristics include,...
  4. 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...
  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 2.25One 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...
  7. 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...
  8. TPG2022 Chapter II paragraph 2.16It may be difficult to find a transaction between independent enterprises that is similar enough to a controlled transaction such that no differences have a material effect on price. For example, a minor difference in the property transferred in the controlled and uncontrolled...
  1. Additional guidance on the attribution of profits to permanent establishmentsThe OECD has released additional guidance on the attribution of profits to permanent establishments. This additional guidance sets out high-level general principles for the attribution of profits to permanent establishments arising under Article 5(5), in accordance with applicable treaty provisions, and includes examples...
  2. EU JTPF, March 2017, Report on the Use of Comparables in the EUIn March 2017 the JTPF agreed the Report on the Use of Comparables in the EU. The report establishes best practices and pragmatic solutions by issuing various recommendations for both taxpayers and tax administrations in the EU and aims at increasing in practice...

Related Case Law

  1. Russia vs Dulisma Oil, January 2017, Russian Court Case No. A40-123426 / 16-140-1066This case relates to sales of crude oil from the Russian company, Dulisma Oil,  to an unrelated trading company, Concept Oil Ltd, registered in Hong Kong. The Russian tax authorities found that the price at which oil was sold deviated from quotations published by...
  2. Russia vs LLC “Bulatovskiy Basalt”, November 2018, Court of Appeal, Case No. A05-5548/2018Bulatovskiy Basalt LLC extracted and sold basalt rubble. The rubble was sold to three related intermediaries, whom in turn, resold the rubble to the final buyers. The resale price was on average double the transfer price. The tax authorities considered that the sole...
  3. Russia vs ViciunaiRus LLC, April 2020, Supreme Court, Case No. A21-133/2018ViciunaiRus LLC was engaged in production and wholesale distribution of its products. During the inspection, the inspection concluded that the chain of contractual relations between the Company and its sole official distributor in the Russian Federation artificially had established intermediates that do not...
  4. Russia vs LLC “Scientific and Production Association”, October 2018, Supreme Court, Case No. А05-7708/2017Since 2012, the Company had rented out premises in its administrative building. Among the tenants were both independent parties, and a related party. For the related party, the rent were 10-20 times lower than for the independents parties.The related party tenant subleased, more...