The Court of Justice concluded that the tax authority had acted correctly when, in the course of a tax inspection, it adjusted the tax base on the basis of the transfer pricing documentation submitted by the taxpayer, even though the taxpayer subsequently requested that the entire case be re-examined after it had ascertained the tax consequences of the primary and secondary adjustments. The tax authority was also correct in following the comparability analysis and the taxable person’s proposal and in adopting the contested decision on that basis.
“30. In its observations on the record, in the appeal and in the application, the applicant complains that the contested decision is not adequately reasoned and that the Appellate Body also failed to address the appellant’s objections in relation to transfer pricing. The reasons given by the appellate authority are indeed deficient in the light of the appellant’s objections, but, in the Court’s view, do not constitute a substantive breach of the procedural rules. In its grounds of appeal, the appellate authority follows the reasoning of the appellate authority at first instance and thereby (implicitly) rejects as unfounded objections which are of a substantive nature. As regards the objections of a factual nature, the defendant explains that the facts and circumstances relied on in the appeal are not sufficiently proven, and thus states the main reason for their disregard or rejection. In the Court’s view, the decisions of both the appellate and the appellate authorities have all the elements required by law. Pursuant to Article 214 of the Administrative Procedure Act, the statement of reasons for an administrative decision must include a statement of the facts, the findings of fact and the evidence on which they are based, the reasons which were decisive for the assessment of the particular evidence, a reference to the provisions of the regulations on which the decision is based and the reasons which, in the light of the findings of fact, dictate such a decision, as well as the reasons for not upholding a claim. The contested decision is also reviewable. The reasoning of the contested decision gives extensive and clear reasons why the first-instance authority did not take into account the analysis of the so-called non-optimal costs, which the applicant explains are exceptional costs linked to the implementation of the new production programme and that no data on such costs of comparable companies are available. These costs have already been taken into account by the complainant, which follows from the complainant’s reasons why the median is not appropriate for it. The first-instance authority also reasoned its rejection of the functional analysis submitted by the applicant on 19.12.2014 after the applicant withdrew its proposal to adjust the transfer prices. In its reply to the applicant’s comments, the tax authority explained at length, on a function-by-function basis, the reasoned reasons why the new functional analysis was not acceptable. In the Court’s view, the reasoning of the contested decision also shows the reasons for the decision. The Court also agrees with the assessment of the evidence made by the two tax authorities. Both tax authorities have also provided reasoned responses to the applicant’s comments and objections. The applicant’s submissions and explanations were addressed by the first-instance tax authorities both in the minutes of the DIN and in the statement of reasons of the contested decision. As the defendant rightly points out, the DIN case at issue was not about witness statements, as the applicant submits, but about the giving of reasons in the DIN proceedings. However, since the explanations were extensive, the tax authority was justified in requesting written documentation or written explanations, which it then took a decision on.
31. There is also no infringement of substantive law in the present case. The tax authority took its decision on transfer pricing on the basis of the substantive provision of Article 16 ZDDPO-2 and correctly applied that provision. The applicant’s objection that the tax authority did not take into account the OECD Guidelines is unfounded. The OECD Transfer Pricing Guidelines are not binding on international companies and tax administrations. They are a document focusing on the main issues of principle that arise in transfer pricing (paragraph 19 of the Preface to the 2010 Guidelines), and they encourage OECD Member States to follow them in their administrative transfer pricing practices and taxpayers to follow them when assessing for tax purposes whether transfer pricing is consistent with the arm’s length principle (16 ). The Court observes that the OECD Guidelines are not part of the Slovenian legal order and constitute only a legal act of an international organisation of which the Republic of Slovenia is a member. A legal act created by an international organisation can be directly applicable in a Member State only if the Member State has transferred part of its sovereign rights to the organisation, which the Republic of Slovenia has not done by ratifying the OECD Convention. The OECD Guidelines themselves are not directly binding on the State, as is also clear from the OECD’s internal acts (Article 18 of the OECD Rules of Procedure). However, the provisions of the ITA-2 and the TC Rules indisputably follow the provisions of the OECD Guidelines, as the tax authorities have already correctly explained to the claimant (as did the Supreme Court of the Republic of Slovenia in its judgment of 25.8.2016 in Case X Ips 452/2014). In the present case, however, the tax authority based its decision on Article 16 and Article 17 ZDDPO-2, which, in the Court’s view, also constitutes the relevant legal provision for the decision. As regards the disguised payment of profits, in the Court’s view, the first-instance authority also correctly applied the provision of Article 74(7) ZDDPO-2, which it also correctly interpreted.
32. Since the contested decision is correct and lawful and the action is unfounded, and the Court has not found any violations of constitutional rights, nor any violations of the rules of procedure which it is obliged to observe ex officio, it dismissed the action as unfounded on the basis of Article 63(1) of the Causes of Action Act.”
Click here for English translation
Click here for other translation