Tag: Arm’s length principle

A significant volume of global trade consists of international transfers of goods and services, capital and intangibles within MNE groups and thus between related parties.

Transactions between related parties are referred to as “controlled” transactions, as distinct from “uncontrolled” transactions between independent companies.

The forces that regulate pricing of transactions between independent parties are known as “marked forces”. Independent parties can be assumed to operate in their own self-interest (“on an arm’s length basis”) in negotiating terms and conditions for transactions. Put in simple terms an independent seller would want to sell at the highest price and an independent buyer would want to buy at the lowest price – and the price agreed between the two independent parties would be determined in an equilibrium of these two opposite forces.

Absent regulation, pricing of controlled transactions within MNE Groups would be determined by forces that differs from those that govern pricing between independent parties – e.g. the overall group profit and taxation.

This would result in (1) obstructions to world trade as competition between MNE groups and local businesses would not be at equal footing, and (2) erosion of taxing right in souvereign contries due to MNEs reallocating  profits and tax bases in group companies operating in high tax counties to low tax countries. 

For these reasons regulation is needed. “Transfer pricing” is the general term used for regulation of pricing and terms in controlled transactions. In most countries transfer pricing is governed by the Arm’s length principle.

Transfer pricing regulations would allow for an adjustment  in the example above. The price of 90 set in the controlled transaction between related parties would be reduced to 80 based on the price agreed between independent parties under comparable circumstances.

The authoritative statement of the arm’s length principle is found in paragraph 1 of Article 9 of the OECD Model Tax Convention, which forms the basis of bilateral tax treaties involving OECD member countries and an increasing number of non-member countries and on which most countries internal regulations are based.

Article 9 provides:

[Where] conditions are made or imposed between the two [associated] enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly.

By seeking to adjust profits in MNEs by reference to the conditions which would have obtained between independent enterprises in comparable transactions and comparable circumstances, the arm’s length principle follows the approach of treating the members of an MNE group as if they were operating as separate entities rather than as inseparable parts of a single unified group.

Transfer pricing does not necessarily involve tax avoidance, as the need to set such prices is a normal aspect of how MNEs must operate. Where the pricing does not accord with internationally applicable norms or with the arm’s length principle under domestic law, the tax administration may consider this to be “mis-pricing”, “incorrect pricing”, “unjustified pricing” or non-arm’s length pricing, and issues of tax avoidance and evasion may potentially arise.

Transfer Pricing Methods

A transfer pricing method is applied for the purpose of determining the price of a controlled transaction. Methods acknowledge by the OECD The five methods approved by the OECD are the comparable uncontrolled price (CUP) method, resale price method (RPM), cost plus method (CPM), transactional net margin method (TNMM) and the transactional profit split method (TPSM). OECD also acknowledge use of methods applying techniques used by independent parties for price setting (e.g. valuation techniques for pricing transfers of business assets and credit ratings for determining interest payment). Under narrowly defined circumstances special transfer pricing methods can be applied for simplification purposes according to the OECD Transfer Pricing Guidelines (e.g. the simplified method for LVAS and bilaterally agreed Safe Harbors). At the outer boundary of the arm’s length principle, transfer pricing methods are applied to minimise tax avoidance. This includes the HTVI guidance, the so called sixth method used for commodity transactions, and the group rating approach for setting interest rates on inter-company loans. Pricing methods outside the arm’s length principle include formulary apportionment, industry averages and use of rules of thumb. The Process of Pricing Controlled Transactions Consider the materiality of the transaction vs. the administrative burden and the purpose for pricing the transaction – pricing at the time of the transaction, retrospective price testing, tax assessment, MAP/APA or risk assessment purposes. This is relevant for the overall approach and thoroughness of the pricing exercise. Read the terms and conditions of the agreement and then make an effort to get a full understanding of the true nature/substance of the transaction (or the combined/aggregated transactions), the parties to the transaction and the circumstances under which the transaction has been agreed . Then read the terms of the written agreement again and compare – delineation (what is the real deal). Is remuneration of the transaction included in other transactions. Are there tax incentives for mis-characterizing and/or -pricing the transaction (e.g. low tax jurisdictions) Search for pricing data on comparable transactions – internal, external, historical and other useful information related to pricing of similar transactions. Consider if segregation or aggregation of transactions is needed. Select the most appropriate transfer pricing method – choice of tested party, profit level indicator, use of more than one  method for complex transactions Find the information needed to apply the chosen transfer pricing method – benchmark study, comparability adjustments, financial data, cost base, relevant profit, splitting factor, cash flow, credit rating etc. If the method is based on comparable transactions diagnostic ratios (e.g. turnover compared to costs, profit per employee) may need to be checked? Determine the price of the transaction. Verifying Compliance with the Arm’s Length Principle The last step in the process of pricing a transaction is testing that the price arrived at is in accordance with the arm’s length principle. How is the combined profit from the transaction ultimately shared between the parties and does it reasonably reflect the functions, assets and risk of the parties in relation to the transaction? Will the parties each have a separate benefit from the transaction – are both parties better of by engaging in the transaction taking into account their options realistically available? Is the transaction commercially rational for both parties? If the answer to any of those three questions is – NO – the pricing exercise will have to be revisited. Illustration of Transfer Pricing Methods ...

Transfer Pricing and the Arm’s Length Principle

A significant volume of global trade consists of international transfers of goods and services, capital and intangibles within MNE groups and thus between related parties. Transactions between related parties are referred to as “controlled” transactions, as distinct from “uncontrolled” transactions between independent companies. The forces that regulate pricing of transactions between independent parties are known as “marked forces”. Independent parties can be assumed to operate in their own self-interest (“on an arm’s length basis”) in negotiating terms and conditions for transactions. Put in simple terms an independent seller would want to sell at the highest price and an independent buyer would want to buy at the lowest price – and the price agreed between the two independent parties would be determined in an equilibrium of these two opposite forces. Absent regulation, pricing of controlled transactions within MNE Groups would be determined by forces that differs from those that govern pricing between independent parties – e.g. the overall group profit and taxation. This would result in (1) obstructions to world trade as competition between MNE groups and local businesses would not be at equal footing, and (2) erosion of taxing right in souvereign contries due to MNEs reallocating  profits and tax bases in group companies operating in high tax counties to low tax countries.  For these reasons regulation is needed. “Transfer pricing” is the general term used for regulation of pricing and terms in controlled transactions. In most countries transfer pricing is governed by the Arm’s length principle. Transfer pricing regulations would allow for an adjustment  in the example above. The price of 90 set in the controlled transaction between related parties would be reduced to 80 based on the price agreed between independent parties under comparable circumstances. The authoritative statement of the arm’s length principle is found in paragraph 1 of Article 9 of the OECD Model Tax Convention, which forms the basis of bilateral tax treaties involving OECD member countries and an increasing number of non-member countries and on which most countries internal regulations are based. Article 9 provides: [Where] conditions are made or imposed between the two [associated] enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly. By seeking to adjust profits in MNEs by reference to the conditions which would have obtained between independent enterprises in comparable transactions and comparable circumstances, the arm’s length principle follows the approach of treating the members of an MNE group as if they were operating as separate entities rather than as inseparable parts of a single unified group. Transfer pricing does not necessarily involve tax avoidance, as the need to set such prices is a normal aspect of how MNEs must operate. Where the pricing does not accord with internationally applicable norms or with the arm’s length principle under domestic law, the tax administration may consider this to be “mis-pricing”, “incorrect pricing”, “unjustified pricing” or non-arm’s length pricing, and issues of tax avoidance and evasion may potentially arise ...

Preface paragraph 15

OECD member countries continue to endorse the arm’s length principle as embodied in the OECD Model Tax Convention (and in the bilateral conventions that legally bind treaty partners in this respect) and in the 1979 Report. These Guidelines focus on the application of the arm’s length principle to evaluate the transfer pricing of associated enterprises. The Guidelines are intended to help tax administrations (of both OECD member countries and non-member countries) and MNEs by indicating ways to find mutually satisfactory solutions to transfer pricing cases, thereby minimising conflict among tax administrations and between tax administrations and MNEs and avoiding costly litigation. The Guidelines analyse the methods for evaluating whether the conditions of commercial and financial relations within an MNE satisfy the arm’s length principle and discuss the practical application of those methods. They also include a discussion of global formulary apportionment ...

Chapter I paragraph 1.1

This Chapter provides a background discussion of the arm’s length principle, which is the international transfer pricing standard that OECD member countries have agreed should be used for tax purposes by MNE groups and tax administrations. The Chapter discusses the arm’s length principle, reaffirms its status as the international standard, and sets forth guidelines for its application ...

Chapter I paragraph 1.3

When transfer pricing does not reflect market forces and the arm’s length principle, the tax liabilities of the associated enterprises and the tax revenues of the host countries could be distorted. Therefore, OECD member countries have agreed that for tax purposes the profits of associated enterprises may be adjusted as necessary to correct any such distortions and thereby ensure that the arm’s length principle is satisfied. OECD member countries consider that an appropriate adjustment is achieved by establishing the conditions of the commercial and financial relations that they would expect to find between independent enterprises in comparable transactions under comparable circumstances ...

OECD Article 9 (with commentary)

ARTICLE 9 ASSOCIATED ENTERPRISES 1. Where an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State, or the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State, and in either case conditions are made or imposed bet ween the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly. 2. Where a Contracting State includes in the profits of an enterprise of that State – and taxes accordingly – profits on which an enterprise of the other Contracting State has been charged to tax in that other State and the profits so included are profits which would have accrued to the enterprise of the first mentioned State if the conditions made between the two enterprises had been those which would have been made between independent enterprises, then that other State shall make an appropriate adjustment to the amount of the tax charged therein on those profits. In determining such adjustment, due regard shall be had to the other provisions of this Convention and the competent authorities of the Contracting States shall if necessary, consult each other. COMMENTARY ON ARTICLE 9 CONCERNING THE TAXATION OF ASSOCIATED ENTERPRISES 1. This Article deals with adjustments to profits that may be made for tax purposes where transactions have been entered into between associated enterprises (parent and subsidiary companies and companies under common control) on other than arm’s length terms. The Committee has spent considerable time and effort (and continues to do so) examining the conditions for the application of this Article, its consequences and the various methodologies which may be applied to adjust profits where transactions have been entered into on other than arm’s length terms. Its conclusions are set out in the report entitled Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations,’ which is periodically updated to reflect the progress of the work of the Committee in this area. That report represents internationally agreed principles and provides guidelines for the application of the arm’s length principle of which the Article is the authoritative statement. Paragraph 1 2. This paragraph provides that the taxation authorities of a Contracting State may, for the purpose of calculating tax liabilities of associated enterprises, re-write the accounts of the enterprises if, as a result of the special relations between the enterprises, the accounts do not show the true taxable profits arising in that State. It is evidently appropriate that adjustment should be sanctioned in such circumstances. The provisions of this paragraph apply only if special conditions have been made or imposed between the two enterprises. No re-writing of the accounts of associated enterprises is authorised if the transactions between such enterprises have taken place on normal open market commercial terms (on an arm’s length basis). 3. As discussed in the Committee on Fiscal Affairs’ Report on “Thin Capitalisation” there is an interplay between tax treaties and domestic rules on thin capitalisation relevant to the scope of the Article. The Committee considers that: a) the Article does not prevent the application of national rules on thin capitalisation insofar as their effect is to assimilate the profits of the borrower to an amount corresponding to the profits which would have accrued in an arm’s length situation; b) the Article is relevant not only in determining whether the rate of interest provided for in a loan contract is an arm’s length rate, but also whether a prima facie loan can be regarded as a loan or should be regarded as some other kind of payment, in particular a contribution to equity capital; c) the application of rules designed to deal with thin capitalisation should normally not have the effect of increasing the taxable profits of the relevant domestic enterprise to more than the arm’s length profit, and that this principle should be followed in applying existing tax treaties. 4. The question arises as to whether special procedural rules which some countries have adopted for dealing with transactions between related parties are consistent with the Convention. For instance, it maybe asked whether the reversal of the burden of proof or presumptions of any kind which are sometimes found in domestic laws are consistent with the arm’s length principle. A number of countries interpret the Article in such a way that it by no means bars the adjustment of profits under national law under conditions that differ from those of the Article and that it has the function of raising the arm’s length principle at treaty level. Also, almost all member countries consider that additional information requirements which would be more stringent than the normal requirements, or even a reversal of the burden of proof, would not constitute discrimination within the meaning of Article 24. However, in some cases the application of the national law of some countries may result in adjustments to profits at variance with the principles of the Article. Contracting States are enabled by the Article to deal with such situations by means of corresponding adjustments (see below) and under mutual agreement procedures. Paragraph 2 5. The re-writing of transactions bet ween associated enterprises in the situation envisaged in paragraph 1 may give rise to economic double taxation (taxation of the same income in the hands of different persons), in so far as an enterprise of State A whose profits are revised upwards will be liable to tax on an amount of profit which has already been taxed in the hands of its associated enterprise in State B. Paragraph 2 provides that in these circumstances, State B shall make an appropriate adjustment so as to relieve the double taxation. 6. It should be noted, however, that an adjustment is not automatically to be made in State B simply because the profits in State A have been increased; the adjustment is due only if State B considers that the figure of adjusted profits correctly reflects what the profits would have been if the transactions had been at arm’s length. In other words, the paragraph may not be invoked and should not be applied where the profits of one associated enterprise are increased to a level which exceeds what they would have been if they had been correctly computed on an arm’s length basis. State B is therefore committed to make an adjustment of the profits of the affiliated company only if it considers that the adjustment made in State A is justified both in principle and as regards the amount. 6.1 Under the domestic laws of some countries, a taxpayer may be permitted under appropriate circumstances to amend a previously-filed tax return to adjust the price for a transaction between associated enterprises in order to report a price that is, in the taxpayer’s opinion, an arm’s length price. Where they are made in good faith, such adjustments may facilitate the reporting of taxable income by taxpayers in accordance with the arm’s length principle. However, economic double taxation may occur, for example, if such a taxpayer-initiated adjustment increases the profits of an enterprise of one Contracting State but there is no appropriate corresponding adjustment to the profits of the associated enterprise in the other Contracting State. The elimination of such double taxation is within the scope of paragraph 2. Indeed, to the extent that taxes have been levied on the increased profits in the first-mentioned State, that State may be considered to have included in the profits of an enterprise of that State, and to have taxed, profits on which an enterprise of the other State has been charged to tax. In these circumstances, Article 25 enables the competent authorities of the Contracting States to consult together to eliminate the double taxation; the competent authorities may accordingly, if necessary, use the mutual agreement procedure to determine whether the initial adjustment met the conditions of paragraph 1 and, if that is the case, to determine the amount of the appropriate adjustment to the amount of the tax charged in the other State on those profits so as to relieve the double taxation. 7. The paragraph does not specify the method by which an adjustment is to be made. OECD member countries use different methods to provide relief in these circumstances and it is therefore left open for Contracting States to agree bilaterally on any specific rules which they wish to add to the Article. Some States, for example, would prefer the system under which, where the profits of enterprise X in State A are increased to what they would have been on an arm’s length basis, the adjustment would be made by re-opening the assessment on the associated enterprise Y in State B containing the doubly taxed profits in order to reduce the taxable profit by an appropriate amount. Some other States, on the other hand, would prefer to provide that, for the purposes of Article 23, the doubly taxed profits should be treated in the hands of enterprise Y of State B as if they may be taxed in State A; accordingly, the enterprise of State B is entitled to relief in State B, under Article 23, in respect of tax paid by its associate enterprise in State A. 8. It is not the purpose of the paragraph to deal with what might be called “secondary adjustments“. Suppose that an upward revision of taxable profits of enterprise X in State A has been made in accordance with the principle laid down in paragraph 1 and suppose also that an adjustment is made to the profits of enterprise Y in State B in accordance with the principle laid down in paragraph 2. The position has still not been restored exactly to what it would have been had the transactions taken place at arm’s length prices because, as a matter of fact, the money representing the profits which arc the subject of the adjustment is found in the hands of enterprise Y instead of in those of enterprise X. It can be argued that if arm’s length pricing had operated and enterprise X had subsequently wished to transfer these profits to enterprise Y, it would have done so in the form of, for example, a dividend or a royalty (if enterprise Y were the parent of enterprise X) or in the form of, for example, a loan (if enterprise X were the parent of enterprise Y) and that in those circumstances there could have been other tax consequences (e.g. the operation of a withholding tax) depending upon the type of income concerned and the provisions of the Article dealing with such income. 9. These secondary adjustments, which would be required to establish the situation exactly as it would have been if transactions had been at arm’s length, depend on the facts of the individual case. It should be noted that nothing in paragraph 2 prevents such secondary adjustments from being made where they are permitted under the domestic laws of Contracting States. 10. The paragraph also leaves open the question whether there should be a period of time after the expiration of which State B would not be obliged to make an appropriate adjustment to the profits of enterprise Y following an upward revision of the profits of enterprise X in State A. Some States consider that State B’s commitment should be open-ended – in other words, that however many years State A goes back to revise assessments, enterprise Y should in equity be assured of an appropriate adjustment in State B. Other States consider that an open-ended commitment of this sort is unreasonable as a matter of practical administration. In the circumstances, therefore , this problem has not been dealt with in the ...

Malawi vs Eastern Produce Malawi Ltd, July 2018, Malawi High Court, JRN 43 af 2016

Eastern Produce Ltd is part of Camellia Plc Group, and is is engaged in the growing, production and processing of tea in Malawi. The Malawi tax administration conducted a tax audit and found that transfer prices for intergroup service transactions had not been at arm’s length. However, in the notifications to Eastern Produce Ltd. no reference was made to the local arm’s length regulations – only the OECD Transfer Pricing Guidelines. Eastern Produce Limited complained to the High Court and argued that: “The decision and proceeding by MRA to use OECD (Organisation for Economic Cooperation and Development) guidelines whilst performing transfer pricing analysis and as a basis for effecting amendments to tax assessments was illegal. CONSIDERATIONS OF THE COURT, EXCERPS “With regard to transfer pricing in 2014, the law was contained in Section 127A. Section 127A provides as follows: “where a person who is not resident in Malawi carries on business with a person resident in Malawi and the course of such business is so arranged that it produces to the person residentin Malawi either no profits or less than profits which might be expected from that he had been no such relationship, then the profits of that resident person from that business shall be deemed to be the amount that might have been expected to accrue if the course of that business had been conducted by independent persons“. “Section 127A of the Taxation Act is not a stand-alone provision. The Taxation (Transfer Pricing) Regulations, 2009 guide the application of Section 127A of the Taxation Act on transfer pricing issues in Malawi.” “The methods shall be applied in determining the price payable for goods and services in transactions between related enterprises for the purposes of Section 127A of the Act; and A person shall apply the method most appropriate for his enterprise, having regard to the nature of the transaction, or class of transaction, or class of related persons or function performed by such persons in relation to the transaction.” “…there is no dispute between the applicant and the respondent that the law on transfer pricing issues in Malawi was governed by Section 127A and the Taxation (Transfer Pricing) Regulations, 2009, as cited above. This legal position was even accepted and confirmed by the deponent in crossexamination. What this means is that any transfer pricing issues arising from controlled transactions between related enterprises, as is the case at hand, was to be resolved by the Act and the Regulations, and not OECD Guidelines.” “In its Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (July 2010 edition, page 206), the OECD states that there are two main issues in the analysis of transfer pricing for intra group services (which the Agreement purports)….’ The deponent in cross-examination admitted that Section 127A has to be applied together with the 2009 Regulations. The deponent admitted that the Guidelines are sometimes used as an interpretation tool/aid.” “I have to mention that, looking at ET 2, ET4 and ET6, it is very clear that the respondent did not make any reference to the Transfer Pricing Regulations, 2009. Instead, the respondent placed much emphasis on the OECD Guidelines as cited above. I am even at pains to note that the respondent did not even use the OECD Guidelines as an interpretation tool to the local Transfer Pricing Regulations. ET2, ET4 and ET6 are not showing that the OECD Guidelines were only used as an interpretation aid. Any person reading these exhibits will definitely conclude that the respondent applied the law contained in the OECD Guidelines.” “The use of these Guidelines at the expense of the Transfer Pricing Regulations, 2009 is illegal.” “The other issuel have to resolve is the rejection and its aftermath of the method used by the applicant. There is no dispute that the transaction involved herein is a controlled transaction. There is therefore no dispute that it involves transfer pricing issues. Definitely, the transfer price that was to be set between the applicant and its parent company was to be based on the arm’s length principle as per Section 127A of the Taxation Act read together with Taxation (Transfer Pricing) Regulations, 2009.” “Section 6(2) of the Transfer Pricing Regulations, 2009 have placed the burden of choosing a Transfer Pricing method on the taxpayer. In the present case, that burden was with the applicant. Again, Section 7 of the Regulations provides for documentation that may be required by the Commissioner General where a taxpayer has applied a transfer price. In the present case, it was submitted by the deponent that they rejected the transfer price set by the applicant and disallowed the commission on humanitarian grounds. In the first place, let me state that enterprises are under an obligation to keep documentation that assist them in arriving at appropriate transfer price basing on the arm’s length principle. This information may as well be requested by the Commissioner General to assist in assessing whether the correct analysis was done before arriving at an appropriate transfer price as provided for in Section 7 of the Transfer Pricing Regulations, 2009. I am of the considered view that where a taxpayer fails to provide such information, the Commissioner General is indeed at liberty to reject the transfer price or method used by the taxpayer. It is my humble view that though the Regulations places the burden on the taxpayer to choose a method, after the Commissioner General has rejected the method, the Commissioner General has to arrive at an appropriate method to be used.” THE JUDGEMENT The court ordered the applicant [company] within the next 14 days, to submit to the respondent all the necessary documentation pursuant to Section 7 of the Regulations, 2009 for the respondent [tax administration] to undertake a comprehensive analysis of the transfer pricing issues and arrive at an appropriate transfer price method. The respondent to communicate its decision after 21 days of its receipt of such documentation. Thereafter, the respondent to communicate the correct tax payable by the applicant. An order similar to certiorari quashing the notice of amended assessment for the year ended June 2009 as the same was issued beyond the limitation period provided under the law in Section 91 of the Taxation Act.  Each party should bear its own costs. TP-MALAWI-JUDICIAL-REVIEW-Eastern-Produce-MW-Ltd-vs-MRA-Transfer-Pricing-Applicability-of-OEC...-2 ...

Switzerland vs. Corp, Jan. 2015, Case No. 2C_1082-2013, 2C_1083-2013

In this case, the Swiss Court elaborates on application of the arm’s length principel, transfer pricing methods, OECD TPG, and the burden of proof in Switzerland. Excerp in English (unofficial translation) “5.1. The question of whether there is a disproportion between the service provided by the company and the compensation it provides is determined by comparison with what has been agreed between independent persons (“Drittvergleich”): the question is whether the benefit would have been granted, to the same extent, to a third party outside the company, or to check whether the “arm’s length” was respected. This method makes it possible to identify the market value of the property transferred or the service rendered, with which the counter-benefit actually required must be compared. 5.2. Where there is a free market, the prices charged therein are decisive and allow an effective comparison with those applied in the transaction examined. If there is no free market, but transactions with the same characteristics have been concluded with a third party or between third parties, the price at issue must be compared with that which has been carried out in those transactions. This method corresponds to the comparable free market price method as set out in the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (July 2010 edition, see especially § 2.13). ss, hereinafter: Principles). In order for this method to be applicable, the transaction with a third party or between third parties must be similar to the transaction examined (Locher, op.cit., 103 ad art 58 DBG), that is to say having been concluded in circumstances comparable to this one. The concept of ” comparable transaction ” is not easy to define. The relevance of the comparison with transactions concluded with third parties assumes that the relevant economic circumstances of these transactions are similar to those of the transaction examined. The comparability of the transactions is determined by their nature and the totality of the circumstances of the case. If the relevant economic conditions differ from those of the transaction under review, adjustments must be made to erase the effects of these differences. However, it can not be ruled out that a comparable transaction was not concluded at market price. The formation of the price can indeed be influenced by several elements, such as market conditions, contractual conditions (for example, the existence of secondary benefits, the quantity of goods sold, terms of payment), the commercial strategy pursued by this third party purchaser or the economic functions of the parties. Nevertheless, the price charged in a comparable transaction is presumed to correspond to the market price; in case of dispute, proof to the contrary lies with the company. In the absence of a comparable transaction, the examination of the arm’s length principle is then based on a hypothetical value determined by other methods, such as the cost-plus method or, in the context of transactions such as the distribution of goods, the resale price.” Click here for translation Swiss case law 2C_1082-2013, 2C_1083-2013 ...