Bayer Inc, is a Canadian subsidiary of Bayer AG Germany. Bayer is a multinational group of companies in the pharmaceutical and life sciences industry . Since 2016, the Canada Revenue Agency has been auditing Bayer Inc. 2013-2015 taxation years. Between December 2017 and August 2018, the CRA made a series of requests to Bayer Canada for copies of agreements that had been negotiated at arm’s length with respect to the activities that are being examined in the audit. On August 21, 2018, the CRA issued Query No 17 to Bayer Canada, in which it revised its previous requests as follows: Pursuant to our discussion on July 18, 2018, we would like to audit agreements made between any member of the Bayer Group with third party(s) in force during the 2013 and 2014 taxation years that perform some or all of the following activities in regards to pharmaceutical products: ‐  Are located in an Organization for Economic Cooperation and Development (“OECD”) member nation; ‐  Perform research and development (clinical trial level stage II, III and/or IV, inclusive); ‐  Perform regulatory compliance activities (notice of compliance, product labelling verification, etc.); ‐  Perform client and corporate product support; ‐  Perform quality control and assurance activities; ‐  Regional marketing and sales activities (e.g. detailing, medical affairs); ‐  Chain supply management activities (e.g. purchasing. distribution); ‐  Price negotiations with local regulatory bodies; ‐  Price negotiations with the public (e.g. provincial formularies) and private (e.g. insurance companies) funding bodies. Please provide a matrix of no less than 50 contracts that meet some or all of the criterion [sic] listed above, and make sure activities contemplated in the agreements are highlighted, so that CRA can select contracts for further review. On November 14, 2018, the Minister of National Revenue issued a Requirement to provide foreign-based information or documents pursuant to 231.6(2) of the ITA. The Requirement was significantly broader in scope than the previous requests. Bayer Inc took the position that the requested documents were irrelevant to the audit and applied for a judicial review of the requirement pursuant to s 231.6(4) of the ITA. Judgement of the Court The application for judicial review was allowed. The court concluded that Bayer was required to provide the documentation identified in Query No 17 dated August 21, 2018. But, the scope of the Requirement was limited to the agreements with the 21 named pharmaceutical and life sciences companies that operate at arm’s length from the Bayer Group. The court clarified that the sole constraint placed on the Minister of National Revenue was that a rational connection must exist between the information sought and the administration and enforcement of the ITA (Saipem at para 26) “Parliament intended to give the Minister far‑reaching powers under section 231.6 to obtain information available outside of Canada. The Minister need only show that it is relevant to the administration or enforcement of the Act. The taxpayer is protected from abusive use of the provision through the power of a judge to review the requirement. The respondent’s requirement was not an abuse of the process nor was the request unreasonable.” Canada-vs-Bayer-T-272-19_20200707_JR_E_O_OTT_20200708105854_FGL_2020_FC_750 ...

Monsanto Chile, Since 2018 a subsidiary in the Bayer group, had been issued a tax assessment related to FY 2009 and 2010 resulting in additional taxes of approximately $800.000.000. and penal interest of 1,5% per month in an amount of $2.216.759.197. Monsanto filed an appeal in regards to the penal interest of $2.216.759.197. In the appeal the company argued, that the interest should be inapplicable since the case has been delayed by Courts due to both lack of activities and COVID 19. Decision of the Court In a split decision the Constitutional Court ruled in favor of Monsanto and declared the penal interest inapplicable. “For all the reasons stated in this ruling, this Court concludes that the application of the penal interest provided for in the third paragraph of Article 53 of the Tax Code, in this specific case, contravenes the constitutional guarantees contained in numbers 2 and 3, paragraph 6, of Article 19 of the Constitution. For this reason, it shall be declared inapplicable due to unconstitutionality.“ Click here for English translation TP Chile Bayer ...

Monsanto Chile – since 2018 a subsidiary of Bayer – is engaged in production of vegetable seeds and Row Crop seeds. The company uses its own local farmers and contractors, employs some 250 people and hires a maximum of 2,000 temporary workers in the summer months. It receives parental seed from global planners in the US and other countries and then multiplies these seeds in Chile on its own or third-party farms. The seeds are then harvested, processed and shipped to locations specified by global planners. Following an audit of FY 2009-2010 an adjustment was issued related to the profitability obtained in the operations of the “Production” segment (sale of semi-finished products to related parties) and “Research and Development” carried out on behalf of related parties abroad. The adjustment was determined by the tax authorities using the a Net Margin method. The tax authorities found that the income obtained under the production segment and in the research and development business line, did not provide a reasonable return to the local company, since in the production segment the operating margin over costs and expenses (ROTC) obtained by Monsanto Chile amounting to -5.87% was lower than the ROTC obtained by comparable companies which were in a range between 4.573% and 12.648%, with a median of 11.216%; and in the research and development segment the ROTC obtained by Monsanto Chile was -6.54%, whereas the arm’s length ROTC determined by the tax authorities was in a range between 7.93% and 12.48%, with a median of 10.21%. An assessment was issued in 2013 where an adjustment of $2,422,378,384 had been determined in regards to the production segment, and an adjustment of $38,637,909 had been determined in regards to the Research and Development segment, in total resulting in additional taxes of $862,958,963. Monsanto was of the opinion that the assessment was bared due to statues of limitations, and that the transfer pricing analysis conducted by the tax authorities in regards to both the production segment and the research and development segment was erroneous. Monsanto also held that the added fine was unfounded. Decision of the Tax court The decision of the Tax Court was largely in favour of the tax authorities. “That the claim filed in the main part of page 1 by Mr. Manuel Jiménez Pfingsthorn, RUT N°7.021.291-9, on behalf of MONSANTO CHILE S.A., is partially accepted, RUT N°83.693.800-3, against the Assessment N° 38, carried out on 28 August 2013, by the Large Taxpayers Directorate of the Internal Revenue Service, only insofar as the fine established in article 97 N°11 of the Tax Code is left without effect, as stated in recital 35°), being rejected for the rest. III. That the Director of the Large Taxpayers’ Directorate of the Internal Revenue Service shall arrange for administrative compliance with the above decision, for which purpose he must carry out a tax re-calculation.“ Following the decision of the tax court, an appeal has been filed by Monsanto Chile to the Court of Appeal where the appeal is still pending. Click here for English translation CH vs M14-9-0000002-3 ...