The case concerned pricing of the wet gas in FY 2012-2014 sold between Equinor Energy (subsidiary) and Equinor ASA (parent). The intra-group sales from Equinor Energy to Equinor were regulated by an internal agreement that was entered into as part of the transfer of rights in 2009. The income that Equinor Energy receives from the internal sales is subject to section 5 of the Petroleum Tax Act with a special tax that comes in addition to the general income tax. This means that Equinor Energy had a total tax burden of 78%. Equinor, for its part, is charged with ordinary income tax, which was 27/28%. In 2012 the pricing model was changed rom the so-called “OTS price model” to a “dividend model”, which led to the price (and taxable income in Equinor Energy) being reduced compared to the previously used pricing model. The reason stated by the group for this change was that Equinor Energy had later entered into an agreement with an unrelated party – Centrica – where the dividend model had been agreed. The tax authorities issued an assessment where the pricing of the controlled transactions for FY 2012 – 2014 was based on the OTS price model resulting in additional taxable income in Equinor Energy. An appeal was filed by Equinor Energy. Judgement of the Court of Appeal The Court dismissed the appeal of Equinor Energy and upheld the decision of the tax authorities. The Court of Appeal used the direct comparison method (the “CUP method”) as a basis. Apart from the agreement with Centrica, all other agreements in the period 2012-2014 were priced according to the OTS model. The Court of Appeal found that at least those of these agreements which were terminable constituted CUPs. The fact that the agreements were entered into before 2012 did not mean that these agreements should be excluded. The Court of Appeal further assumed that the Centrica agreement had been entered into under such circumstances that it alone could not justify a reduction in the market price. It could not be attributed decisive importance for the period 2012-2014 that several agreements had been changed to the dividend model from 2015-2016. The Court of Appeal assumed that from 2015 it was in a transition phase, where the market price was fluctuating. There was no basis for applying retroactive effect to individual transactions from this period. Click here for English translation. Click here for other translation ...

Gulbrandsen Chemicals manufactures chemicals for industrial customers in the petrochemical and pharmaceutical industry. The Indian Subsidiary, Gulbrandsen India also sold these products to its affiliated enterprises, namely Gulbrandsen Chemicals Inc, USA, and Gulbrandsen EU Limited. In regards of the controlled transactions, the tax authorities noticed that Gulbrandsen India had shifted from use of the internal CUP method to pricing based on the Transactional Net Margin Method (TNMM). The tax authorities were of the view that, given the facts of the case, the internal CUP was the most appropriate method. It was noted that Gulbrandsen India had sold 40% of its products to the associated enterprises, and earned a margin of PBIT/Cost at 2.07%, as against the sale of 70% of its products in the prior year and earning margin of PBIT/Cost at 3.26%. Following a decision of the Tax Tribunal, where the assessment of the tax authorities was set aside, the tax authorities filed an appeal with the High Court, Judgement of the Court The High Court dismissed the appeal of the tax authorities and upheld the decision of the Tax Tribunal. Excerpt “The Tribunal has taken into consideration the voluminous documentary evidence on record for the purpose of coming to the conclusion of adoption of TNMM by the assessee as the Most Appropriate Method of arriving at ALP.” “In the overall view of the matter, we are convinced that the decision of the Tribunal is correct and requires no interference and no question of law much less any substantial question of law can be said to have arisen from the impugned order of the Tribunal. In the result, these appeals fail and are hereby dismissed, with no order as to costs.” ...