According to Refinitiv Limited a Diverted Profit Tax-notices they had been served for FY 2018 by the tax authorities were unlawful because the tax authorities had used another transfer pricing method (Profit Split) than the method previously agreed (TNMM with a cost based PLI) in respect of the same services in an earlier Advance Pricing Agreement (“APA”) covering FY 2008-2014. Judgement of the Upper Tribunal The Court did not find an inconsistency between the Diverted Profit Tax-notices issued by the tax authorities in respect of 2018 and the APA covering FY 2008-2014. The appeal of Refinitiv Limited was dismissed. Excerpt “90. HMRC’s acceptance that the 2018 profits were referable to the provision of services in 2008-2014 does not therefore assist the claimants’ case. The APA had terminated and had no effect in relation to the pricing of services for the purposes of calculating profits in 2018. The referability did not mean the services had to be priced under an APA that did not have  effect.91. In conclusion there is accordingly no inconsistency between the DPT notices that HMRC issued in respect of 2018 and the APA. The DPT notices concerned an accounting period in relation to which the APA had no effect.” ...

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 ...