Following a tax audit the tax authority conducted a on-site inspection of PJSC Odesa Port Plant on the completeness of tax calculation in respect of controlled transactions on the export of mineral fertilisers to non-resident companies Ameropa AG (Switzerland), “Koch Fertilizer Trading SARL (Switzerland), Nitora Commodities (Malta) Ltd (Malta), Nitora Commodities AG (Switzerland), Trammo AG (Switzerland), Trammo DMCC (United Arab Emirates), NF Trading AG (Switzerland) for FY 2013 and 2014, as well as business transactions on import of natural gas in gaseous form from a non-resident company Ostchem Holding Limited (Republic of Cyprus) for FY 2013. Based on the results of the inspection, an assessment of additional taxable income was issued. The assessment was based on the following considerations of the tax authority: – it is impossible to use the “net profit” method to confirm the compliance of prices in PJSC Odesa Port Plant’s controlled transactions for the export of mineral fertilisers in 2013 and 2014, since the “comparable uncontrolled price” method should have been used to determine the price in the said controlled transactions. The position of the tax authority is based on the fact that the application of the “net profit” method for determining the price does not allow to objectively determine the relevance of the price of the controlled transaction due to the lack of consideration of the impact of global trends in the nitrogen fertiliser market; information on derivative data available in officially recognised sources of information may be considered sufficient to determine the market price range (range of exchange prices) and calculate the level of arm’s length prices; in the presence of a market price range (range of exchange prices), – PJSC Odesa Port Plant’s transactions with Ostchem Holding Limited for the purchase of natural gas are controlled and PJSC Odesa Port Plant used the method of comparable uncontrolled price in determining the price in controlled transactions for the import of natural gas. However, PJSC Odesa Port Plant is a related party of PJSC Sumykhimprom, therefore, comparing the price in the controlled transaction with the prices in transactions that are also recognised as controlled. – it is not possible to use the “comparable uncontrolled price” method and it is appropriate to use the “net profit” method for natural gas import transactions, since no official source of information contains information on comparable uncontrolled transactions; it is not possible to adjust for the price of natural gas transportation from the European hub to the territory of Ukraine to ensure the proper level of comparability of the price in controlled transactions, and therefore the tax authority to find comparable transactions to apply the “net profit” method. It was found that the contract holder, Ostchem Holding Limited, did not perform any functions that could have influenced the increase in the sale price of natural gas. In the course of the audit, the Amadeus database was used to select independent companies that are comparable to Ostchem Holding Limited in terms of activities within the controlled natural gas import transaction. The sample included, in the tax authority’s opinion, independent companies with comparable activities and a similar functional profile to Ostchem Holding Limited. As a result of the search for comparable companies, 3 companies were selected, which, in the tax authority’s opinion, are fully comparable to Ostchem Holding Limited with key financial indicators for 2013. Based on the results of the analysis of the financial indicators of the comparable companies and the calculation of the range of profitability indicators, the tax authority found that the minimum value of the net profitability range for the comparable year 2013 was 0.04%, and the maximum value of the net profitability range was 1.51%. Thus, the net profitability of the controlled transaction with Ostchem Holding Limited exceeds the maximum value of the market range of net profitability of comparable companies by 30.34%. PJSC Odesa Port Plant disagreed with the tax assessment and filed an appeal. The district court upheld the appeal and dismissed the tax assessment. Subsequently, the Court of Appeal upheld the decision of the District Court and ruled in favour of PJSC Odesa Port Plant. The tax authority then appealed to the Supreme Court, which sent the case back to the Court of Appeal, which in the new trail upheld the tax authority’s assessment. This decision was then appealed to the Supreme Court – again – because, according to PJSC Odesa Port Plant, the Court of Appeal did not follow the instructions and conclusions of the Supreme Court in the course of the new procedure. Judgement of the Court The Supreme Court found that the violations of procedural and substantive law had been committed by the courts of first instance and appeal, and the failure to take into account the relevant correct conclusions of the Supreme Court, give grounds for sending the case for a new trial. In the new trail, it is necessary to take into account the above, to comprehensively and fully clarify all the factual circumstances of the case, verifying them with appropriate and admissible evidence, and to make a reasoned and lawful court decision with appropriate legal justification in terms of accepting or rejecting the arguments of the parties to the case. Excerpt in English “Subparagraphs 39.2.2.8 – 39.2.2.9 of paragraph 39.2.2 of Article 39.2.2 of the TC of Ukraine stipulate that, when determining the comparability of commercial and/or financial terms of comparable transactions with the terms of the controlled transaction, the characteristics of the markets for goods (works, services) where such transactions are conducted are analysed. At the same time, differences in the characteristics of such markets should not significantly affect the commercial and/or financial terms of the transactions conducted there, or such differences should be taken into account when making the appropriate adjustment. In determining the comparability of the characteristics of markets for goods (works, services), the following factors are taken into account: geographical location of markets and their volumes; the presence of competition in the markets, the relative competitiveness of sellers and buyers in the market; the ...

SA Saint Louis Sucre, whose main activity is the production of beet-based sugar and which is a member of the Südzucker group, was the subject of an accounting audit covering the period from 1 March 2010 to 28 February 2013, at the end of which the tax authorities notified it of, on the one hand, additional corporation tax and social security contributions, as well as default interest, in respect of the financial year ended 28 February 2011 in the amount of EUR 1,801,398, resulting from a transfer pricing reassessment and, secondly, additional corporate income tax, social security contributions and exceptional contributions, as well as penalties for deliberate non-compliance, in respect of the financial year ended 28 February 2013 in the amount of 4,908,559 euros, arising from the reconsideration of an extra-accounting deduction of an indemnity from the Belgian intervention and restitution office received following a court decision. In a judgment of 17 July 2020, the Montreuil Administrative Court ruled that there was no need to adjudicate in respect of the disgorgement that had occurred in the course of the proceedings, corresponding to late payment interest in respect of that allowance, that the additional corporation tax, social security contribution and exceptional contribution should be discharged, and that the penalty for wilful misconduct in respect of that allowance should be waived, and dismissed the remainder of the claim. SA Saint Louis Sucre asked the Court to set aside that judgment insofar as it dismissed the remainder of its claim. In its application, the authorities appealed against the same judgment and asked the Court to reinstate the taxes at issue, the discharge for which was wrongly granted by the first judges. Judgement of the Court of Appeal In regards of the transfer pricing adjustment, the Court of Appeal dismissed the appeal of Saint Louis Sucre. Excerpt “10. In order to contest the existence of a tariff advantage granted to its parent company Südzucker AG, and therefore of an indirect transfer of profits within the meaning of the aforementioned provisions of Article 57 of the General Tax Code, Saint Louis Sucre maintains that the price of EUR 427.20 per tonne, determined using the alternative method, corresponds to the arm’s length price. To justify the use of this method, it produced a methodology sheet provided for in the transfer pricing documentation, entitled “Swap SZAG-) SLS: Derivation transfer price 2009/10”. This sheet mentions a resale price of EUR 495 per tonne, to which the applicant company deducted an amount of EUR 70 corresponding to logistical costs, on the grounds that the transfer prices did not take them into account, and then added an amount of EUR 2.70 per tonne, corresponding to the profit margin granted to it by Südzucker AG. To justify the resale price of EUR 495 per tonne, however, it merely took into account the sole reference sales contract between Südzucker AG and its Italian customer Maxi, i.e. EUR 510 per tonne, after deducting Maxi’s profit margin of EUR 15 per tonne. Although Südzucker AG also produced a table to justify the amount of the logistical costs, it does not make it possible to establish the reality of the figures put forward by the company. Moreover, as the Minister maintains in his defence, Annex 5 to the applicant company’s application states that average sugar prices on the European market are determined ‘ex works’, i.e. at the factory gate, without taking logistics costs into account. From 2010 to 2011, the average price of sugar varied between €476 and €654 per tonne. Accordingly, the applicant company does not substantiate, on the basis of the documents produced, the sales price of EUR 427.70 per tonne to its parent company resulting from its application of the alternative method. 11. Saint Louis Sucre also points to the lack of outlets following the fall in the price of quota sugar in 2009/2010. It maintains that its parent company could not have purchased it at the UPC price of EUR 472.80 per tonne, given the transport costs generated by deliveries to southern Europe. Without this sale at the price of 427.20 euros per tonne, it would have had to either store its goods with a view to selling them in the following marketing year, incurring significant storage costs, or sell them in the European Union on loss-making markets, in particular the Spanish market, at a lower price than that negotiated with its parent company. However, it does not provide any evidence in support of its allegations, merely producing two invoices with the Spanish company Südzucker Iberica SLU, showing a selling price of EUR 446 on 15 July 2010 and EUR 471 on 23 August 2010, even though prices fluctuated widely over those few weeks. Furthermore, the applicant company did not demonstrate that its “quota sugar” could only be sold in Spain. 12. Consequently, in light of all of these elements, the alternative method relied on by Saint Louis Sucre was insufficiently documented, and the tax authorities could dismiss it as irrelevant for determining the transfer price in light of the arm’s length principle and rely on the comparable price method. Although the applicant company maintains that the tax authorities did not provide any comparables for determining the transfer price using this method, it is clear from the investigation that they used the price of €472.84 defined by the Südzucker group itself and based on the prices charged to customers Barry Callebaut, Ferrero, Kraft Foods, Coca-Cola and Maxi in October 2009. This price corresponds to the estimated market price at the beginning of the period on the basis of contracts currently being signed. By simply maintaining that the price of EUR 427.20 per tonne, determined using the alternative method, corresponds to the arm’s length price, Saint Louis Sucre is not contesting that the UPC method used by the department could be applied to establish the arm’s length price. The tax authorities could therefore consider that the price of EUR 427.20, which was lower than the average for comparable contracts using the UPC ...

The Argentinian company Materia Pampa S.A. exported products to a Brazilian company, Companhia De Bedidas Das Americas in Brazil (Ambev), via a related party in Uruguay, Maltería Uruguay S.A. There was a significant difference between the price declared on export to Uruguay and the price used for the subsequent final shipment to Brazil. An assessment was made by the tax/customs authorities, which resulted in an upward adjustment of the price received for the products from the related party in Uruguay, which in turn resulted in additional taxes and VAT. The price adjustment was based on the guidance provided in the OECD TPG, and in relation to the application of the arm’s length principle in determining prices for customs purposes, reference was made to the guidance provided in paragraph 1.137 of the 2017 TPG, which states. “The arm’s length principle is broadly applied by many customs administrations as a principle of comparison between the value attributable to goods imported by associated enterprises, which may be affected by the special relationship between them, and the value of similar goods imported by independent enterprises. However, valuation methods for customs purposes may not be consistent with transfer pricing methods recognised by the OECD. Nevertheless, customs valuations may be useful to tax administrations in assessing the arm’s length character of a transfer price in a controlled transaction and vice versa. In particular, customs officials may have contemporaneous information about the transaction that may be relevant for transfer pricing purposes, especially if prepared by the taxpayer, while tax authorities may have transfer pricing documentation that provides detailed information about the circumstances of the transaction.” ...

The tax authority, based on the results of an audit, found that the prices in controlled export transactions of goods, carried out between “LK Ukraine Group” and related parties, did not comply with the arm’s length principle, i.e. the selling prices of the goods were lower than the minimum values of the arm’s length range. Disagreeing with this conclusion, “LK Ukraine Group” stated that the the method applied by the tax authority during the audit of prices in controlled transactions was unlawful and inappropriate due to the lack of information on all possible costs. At the request of the supervisory authority, “LK Ukraine Group” provided evidence that when determining the prices of goods, the group was guided by information based on monitoring, in particular, prices on the Euronext exchange, namely, the average selling prices of agricultural products on the terms of delivery EXW-port, which refuted the assertion of the authority that the controlled transactions did not comply with the arm’s length principle. The District Administrative Court dismissed the claim in a decision upheld by the Administrative Court of Appeal. The courts of previous instances concluded that, based on the Tax Code of Ukraine, the tax authority had calculated the median of the range to determine the price in a controlled transaction, which is consistent with the arm’s length principle. Judgement of the Supreme Court The Supreme Court also dismissed the appeal of “LK Ukraine Group” and upheld the challenged court decisions. If the audit of controlled transactions on export of “rapeseed” goods establishes that prices in controlled transactions on export of goods of the commodity carried out by the taxpayer (taking into account the adjustment for the cost of transshipment of goods on board the vessel) are less than the minimum values of price intervals (ranges), i.e., do not comply with the arm’s length principle and the selling prices are lower than the price range, the terms of such transactions differ from the terms and conditions applied between unrelated parties in comparable uncontrolled transactions. Click here for English translation Click here for other translation TPcase - Ukrain 23 March 2023 ...

The price of a comparable uncontrolled services transaction may be derived based on indirect measures of the price charged in comparable uncontrolled services transactions, but only if – (A) The data are widely and routinely used in the ordinary course of business in the particular industry or market segment for purposes of determining prices actually charged in comparable uncontrolled services transactions; (B) The data are used to set prices in the controlled services transaction in the same way they are used to set prices in uncontrolled services transactions of the controlled taxpayer, or in the same way they are used by uncontrolled taxpayers to set prices in uncontrolled services transactions; and (C) The amount charged in the controlled services transaction may be reliably adjusted to reflect differences in quality of the services, contractual terms, market conditions, risks borne (including contingent-payment terms), duration or quantitative measure of services rendered, and other factors that may affect the price to which uncontrolled taxpayers would agree ...

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 Norway vs Equinor Energy AS August 2022 Court of Appeal Case No LB-2021-126759 ORG ...

On 20 July 2022 Australian mining group Rio Tinto issued a press release announcing that a A$ 1 billion settlement had been reached with the Australian Taxation Office. “The agreement resolves the disagreement relating to interest on an isolated borrowing used to pay an intragroup dividend in 2015. It also separately resolves the pricing of certain transactions between Rio Tinto entities based in Australia and the Group’s commercial centre in Singapore from 2010-2021 and provides certainty for a further five-year period. Rio Tinto has also reached agreement with the Inland Revenue Authority of Singapore (IRAS) in relation to transfer pricing for the same periods. Reaching agreement with both tax authorities ensures Rio Tinto is not subject to double taxation. As part of this agreement, Rio Tinto will pay to the ATO additional tax of A$613m for the twelve historical years (2010 to 2021). This is in addition to the A$378m of tax paid in respect of the original amended assessments issued by the ATO. Over this period, Rio Tinto paid nearly A$80bn in tax and royalties in Australia. Peter Cunningham, Rio Tinto Chief Financial Officer, said “We are glad to have resolved these longstanding disputes and to have gained certainty over future tax outcomes relating to our Singapore marketing arrangements. Rio Tinto remains committed to our commercial activities in Singapore and the valuable role played by our centralised commercial team.” Additional Information Rio Tinto was issued amended assessments in respect of iron ore marketing in 2017 (A$447m for the 2010 to 2013 years), for aluminium marketing in 2020 (A$86m for the 2010 to 2016 years) and for the intragroup dividend financing matter in 2021 (A$738m for the 2015 to 2018 years). The agreements separately reached with the ATO and IRAS cover the transfer pricing related to the marketing of all products between Australia and Singapore, including iron ore and aluminium, for all historical years from 2010 to 2021 and the future period to 2026. The ATO settlement payment includes A$55m of interest and A$22m of penalties. On 20 March 2020, Rio Tinto lodged requests for dispute resolution between the ATO and IRAS under the double tax treaty between Australia and Singapore (as disclosed in Rio Tinto’s 2020 half-year results). As a result of the agreements reached with both tax authorities, those requests have been withdrawn.” The settlement agreement has also been announced by the Australian Tax Office. ATO vs RIO TINTO70098 See also Australia vs Rio Tinto and BHP Billiton, April 2017 – Going to Court and Mining Group Rio Tinto in new A$ 86 million dispute with the ATO over pricing of aluminum ...

Poltova GZK is a Ukrainian subsidiary of the Ferrexpo group – the world’s third largest exporter of iron ore pellets. In FY 2015 the iron ore mined in Ukraine by Poltava GZK was sold to other companies in the group – Ferrexpo Middle East FZE, and the transfer prices for the ore was determined by application of the CUP method using Platts quotations. However, according to the tax authorities Poltava GZK used Platts quotations for pellets with a lower iron content when pricing the higher quality pellets, resulting in non arm’s length prices for the controlled transactions and lower profits in the Ukraine subsidiary. The tax authorities also found that Poltava GZK had overestimated the cost of freight – in the case of actual transportation of pellets by ships of different classes (“Panamax”, “Capesize”), the adjustment of the delivery conditions was carried out only at the maximum rate. On that basis an assessment was issued. Not satisfied with the assessment an appel was filed Poltova GZK, and in 2019 the Administrative Court and later the Court of Appeal set aside the assessment of the tax authorities. An appeal was then filed by the tax authorities with the Supreme Court. Judgement of the Supreme Court The Supreme Court partially annulled the decision of the Administrative Court and Court of Appeal and ruled predominantly in favor of the tax authorities approving the position that the transfer prices of the iron ore pellets did not correspond to the arm’s length price. The Court confirmed the validity of the tax assessment and the legality of the issued tax notice-decision regarding the reduction of the negative taxable income in an amount of 1.3 billion hryvnias (~$35 millions).  The Court confirmed that the taxpayer did not take into account the actual properties of the products specified in the Quality Certificates, namely: the content of impurities (silicon dioxide) and the moisture level when pricing the controlled transactions. The court confirmed that the constant fluctuation of prices on the market of iron ore pellets is not a basis for comparing prices in CU with the average indicator in comparable operations for a certain period (month) without constructing a price range. Also, the taxpayer had overestimated the cost of freight. Click here for English translation Click here for other translation Ukrain vs PrJSC Supreme Administrative Court case no 440-1053-19 ...

The question in the case was whether a Norwegian company had received an arm’s length price when selling gas to a French company in the same group. Judgement of the Court of Appeal The Court of Appeal came to the conclusion that the agreed transfer price had not been at arm’s length and this meant a reduction in income for the Norwegian company. The Appeal Board for Petroleum Tax’s decision was upheld.  Click here for English translation. Click here for other translation LG-2021-8008-–-UTV-2022-697-ORG ...

The Revenue Service had audited Severstal Distribution for FY 2008-2009 and found that the company had purchased metal products from related companies at prices above market prices. An assessment was issued where reported losses for 2009 were reduced. During the audit, Severstal Distribution indicated to the tax authorities that it had used the transactional net margin method to determine the price of its controlled transactions. However, later the company also stated that it had used the CUP method (quated steel prices from the SBB database). Severstal Distribution Ltd filed an appeal with the Administrative Regional Court. In a decision of 2019 the appeal was dismissed and the assessment of additional income upheld. An appeal was then filed by Severstal Distribution Ltd with the Administrative Court of Appeal. The issue to be examined by the Administrative Court of Appeal was whether the Revenue Service correctly determined Severstal Distribution’s income subject to corporate income tax by applying the arm’s length provisions in Section 12(2)(3) of the Law on Corporate Income Tax – i.e. whether Severstal Distribution purchased goods from related companies at above-market prices. Judgement of the Administrative Court of Appeal The Court dismissed the appeal of Severstal Distribution and upheld the decision from the Regional Court. Excerpts “Tax collection is based on the taxpayer’s cooperation with the tax administration. The tax administration can only determine the correct tax liability if it is aware of all the factual circumstances on which such liability is based. Such facts are best available and known to the taxpayer himself and it is therefore in the taxpayer’s own interest not to delay the examination of the tax liability and to provide the tax administration with the relevant information and explanations. The taxpayer’s duty to cooperate is laid down in the form of a legal obligation in paragraphs 5, 6, 10, 11 and 32.2 of the first part of Article 15 of the Law on Taxes and Duties.” “In summary, the Senate considers that there is no particular order in the choice of methods, but that the most appropriate method should be applied in each case on the basis of the circumstances of the individual case. Moreover, the choice of method is primarily the taxpayer’s responsibility, whereas the tax authorities must respect that choice as far as possible during the tax examination.” “In the light of the above, the Court was wrong to conclude that aggregated data could not be used in the application of the comparable uncontrolled price method. At the same time, as already pointed out, they must also be sufficiently comparable and meet the criteria laid down by law, bearing in mind in particular that such aggregates are not, for the most part, produced for transfer pricing purposes.” “The comparable uncontrolled price method compares a controlled transaction with a similar uncontrolled transaction to provide a direct estimate of the price that the parties could have agreed if they had used a market alternative to the controlled transaction. However, the method becomes a less reliable proxy for arm’s length transactions if all the characteristics of the uncontrolled transaction that significantly affect the prices charged between arm’s length parties are not comparable. The application of the method is limited because it is practically difficult to find an uncontrolled transaction whose differences from a related party transaction would not affect the price. Any minor inaccuracy may lead to a mispricing…” Click here for English translation Click here for other translation SKA-314-2021 (1) ORG ...

Following a tax audit of controlled transactions in 2013 and 2015 for the sale of goods to foreign related parties, the tax authorities concluded that Totland had understated the price of the goods sold and thus its taxable income. On that basis an assessment of additional income tax was issued. Totland disagreed with the assessment and filed an appeal. Totland stated that the dates of the price information used by the tax authorities differed from the date of the controlled transactions in question, and furthermore that those uncontrolled transactions were carried out on different terms. Totland had based the pricing of the controlled transactions on stock exchange prices and noted that the tax authorities in the assessment had violated the requirements of the Tax Code of Ukraine by applying stock exchange prices established a decade before the controlled transactions were carried out. The District Court dismissed Totland’s claim and upheld the assessment. Later the Court of Appeal overturned the decision of the District Court and decided in favor of Totland. The Court  of Appeal concluded that the uncontrolled transactions on which the pricing and assessment had been based were not comparable with the controlled transactions. An appeal was then filed by the tax authorities with the Supreme Court. Judgement of the Court The Supreme Court dismissed the tax authorities appeal and upheld the decision of the Court of Appeal. According to the Resolution of the Cabinet of Ministers of Ukraine dated 08 September 2016 No. 616 “On Approval of the List of Exchange Traded Goods and World Commodity Exchanges for determining the compliance of the terms of controlled transactions with the arm’s length principle”, the compliance of the terms with the arm’s length principle is determined by the CUP method. The components of this method are: use of the price range for stock exchange quoted goods; consideration of the volume of the controlled transaction, payment and delivery terms; consideration of the quality characteristics of the goods and the costs of their transportation. The provisions of sub-clause 39.2.1.3 of clause 39.2 of Article 39 of the Tax Code of Ukraine are special for controlled transactions on export and/or import of goods that have a stock exchange quotation and are included in the list approved by the said resolution. Sources of information on stock exchange quotations, criteria for comparability of controlled and uncontrolled transactions are determined in accordance with subparagraphs 39.5.3.1, 39.2.2 of Article 39 of the Tax Code of Ukraine. In the judgement the Supreme Court refers to its prior ruling in case No. 804/5360/17, where the Supreme Court, applying the provisions of the above subparagraphs of Article 39 of the Tax Code of Ukraine, concluded that the tax authority in determining the price range for controlled transactions of commodities must verify the reliability of the information sources used; the terms of uncontrolled transactions with the terms of controlled transactions; the compliance of the prices selected for comparison in comparable uncontrolled transactions with the terms of controlled transactions. Click here for English translation Click here for other translation Ukrain 580-2610-19 ORG ...

The tax authorities had adjusted the agreed prices of agricultural commodities transferred by ADM Argentina to a foreign related party. Following receipt of the additional income assessment, ADM Argentina appealed to the Federal Tax Court. The Federal Tax Court overturned the assessment. The court concluded that the adjustments made by the tax authorities were arbitrary because they were made only in respect of certain export transactions where the quoted price at the time of the transaction was lower than the quoted price at the time the goods were loaded. Furthermore, the transactions used by the tax authorities as external comparables were not valid for transfer pricing purposes because they suffered from significant comparability flaws and deficiencies. The Court of Appeal later upheld the Federal Tax Court’s decision and the Supreme Court dismissed a final appeal by the tax authorities. Excerpts “On the basis of these premises, I consider that the extraordinary appeal is inadmissible and has been properly denied since, in order to validate the decision of the Tax Court, the a quo provided grounds of fact and evidence which, in my opinion, provide sufficient support for the decision, without the appellant’s discrepancies being effective to enable the exceptional remedy sought. Indeed, the Chamber concluded that the products marketed by Nidera S.A. and O.M.H.H.S.A. differ from those exported by the plaintiff, both in their type and in their quantities and markets (countries) of destination and, therefore, they are not suitable to support the adjustment claimed by the tax authorities. In this regard, it explained that, while Nidera S.A. exported to Cuba, Canada, United Kingdom, the Netherlands, Costa Rica, France, Chile and the United States of America, ADM Argentina S.A. exported to the United States of America. In terms of products, it was established that both Nidera S.A. and O.M.H.S.A. traded refined soybean oil in bulk; soybean meal in bulk; refined sunflower oil; sunflower pellets in bulk; crude soybean oil and bread wheat, while in the same fiscal period, ADM Argentina S.A. sold Argentine corn in bulk; Argentine wheat in bulk; bran pellets, soybeans in bulk and sorghum in bulk. Regarding prices, the Chamber stated that it was established that in 76.67% of the transactions concluded by O.M.H.S.A. with independent third parties, the agreed price was closer to the price published by SAGPyA at the date of the agreement than at the date of shipment. It added that, measured in tonnes, 93.56% of O.M.H.H.S.A.’s exports to independent third parties corresponded to transactions concluded on dates on which the quotation price published by SAGPyA on the date of the contract was higher than the price published by the same body on the date of shipment. In these circumstances, it is clear to me that the Treasury’s complaints, aimed at defending its adjustment made on the basis of comparable prices whose use was rejected by both the Tax Court and the Chamber, merely reflect a mere disagreement with the assessment of the evidential material used by the judges in the case, which is not covered by the charge of arbitrariness that the federal remedy alleges (Judgments: 280:320; 295:165; 297:333), whose exceptional nature does not tend to replace the judges when they decide issues that are their own (Judgments: 394:394: 295:356; 297:173), even when an error in the solution of the case is invoked (Judgments: 296:82, 445; 302:1030), reasons for which I think that the extraordinary appeal filed has been rightly denied.” Click here for English Translation Click here for other translation FALLO CAF 029982_2017_1_RH001 ...

Following an audit of Mopani Copper Mines Plc. the Zambian Revenue Authority (ZRA) found that the price of copper sold to related party Glencore International AG had been significantly lower than the price of copper sold to third parties. A tax assessment was issued where the ZRA concluded that the internal pricing had not been determined in accordance with the arm’s length principle, and further that one of the main purposes for the mis-pricing had been to reduce tax liabilities. Mopani Copper Mines Plc. first appealed the decision to Zambia’s Tax Appeal Tribunal, and after a decision was handed down by the Tribunal in favor of the ZRA, a new appeal was filed with the Supreme Court. The Supreme Court dismissed Mopani’s appeal and ruled in favor of the ZRA. App-024-2017-Mopani-Copper-Mines-Plc-Vs-Zambia-Revenue-Authority-20th-May-2020-Mambilima-Cj-Malila-And-Mutuna-JJS ...

The Ukrainian group Rivneazot imports natural gas from – and exports mineral to – foreign related companies. The tax authority carried out an audit and concluded that the controlled prices of these transactions had not been determined in accordance with the arm’s length principle, which had resulted in an understatement of taxable income. Rivneazot disagreed. According to the company the CUP method had correctly been applied to the controlled natural gas import transactions and the TNMM had correctly been applied to the controlled export transactions. In 2018 the Administrative Court decided in favor of Rivneazon and set aside the tax assessment. The court concluded that information provided by the company were sufficient to use the preferred CUP method with a defined market price range for natural gas. The decision was then appealed to the Administrative Court of Appeals. The Court of Appeal upheld the decision of the Administrative court. This decision was then appealed by the tax authorities to the Supreme Administrative Court. Judgement of the Supreme Administrative Court The Supreme Court partially set aside the decision of the Court of Appeal. According to the Supreme Administrative Court, amendments to the Tax Code of Ukraine, which took effect on 1 January 2015, introduced more clarity in regards to transfer pricing methods. The CUP method has priority (compared to other methods) in case of its applicability. However, the use of the CUP method for the controlled natural gas import transactions is not possible due to the absence of information on the underlying uncontrolled transactions. Therefore, the tax authority had rightly used the TNMM as the most appropriate method for determining the prices of these transactions. Click here for English translation Click here for other translation Ukrain vs Rivneazot Oct 2019 no 817-1737-17ORG ...

The Hungarian tax office had carried out an an audit of “Seeds Kft” – a group company engaged in the trade in cereals and oilseeds – in relation to accounting for commodity futures. In the assessment decision, the tax office emphasized that the economic substance of the given transaction and the purpose to be achieved by the transaction are relevant. Clearing transactions are not settled by the delivery of the underlying commodities of the transaction and the payment of the forward price, but by financial settlement of the difference between the market price of the commodity and the forward price. With regard to the transfer pricing documentation, the tax office agreed with the pricing method chosen by Seeds Kft but found the application thereof arbitrary and therefore not resulting in establishment of a market price. The Court of First Instance found the tax office’s claim to be partly well-founded and ordered the tax authorities to reopen the proceedings. On the issue of the legal nature of the options, the court noted that, according to the expert opinion obtained in the litigation, Seeds Kft had correctly applied passive accruals and had correctly booked the transactions as clearing transactions. With regard to the transfer pricing documentation, it was noted that neither the resale price method applied by the Seeds Kft nor that of the tax office was correct. Following requests for review by both the tax office and Seeds Kft, the Court of Appeal partially set aside the judgment of the Court of First Instance and ordered the Court of First Instance to reopen the proceedings and to give a new decision. With regard to futures contracts, it was emphasized that the Court of First Instance did not rule on the issue of whether the transactions were clearing or delivery. It is not excluded that the examination of the facts necessary for deciding a particular point of law may require particular expertise, but the legal nature of the transactions cannot be inferred from the findings of experts. The valuation of legal transactions, based on accounting standards and actual implementation, is a legal issue which the expert may decide on the applicability of accruals as a professional issue. In regards to the legal nature of the contracts the Court stated that the first step was to determine whether they were correctly classified by the authority as delivery transactions and not clearing transactions. Click here for translation Hungary 2018 ...

The Platform for Collaboration on Tax (IMF, OECD, UN and the WBG) has published a toolkit for addressing difficulties in accessing comparables Data for Transfer Pricing Analyses. The Toolkit Includes a supplementary report on addressing the information gaps on prices of Minerals Sold in an intermediate form. PUBLIC-toolkit-on-comparability-and-mineral-pricing ...

The UN Transfer Pricing Manual does not address industry-specific issues, but, in 2017 a guidance note was developed by a subcommittee looking into transfer pricing issues in extractive industries, both relating to the production of oil and natural gas and relating to mining and minerals extraction. The note draws on materials that have been published in other fora, including the Platform for Cooperation on Tax (hereafter: “the Platform”), reflecting enhanced collaboration between the IMF, OECD, UN and WBG for the benefit of developing countries. Reference can be made to the Discussion Draft published by the Platform on Addressing the Information Gaps on Prices of Minerals Sold in an Intermediate Form and the Discussion Draft presenting A Toolkit for addressing Difficulties in Accessing Comparable data for Transfer Pricing Analyses. Reference can also be made to the WBG’s Extractive Industries Transparency Initiative and materials3 and the publication Transfer Pricing in Mining with a Focus on Africa. Table 1 in the first part of the note identifies some of the transfer pricing issues that often arise in the extractive industries. The table is organized by reference to the various major stages in the extractive industry value chain. The table makes some general suggestions on methods and approaches that might be used in addressing the identified issues. Thereafter, the guidance note provides several case examples, some of which result from discussions with tax inspectors working in developing countries. Taken together, the table and the examples provide useful background information for developing countries to utilize in addressing transfer pricing issues in extractive industries. The note does not aspire to provide comprehensive transfer pricing guidance for the extraction industries, but should provide a useful summary and checklist of some of the issues that commonly arise. It is recommended that this extractive industry guidance note and the Manual be consulted together. UN TP-and-Extractive-Industries 310317 ...