ST Dupont is a French luxury manufacturer of lighters, pens and leather goods. It is majority-owned by the Dutch company D&D International, which is wholly-owned by Broad Gain Investments Ltd, based in Hong Kong. ST Dupont is the sole shareholder of the distribution subsidiaries located abroad, in particular ST Dupont Marketing, based in Hong Kong. Following an audit, an adjustment was issued where the tax administration considered that the prices at which ST Dupont sold its products to ST Dupont Marketing (Hong Kong) were lower than the arm’s length prices. “The investigation revealed that the administration found that ST Dupont was making significant and persistent losses, with an operating loss of between EUR 7,260,086 and EUR 32,408,032 for the financial years from 2003 to 2009. It also noted that its marketing subsidiary in Hong Kong, ST Dupont Marketing, in which it held the entire capital, was making a profit, with results ranging from EUR 920,739 to EUR 3,828,051 for the same years.” Applying a CUP method the tax administration corrected the losses declared by ST Dupont in terms of corporation tax for the financial years ending in 2009, 2010 and 2011. Not satisfied with the adjustment ST Dupont filed an appeal with the Paris administrative Court where parts of the tax assessment in a decision issued in 2019 were set aside by the court (royalty payments and resulting adjustments to loss carry forward) An appeal was then filed with the CAA of Paris, where in April 2022 the Court dismissed the appeal and upheld the decision of the court of first instance. Finally an appeal was filed with the Conseil d’État. Judgement of the Conseil d’État The Conseil d’État dismissed the appeal of ST Dupont and upheld the decision of the Court of Appeal. Excerpt “ 15. It is clear from the documents in the file submitted to the lower courts that, in order to assess whether the prices at which ST Dupont sold its finished products to its distribution subsidiary ST Dupont Marketing constituted a transfer of profits abroad, it compared them to the prices at which the same products were sold to the independent South Korean company SJ Duko Co and to a network of duty-free sellers in South-East Asia. It considered that this comparison revealed the existence of an advantage granted by ST Dupont to its subsidiary, which it reintegrated into the parent company’s profits. However, in its response to the taxpayer’s comments, this adjustment was reduced by a “reduction” in the arm’s length prices used by the tax authorities, which consisted of aligning the margin on transactions with duty free shops with the margin on sales to SJ Duko, and then, in accordance with the opinion issued by the departmental commission for direct taxes and turnover taxes, by a further reduction of 50% of the amounts reintegrated into the company’s results. 16. In the first place, the company criticised the method used by the tax authorities on the grounds that ST Dupont Marketing and the Korean company SJ Duko Co were not comparable, since the former operated as a wholesaler and retailer while the latter only operated as a wholesaler. In rejecting this criticism on the grounds, firstly, that SJ Duko’s wholesale activity had been supplemented by that of exclusive sales agent and retailer and, secondly, that the applicant had not provided any evidence making it possible to assess the nature and cost of the differences in functions between ST Dupont Marketing and SJ Duko Co, taking into account in particular the assets used and the risks borne, and consequently to assess the existence, if any, of differences such that they would render the comparison irrelevant if they could not be appropriately corrected, the Court did not err in law. Although the company also argued that the differences in the functions performed by ST Dupont and the duty free shops prevented the duty free shops from being considered comparable, this criticism is new in the appeal and is therefore inoperative. 17. Secondly, in order to dismiss the criticism of the administration’s method based on the failure to take account of the difference in the geographical markets in which ST Dupont Marketing and SJ Duko Co operated, respectively, the Court was able, without committing an error of law, by disregarding the rules governing the allocation of the burden of proof or distorting the documents in the file submitted to it, to rely on the fact that ST Dupont’s transfer pricing documentation itself specified that retail prices were set uniformly by continental zone. 18. Thirdly, the Court noted, in a sovereign assessment not vitiated by distortion, on the one hand, that it did not follow either from the tables attached to the rectification proposal, or from the method of determining the selling prices of finished products to the various Asian subsidiaries, that the prices charged by ST Dupont to its customers depended on the quantities sold and, secondly, that the document produced by ST Dupont showing an overall statistical correlation between volume sold and unit price, which did not guarantee that the products compared were homogeneous, did not make it possible to establish this either. In relying on these factors to dismiss the company’s criticism based on the difference in the volume of transactions with ST Dupont Marketing and SJ Duko Co respectively, the Court did not err in law. 19. Fourthly, although the company criticises the grounds of the judgment in which the Court rejected its argument that the alignment of the mark-up applied to sales to duty-free shops with that applied to sales to SJ Duko Co meant that only one term of comparison was used, it is clear from other statements in the judgment, not criticised by the appeal, that the court also based itself on the fact that the tax authorities had, as an alternative, in their response to the taxpayer’s observations, applied a 27% reduction to the prices granted to duty-free shops in order to take account of the fact that these were ...

ST Dupont is a French luxury manufacturer of lighters, pens and leather goods. It is majority-owned by the Dutch company D&D International, which is wholly-owned by Broad Gain Investments Ltd, based in Hong Kong. ST Dupont is the sole shareholder of distribution subsidiaries located abroad, in particular ST Dupont Marketing, based in Hong Kong. Following an audit, an adjustment was issued where the tax administration considered that the prices at which ST Dupont sold its products to ST Dupont Marketing (Hong Kong) were lower than the arm’s length prices. “The investigation revealed that the administration found that ST Dupont was making significant and persistent losses, with an operating loss of between EUR 7,260,086 and EUR 32,408,032 for the financial years from 2003 to 2009. It also noted that its marketing subsidiary in Hong Kong, ST Dupont Marketing, in which it held the entire capital, was making a profit, with results ranging from EUR 920,739 to EUR 3,828,051 for the same years.” Applying a CUP method the tax administration corrected the losses declared by ST Dupont in terms of corporation tax for the financial years ending in 2009, 2010 and 2011. Not satisfied with the adjustment ST Dupont filed an appeal with the Paris administrative Court where parts of the tax assessment in a decision issued in 2019 were set aside by the court (royalty payments and resulting adjustments to loss carry forward) Still not satisfied with the result, an appeal was filed by ST Dupont with the CAA of Paris. Judgement of the CAA The Court of appeal dismissed the appeal of ST Dupont and upheld the decision of the court of first instance. Excerpt “It follows from the above that the administration provides proof of the existence and amount of an advantage granted to ST Dupont Marketing that it was entitled to reintegrate into ST Dupont’s results, pursuant to the provisions of Article 57 of the General Tax Code, before drawing the consequences on the amount of the deficits declared by this company in terms of corporation tax, on the liability of the sums thus distributed to the withholding tax and on the integration in the base of the minimum contribution of professional tax and the contribution on the added value of companies. 29. It follows from all the foregoing that ST Dupont is not entitled to maintain that it was wrongly that, by the contested judgment, the Paris Administrative Court rejected the remainder of its claim. Its claims for the annulment of Article 4 of that judgment, for the discharge of the taxes remaining in dispute and for the restoration of its declared carry-over deficit in its entirety must therefore be rejected.” Click here for English translation Click here for other translation ...

The tax authority found that P.sp. z o.o. had understated its income from sales to related parties in the P. Group. The tax authority selected three comparable independent wholesalers and established a range of profit margins between 4.02% and 6.24%. As P. sp. z o.o. had a profit margin of only 2.84% on its wholesale activities, an adjustment was made to the taxable income. A complaint was filed by “P. sp. z o.o.” with the Administrative Court, which was dismissed, and an appeal was then filed with the Supreme Administrative Court. Judgement of the Supreme Administrative Court. The the Supreme Administrative Court, annulled the appealed decision in its entirety and ordered – when re-examining the case – the tax authority to follow the interpretation of the law made by the Supreme Administrative Court. In a very comprehensive judgment, the Court ruled on a wide range of issues, including Whether and how to take into account income received for other activities (marketing services) when determining the arm’s length income. The choice and application of transfer pricing methods The objectives and standards of a compability analysis and benchmarking study conducted by the tax authority The use of statistical methods (IQR) when the number of comparables in a benchmark is limited. Click here for English translation Click here for other translation ...

A Portuguese subsidiary – A SA – had received intra group loans in foreign currency and had various other transactions with foreign group companies. The tax authorities claimed that the pricing of the transactions had not been at arm’s length and that the interest payment and exchange losses on the loans were not tax deductible. Decision of CAAD The CAAD set aside the assessment and decided in favour of “Welding Mesh SA” Click here for English translation ...

The Italien tax authorities had issued an assessment against Fashion box s.p.a., adjusting revenues for FY 2004 with the sum of EUR 988,888.27, related to transfer pricing transactions between the taxpayer and foreign subsidiaries of Fashion Box Group s.p.a. located in various European countries. In particular, the tax authorities pointed out that sales to the European subsidiaries accounted for 95 % of total sales and that the discounts applied to subsidiaries were 31 % while those offered to Italian shops were between 2 and 2,5 %. The products were sold in Italy for slightly lower prices than those applied to European subsidiaries. Therefore, the subsidiaries could enjoy a much higher profits. An Italian shop had a theoretical mark-up of 138% while the foreign distributor had a mark-up of 233 %. Hence, profits had been transferred to the foreign entities of the group. The Regional Tax Tribunal rejected the assessment. In its judgement the Tribunal stated that it was necessary to compare the prices of the products ‘at the same marketing stage’. In the present case, prices charged ‘at retail’ on the domestic market, had been compared with the ‘wholesale’ prices charged to foreign subsidiaries. The tax authorities appealed against this judgment. Judgement of the Supreme Court The Court dismissed the appeal of the tax authorities and ruled in favor of Fashion Box s.p.a. Excerpt “On this point, the Regional Commission provided adequate and appropriate reasons for its decision, pointing out that the higher discounts applied to European subsidiaries (31 %), compared to those applied to Italian companies (2,5 %), were justified by the different stage of marketing of the products. In fact, it is clearly stated in the grounds that the tax recovery made by the Office is based solely on the greater amount of the discount in favour of the European subsidiaries, but no account is taken of the fact that, while sales to the European subsidiaries are wholesale, those to Italian customers are ‘retail’, so that the comparison relates to products which are not at the same stage of marketing, with the consequent impracticability of the ‘price comparison’ method. Nor can that reasoning be regarded as insufficient, merely because it did not take account of the ‘counter-evidence’ offered by the Revenue Agency, which, noting the different marketing stage of the products, in the case of a comparison of prices between sales to European subsidiaries (wholesale) and sales to Italian companies (retail), also compared the prices charged to the independent Danish customer, to whom discounts of 25 % were applied. Indeed, quite apart from the fact that the level of discount in that situation is very close to that applied to the foreign subsidiaries (25 % and 31 % respectively) and that the Danish customer De Lorenzo had not signed up to the obligation to increase the level of sales every year and was a ‘multi-brand’ retailer, with a larger volume of sales – so that even in that case there were absolutely significant differences – it should be noted that the trial judge does not have to take into consideration all the evidence in the file, when he provides an adequate and analytical statement of reasons for his conviction, based on a solid basis of argument” Click here for English translation Click here for other translation ...

ST Dupont is a French luxury manufacturer of lighters, pens and leather goods. It is majority-owned by the Dutch company, D&D International, which is wholly-owned by Broad Gain Investments Ltd, based in Hong Kong. ST Dupont is the sole shareholder of distribution subsidiaries located abroad, in particular ST Dupont Marketing, based in Hong Kong. Following an audit, an adjustment was issued for FY 2009, 2010 and 2011 where the tax administration considered that the prices at which ST Dupont sold its products to ST Dupont Marketing (Hong Kong) were lower than the arm’s length prices, that royalty rates had not been at arm’s length. Furthermore adjustments had been made to losses carried forward. Not satisfied with the adjustment ST Dupont filed an appeal with the Paris administrative Court. Judgement of the Administrative Court The Court set aside the tax assessment in regards to license payments and resulting adjustments to loss carry forward but upheld in regards of pricing of the products sold to ST Dupont Marketing (Hong Kong). Click here for English translation Click here for other translation ...

It is up to the Tax Administration to prove the existence of transactions between related companies with clear discrepancies compared to transactions of the same kind on an independent market, while the taxpayer bears the burden of proving that the transactions took place for market values to be considered normal. This is the division of the burden of proof at the basis of the decision of the Milan Regional Tax Commission (CTR) rejecting the appeal lodged by the Tax Revenue Office. The taxpayer, in the case in question, has in fact fulfilled its burden by describing and documenting in the records that the functions and organization chart of the German subsidiary were such as to give an exhaustive account of the peculiarities of the latter and of the reliability of the CUP method (Comparable Uncontrolled Price Method) used. On the contrary, however, the comparables used by the Revenue Office to prove the validity of its assessment were incorrect because they had nothing to do with the products and activities carried on by the appellant. Excerpt “The taxpayer has in fact discharged its burden of proof. The Agency’s construction is based on erroneous assumptions: the first aspect not clarified is the fact that the Agency’s attention was focused only on the German subsidiary; the second aspect is that of the comparables. With regard to the first aspect, the Board of Appeal, in agreement with the trial judge, points out that the functions and organisation chart of the German subsidiary described and documented in the file are such as to give an exhaustive account of the particular nature of the German subsidiary and of the reliability of the CUP method used, both with regard to the rules of the market, guaranteed by the presence of independent German partners, and with regard to the actual performance of incisive and important functions, such as customer management, project management, tenders, and assistance services. As regards the second aspect, the use of comparables, the companies compared by the Agenzia delle Entrate do not deal with the same products or the same activities as the German affiliate: they even operate with different activity codes and in years far removed from the year 2010 in dispute. In light of these considerations and of anything else specified by the trial judge, whose ruling is fully shared, the appeal is dismissed.” Click here for English translation Click here for other translation ...

The reason for the adjustment of the tax base was, among other things, the finding that M.V.sold on 4 January 2010 all the stock of goods of the range of garden supplies to AGROTECHNIKA VanÄ›k s.r.o. (“Agrotechnika”) at an 80% discount on the sales price (i.e. purchase price + margin). M.V. and Agrotechnika were related persons within the meaning of Article 23(7) of Act No 586/1992 Coll., on Income Taxes, as M.V. is the managing director and sole shareholder of Agrotechnika. The sale price after the discount corresponded to approximately 40 % of the purchase price, which, according to the tax administrator, did not correspond to the price that would have been agreed between independent persons in normal commercial relations under the same or similar conditions. The prices established with comparable operators showed that the normal price corresponded to the purchase price of the goods. M.V. did not provide satisfactory evidence of the difference of CZK 1 557 720. The Regional court dismissed M.V.’s appeal by the decision set out in the body of the judgment. It did not accept the plea that the difference found was not supported by the evidence in the administrative file. The tax administration determined the normal price on the basis of a comparison with two comparable entities, for which it drew data from its own database and from the files of those tax entities. In the first case, the taxpayer was a natural person who had sold to a related person in the tax years 2009 and 2010 a stock of goods (garden equipment and garden supplies in 2009 and army clothing in 2010) at the purchase price in each case. In the second case, two natural persons operating in an association of natural persons without legal personality set up a legal person into which they contributed in the tax year 2005 stocks of goods (household goods, hardware) which they owned jointly, and these stocks were valued on the basis of an expert’s report at an amount corresponding to the cost and book value of the stocks of goods + a 30% margin. With regard, inter alia, to the taxable period, the tax authorities narrowed the collection to the former entity and set the normal price of the stocks sold at the purchase price of the goods. Although the tax administrator did not have a 100% identical comparable entity, the selected entity met the comparability criterion because it was doing business in the same region as the plaintiff, sold goods to a related person in the same taxable year, traded goods of a similar nature, and sold a complex group of goods identical to the plaintiff at the purchase price of the goods. Therefore, the defendant did not accept the objection that the tax authorities had violated Section 23(7) of the Income Tax Act by increasing the applicant’s tax base without meeting their burden of proof. On the contrary, the burden of proof was on the applicant, who did not, however, satisfactorily prove the difference between the agreed price and the normal price. Judgement of the Court The Supreme Administrative Court thus concludes that the contested order of the Regional Court is lawful. It therefore dismisses the appeal as unfounded Excerpts “The basic condition for establishing the reference price is an independent relationship between the entities that negotiated it. This condition follows directly from the wording of Section 23(7) of the Income Tax Act, which expressly and unambiguously refers to a price agreed between “independent” (or unrelated) persons in normal business relations (see above). This price is determined on the basis of the arm’s length principle, which is based on the conditions that would apply between independent entities in comparable transactions and circumstances, i.e. in so-called ‘comparable independent transactions’. The purpose of this provision is to view the legal transactions in such a way that the result is the same situation from a tax point of view as in the case where the legal transaction occurs between entities that are not connected persons (see the judgment of the Supreme Administrative Court of 18 March 2015, No. 6 Afs 176/2014 24). [19] The reference price is therefore essentially a simulation of a price created on the basis of a consideration of what price those persons would have negotiated in a situation identical to that of related persons if they were not related and if they had normal business relations with each other. The reference price may be determined by the tax authorities by comparing the prices actually achieved for an identical or similar commodity between actually existing independent operators or (in particular because of the absence or unavailability of data on such prices) only as a hypothetical estimate based on logical and rational reasoning and economic experience. In the event that it is not possible to establish the reference price in this way either, the price established in accordance with a special legal regulation, namely Act No 151/1997 Coll., on the valuation of property, shall be used in accordance with Article 23(7) of the Income Tax Act (see, for example, Supreme Administrative Court Judgment No 7 Afs 74/2010-81). [20] Therefore, the mutual independence of the entities that have entered into a comparable transaction is a necessary requirement for establishing a reference price. However, the tax administrator did not comply with this condition, since it chose transactions between related entities as comparable transactions against which to measure the transfer price agreed between the applicant and Agrotechnika. Although the complainant claims in its appeal that it established a price range for two comparable independent persons, it also admits that they were natural persons who, in connection with a change in the legal form of their business, sold all their stock of goods to a newly established legal person in which those natural persons were also partners and managing directors. It is therefore clear that the transfer of stocks took place in both cases between related persons – the natural person and the legal person who was linked ...

Recordati Industria Chimica e Farmaceutica S.p.A had been issued an assessment by the tax authorities for FY 2003 on various issues related to transfer pricing. Recordati Industria Chimica e Farmaceutica S.p.A. disagreed with the assessment and brought the case to court. The Regional Tax Commission of Lombardy (Ctr) issued a decision where it partially annulled the assessment. This decision was challenged both by the tax authorities and Recordati Industria Chimica e Farmaceutica S.p.A. Judgement of the Supreme Court Before the Supreme Court there were 29 issues to be resolved. The Supreme Court predominantly ruled in favour of the tax authorities. The court confirms that transfer pricing adjustments are applicable even in the absence of proof by the administration of a concrete tax advantage by the taxpayer. The shift of taxable income following transactions between companies belonging to the same group and subject to different national regulations, does not require the administration to prove the elusive function, but only the existence of “transactions” between companies linked at an apparently lower than normal price. The court also states that it cannot be excluded that overall business strategy can induce companies to carry out uneconomic operations in view of and in function of other benefits “(…) the essential aspect of transfer pricing does not concern the justification of the lower price from an economic point of view, but whether the discounts can be considered justified from a fiscal point of view, that is, whether they respond to the principle of free competition, in accordance with the teachings of the Supreme Court.” Click here for English translation Click here for other translation ...

The Court of First Instance found no merit in the argument that the tax authority should have compared the price at issue with the prices obtained in the liquidation procedure, since the “Inventory-Corp” was not in the liquidation procedure. The three bidders relied on by “Inventory-Corp” do not provide a sufficiently reliable basis for the decision in view of the fact that the applicant did not sell any of its stock to any of them without explanation and the fact that it sold part of its stock to another, unrelated party at cost. In finding the value of the stock to be the amount of the transfer prices, the tax authority in fact decided in favour of “Inventory-Corp”, since the said value of the stock did not contain any mark-up. Judgment of the Court The Supreme court explained that, although Slovenian legislation in force at the time did not specifically provided for the methods of determining transfer market comparable prices, the OECD Guidelines can be used as an interpretative aid or indicative aid in assessing transfer pricing within the meaning of Article 10 of the ITA in the present case. Excerpt “16. However, in the Supreme Court’s view, the transfer prices in the present case were determined in accordance with the regulations in force at the time of the decision, as well as in the light of the OECD Guidelines and the subsequent statutory and regulatory framework for transfer pricing in the Republic of Slovenia. Article 10 of the ITA already provided for the use of the comparative price method (average prices on the domestic or comparable market) for the determination of transfer prices, and the OECD Guidelines also laid down the so-called independent market principle, which is otherwise enshrined as the basic principle for transfer pricing in Article 9 of the OECD Model Agreement. This principle is based on comparing the terms and conditions of directed transactions with those of non- directed transactions, or on determining whether the reported values of related transactions are consistent with comparable market prices that would be obtained between unrelated parties in the same or comparable circumstances. The application of the arm’s length principle involves assessing whether the transfer price accepted by the related undertakings is consistent with the price accepted by unrelated parties in a comparable arm’s length transaction. 17. In determining the transfer prices of inventories at cost, the Primary Authority has satisfied the standard of average prices in the domestic or comparable market, or has reasonably determined those transfer prices on the basis of the so-called free internal price comparability method, i.e. comparing the prices achieved by the auditor with a related party with the prices achieved by the auditor with unrelated parties. In fact, the tax authority found that, in the present case, the only prices realised with unrelated parties were the prices on the basis of which the auditor purchased the material from suppliers on the domestic and foreign markets (purchase prices) and the same (selling) price agreed by the auditor with the unrelated party, B. d.o.o., for a part of this material, to which the auditor, on the same day as to the related party A. Ltd, sold part of the same stock of material that was also the subject of the sale with the related party, at cost, but not at 15% of cost as he had sold it to the related party. In doing so, he also reasonably checked the price obtained against the so-called special conditions of the business (within the meaning of Article 9 of the OECD Model Agreement) alleged by the auditor (that the business was being wound up and, in the case of the sale to B.o.o., a prior order), but found that these alleged special conditions were not present or had not been demonstrated by the auditor in the present case. 18. In the Court’s view, therefore, for the reasons correctly stated by both tax authorities and the Court of First Instance in the contested judgment, in the light of the totality of the circumstances of the present case, the correct decision was not to recognise the purchase prices less the 85% rebate to the auditor for the material sold, but to determine them at the cost of purchase in accordance with the definition of transfer prices as tax-recognised prices set out in Article 10(3) of the ITA.” Click here for English translation Click here for other translation ...

The sales company … – (GmbH) was the managing general partner of the plaintiff and defendant, a limited partnership – “Sales KG” – in the years in dispute. The GmbH had a 10/11 share in the capital of “Sales KG”. The limited partner was the Dutchman G. Shareholders of the GmbH with a share of 99% were the … NV (NV) and the … in The Hague (NV L-V). “Sales KG” engaged in wholesale trade in …, which it purchased almost exclusively from NV. It granted its customers rebates, bonuses and discounts in the years in dispute (1962 – 1964). According to the findings of the tax authorities (FA), “Sales KG” had to pay interest on its goods liabilities after 90 days from 1963. It did not charge its customers corresponding interest. The tax authorities increased the profit of “Sales KG” mainly by adding profits allegedly transferred to the Netherlands. In the absence of suitable documentation, the profit shifting was to be estimated at 3% per annum of the purchase of goods from NV. The tax authorities relied on Article 6 of the Agreement between the Federal Republic of Germany and the Kingdom of the Netherlands for the Avoidance of Double Taxation with respect to Taxes on Income and on Capital and Miscellaneous Taxes and for the Settlement of Other Questions in the Field of Taxation of 16 June 1959 – DBA-Netherlands – (BGBl II 1960, 1782, BStBl I 1960, 382), § 217 of the Reich Tax Code (AO) and § 19 No. 6 of the Regulation for the Implementation of the Corporation Tax Act (KStDV). “Sales KG” filed an action against the notices and the Fiscal Court (Finanzgericht, FG) amended the challenged notices and partly reassessed the profits of “Sales KG” and the profit shares of the partners. For the rest, it dismissed the action. The tax authorities lodged an appeal against this decision. Judgement of the Court The Court found that the tax court had correctly refused to increase the profit shares (§ 215.2 AO) of “Sales KG” by the profits allegedly transferred to the NV, as the conditions for a hidden distribution of profits (§ 6.1 sentence 2 of the Corporation Tax Act – KStG -, § 19 no. 6 KStDV) between the GmbH and its shareholder, NV in Holland, were not met. Excerpts “The requirements for a hidden profit distribution between the GmbH and the NV are not fulfilled. Although the FG did not have to decide on this question from its point of view, its findings are sufficient to exclude a hidden profit distribution in the case in dispute. According to the established case law of the Federal Fiscal Court (Bundesfinanzhof, BFH), a hidden profit distribution requires that a corporation grants its shareholders pecuniary advantages and that this benefit has its cause in the corporate relationship. The causality of the corporate relationship is given if the corporation would not grant the advantages to a non-shareholder if it exercised the due care of a prudent and conscientious manager (§ 43, paragraph 1 of the Limited Liability Companies Act) (cf. BFH judgements of 30 July 1975, I R 110/72, BFHE 117, 36, BStBl II 1976, 74, and of 3 February 1977, IV R 122/73, BFHE 121, 327, BStBl II 1977, 346, with further references). N.). The GmbH allegedly benefited the NV by causing it, as managing director and majority shareholder of the KG, to make payments (excessive prices for goods and interest payments) and to waive the passing-on of costs (cf. II 1 a above). Just as a pecuniary advantage can also be granted directly to a third party and indirectly to the shareholder instead of directly to the shareholder, the person directly granting the advantage does not have to be the GmbH itself; it can also be a third party who grants an advantage to the shareholder at the expense of his own profit. This advantage is granted indirectly by the GmbH to the extent that the reduction in profit of the third party affects its own profit (share), provided that the conditions for a hidden profit distribution are otherwise met. In principle, 10/11 of the KG’s loss of profit affects the GmbH’s profit; for the rest, the limited partner G bears the KG’s loss of profit. The Senate does not need to decide whether the possible loss of profits at the limited partnership is only fully attributable to the limited liability company because it alone caused it. In the case in dispute, there is already a lack of the fundamental prerequisite of a benefit which has its cause in the partnership relationship. It is not evident, nor has it been shown by the tax authorities, that the prices for the goods purchased by NV were higher than the usual prices for goods … Similarly, there are no indications that NV would have waived the default interest on the goods and would have partly supported the rebates, discounts and bonuses if it had not been a shareholder in the GmbH …” “If a transaction, in this case e.g. a possible transfer of profits (cf. German Memorandum on the DTA-Netherlands of 16 June 1959 on Article 6, printed in Handbooks on Double Taxation Agreements, Explanatory Notes on the German-Dutch DTA, text part), cannot already be covered under the domestic tax laws, then the direct application of Article 6 of the DTA-Netherlands would amount to an impermissible extension of the tax liability. The BFH rulings on the progression proviso do not contradict this. The progression proviso does not require a domestic statutory provision for its implementation (apart from the consent law pursuant to Article 59, paragraph 2, sentence 1 of the Basic Law – GG), because it does not create a tax liability, but maintains the existing one (BFH ruling of 9 November 1966 I 29/65, BFH ruling of 9 November 1966 I 29/65, BFH ruling of 9 November 1966 I 29/65, BFH ruling of 9 November 1966 I 29/65, BFH ruling of 9 November 1966 I 29/65) ...