Some businesses have indicated that multinational businesses, regardless of their products or sectors, have reorganised their structures to provide more centralised control and management of manufacturing, research and distribution functions. The pressure of competition in a globalised economy, savings from economies of scale, the need for specialisation and the need to increase efficiency and lower costs have all been described as important in driving business restructurings. Where anticipated synergies are put forward by a taxpayer as an important business reason for the restructuring, it would be a good practice for the taxpayer to document, at the time the restructuring is decided upon or implemented, what these anticipated synergies are and on what assumptions they are anticipated. This is a type of documentation that is likely to be produced at the group level for non-tax purposes, to support the decision-making process of the restructuring. For Article 9 purposes, it would be a good practice for the taxpayer to document the source of these synergies and how these anticipated synergies impact at the entity level in applying the arm’s length principle (see Section D.8 of Chapter I). Care should be taken to ensure that, where deliberate concerted group actions are taken through a business restructuring, the associated enterprises contributing to the synergistic benefit after the restructuring are appropriately remunerated (see the example in the following paragraph). Furthermore, while anticipated synergies may be relevant to the understanding of a business restructuring, care must be taken to avoid the use of hindsight in ex post analyses (see paragraph 3.74) ...

In response to the considerations discussed above, this section contains an approach consistent with the arm’s length principle that tax administrations can adopt to ensure that tax administrations can determine in which situations the pricing arrangements as set by the taxpayers are at arm’s length and are based on an appropriate weighting of the foreseeable developments or events that are relevant for the valuation of certain hard-to-value intangibles, and in which situations this is not the case. Under this approach, ex post evidence provides presumptive evidence as to the existence of uncertainties at the time of the transaction, whether the taxpayer appropriately took into account reasonably foreseeable developments or events at the time of the transaction, and the reliability of the information used ex ante in determining the transfer price for the transfer of such intangibles or rights in intangibles. Such presumptive evidence may be subject to rebuttal as stated in paragraphs 6.193 and 6.194, if it can be demonstrated that it does not affect the accurate determination of the arm’s length price. This situation should be distinguished from the situation in which hindsight is used by taking ex post results for tax assessment purposes without considering whether the information on which the ex post results are based could or should reasonably have been known and considered by the associated enterprises at the time the transaction was entered into ...

Data from years following the year of the transaction may also be relevant to the analysis of transfer prices, but care must be taken to avoid the use of hindsight. For example, data from later years may be useful in comparing product life cycles of controlled and uncontrolled transactions for the purpose of determining whether the uncontrolled transaction is an appropriate comparable to use in applying a particular method. The conduct of the parties in years following the transaction will also be relevant in accurately delineating the actual transaction ...

Both the arm’s length price-setting and the arm’s length outcome-testing approaches, as well as combinations of these two approaches, are found among OECD member countries. The issue of double taxation may arise where a controlled transaction takes place between two associated enterprises where different approaches have been applied and lead to different outcomes, for instance because of a discrepancy between market expectations taken into account in the arm’s length price-setting approach and actual outcomes observed in the arm’s length outcome-testing approach. See paragraphs 4.38 and 4.39. Competent authorities are encouraged to use their best efforts to resolve any double taxation issues that may arise from different country approaches to year-end adjustments and that may be submitted to them under a mutual agreement procedure (Article 25 of the OECD Model Tax Convention) ...

In other instances, taxpayers might test the actual outcome of their controlled transactions to demonstrate that the conditions of these transactions were consistent with the arm’s length principle, i.e. on an ex post basis (hereinafter “the arm’s length outcome-testing” approach). Such test typically takes place as part of the process for establishing the tax return at year-end ...

In some cases, taxpayers establish transfer pricing documentation to demonstrate that they have made reasonable efforts to comply with the arm’s length principle at the time their intra-group transactions were undertaken, i.e. on an ex ante basis (hereinafter “the arm’s length price-setting” approach), based on information that was reasonably available to them at that point. Such information includes not only information on comparable transactions from previous years, but also information on economic and market changes that may have occurred between those previous years and the year of the controlled transaction. In effect, independent parties in comparable circumstances would not base their pricing decision on historical data alone ...

In principle, information relating to the conditions of comparable uncontrolled transactions undertaken or carried out during the same period of time as the controlled transaction (“contemporaneous uncontrolled transactions”) is expected to be the most reliable information to use in a comparability analysis, because it reflects how independent parties have behaved in an economic environment that is the same as the economic environment of the taxpayer’s controlled transaction. Availability of information on contemporaneous uncontrolled transactions may however be limited in practice, depending on the timing of collection ...

There are timing issues in comparability with respect to the time of origin, collection and production of information on comparability factors and comparable uncontrolled transactions that are used in a comparability analysis. See paragraphs 5.27 and 5.36 of Chapter V for indications with respect to timing issues in the context of transfer pricing documentation requirements ...

In any application of a transactional profit split, care should be exercised to ensure that the method is applied without hindsight. See paragraph 3.74. That is, irrespective of whether a transactional profit split of anticipated or actual profits is used, unless there are major unforeseen developments which would have resulted in a renegotiation of the agreement had it occurred between independent parties, the basis upon which those profits are to be split between the associated enterprises, including the profit splitting factors, the way in which relevant profits are calculated, and any adjustments or contingencies, must be determined on the basis of information known or reasonably foreseeable by the parties at the time the transactions were entered into. This is so notwithstanding the fact that in many cases, the actual calculations can necessarily only be performed some time afterwards, where, for example they apply profit splitting factors determined at the outset to the actual profits. Additionally, it should be remembered that the starting point in the accurate delineation of any transaction will generally be the written contracts which may reflect the intention of the parties at the time the contract was concluded. See paragraph 1.42 ...

The tax authorities excluded some of the entities selected by the taxpayer in a benchmark study, as it considered that they did not meet the necessary comparability requirements, and also included some of the excluded entities, as it considered that they were comparable. These modifications to the benchmark resulted in a variation of the arm’s length range, with the margin earned by the taxpayer falling outside the range. The taxpayer argued that the recalculation of market value should be based on a complete new analysis to replace the one provided by the entity. In relation to the rejection of certain comparables, the taxpayer argued that the information used by the tax authorities and consulted on the internet was not available at the time the transfer pricing documentation was prepared. Judgement of the TEAC The TEAC rejected the claim filed by the taxpayer and upheld the assessment of the tax authorities. It is not necessary to carry out a new economic analysis to replace the one provided by the entity, given that the inspection accepts said analysis, and what it limits itself to is correcting the defects present in the same. It is considered reasonable for the inspectorate to apply a rejection criterion based on the number of employees, taking into account that the taxpayer has more than 200 employees on its payroll and that the claimant applied other rejection criteria in order to ensure comparability of the size of the companies. It is understandable that the administration uses the information contained in the websites of the companies selected as comparable at the time of the inspection, it is quoted “as it could not be otherwise”. The TEAC refers to the OECD Guidelines on Transfer Pricing for Multinational Enterprises and Tax Administrations, which stress the importance of verifying the information obtained in the databases. The inspection is justified in making the adjustment to the median because the Administration has revealed  comparability defects in the benchmark provided by the taxpayer in the economic analysis. Click here for English translation Click here for other translation Spain vs XZ SA, Resolución de 23 noviembre 2021 (Rec. 4881-2019) ...

Cameco, together with its subsidiaries, is a large uranium producer and supplier of the services that convert one form of uranium into another form. Cameco had uranium mines in Saskatchewan and uranium refining and processing (conversion) facilities in Ontario. Cameco also had subsidiaries in the United States that owned uranium mines in the United States. The Canadian Revenue Agency found that transactions between Cameco Corp and the Swiss subsidiary constituted a sham arrangement resulting in improper profit shifting. Hence, a tax assessment was issued for FY 2003, 2005, and 2006. Cameco disagreed with the Agency and brought the case to the Canadian Tax Court. In 2018 the Tax Court ruled in favor of Cameco and dismissed the assessment. This decision was appealed by the tax authorities to the Federal Court of Appeal. The Federal Court of Appeal in 2020 dismissed the appeal and also ruled in favor of Cameco A application for leave to appeal from the judgment of the Federal Court of Appeal was then brought to the Canadian Supreme Court by the tax authorities. The application for leave to appeal was dismissed by the Supreme Court. 39368_Cameco_Judgment_on_Leave-Jugement_sur_demande ...

Cameco, together with its subsidiaries, is a large uranium producer and supplier of the services that convert one form of uranium into another form. Cameco had uranium mines in Saskatchewan and uranium refining and processing (conversion) facilities in Ontario. Cameco also had subsidiaries in the United States that owned uranium mines in the United States. In 1993, the United States and Russian governments executed an agreement that provided the means by which Russia could sell uranium formerly used in its nuclear arsenal. The net result of this agreement was that a certain quantity of uranium would be offered for sale in the market. Cameco initially attempted to secure this source of uranium on its own but later took the lead in negotiating an agreement for the purchase of this uranium by a consortium of companies. When the final agreement was signed in 1999, Cameco designated its Luxembourg subsidiary, Cameco Europe S.A. (CESA), to be the signatory to this agreement. The agreement related to the purchase of the Russian uranium was executed in 1999 among CESA, Compagnie Générale des Matières Nucléaires (COGEMA) (a French state-owned uranium producer), Nukem, Inc. (a privately owned United States trader in uranium), Nukem Nuklear GMBH and AO “Techsnabexport” (Tenex) (a Russian state-owned company). This agreement, which is also referred to as the HEU Feed Agreement, initially provided for the granting of options to purchase the uranium that Tenex would make available for sale. In the years following 1999, there were a number of amendments to this agreement. In particular, the fourth amendment in 2001, in part, obligated the western consortium (CESA, COGEMA and Nukem) to purchase a certain amount of uranium (paragraph 82 of the reasons). On September 9, 1999, CESA entered into an agreement with Urenco Limited (Urenco) (a uranium enricher) and three of its subsidiaries to purchase uranium that Urenco would be receiving from Tenex. Also in 1999, Cameco formed a subsidiary in Switzerland. This company, in 2001, changed its name to Cameco Europe AG (SA, Ltd) (CEL). In 2002, CESA transferred its business (which was described in the transfer agreement as “trading with raw materials, particularly uranium in various forms”) to CEL under the Asset Purchase and Transfer of Liabilities Agreement dated as of October 1, 2002, but executed on October 30, 2002. Therefore, CESA transferred to CEL the rights that CESA had to purchase uranium from Tenex and Urenco. CEL also purchased Cameco’s expected uranium production and its uranium inventory. It would appear that this arrangement did not include any uranium that was sold by Cameco to any customers in Canada (paragraph 40 of the Crown’s memorandum). At certain times, Cameco also purchased uranium from CEL. The profits in issue in this appeal arose as a result of the sale of uranium by CEL that it purchased from three different sources: Tenex, Urenco, and Cameco. When the arrangements with Tenex and Urenco were put in place in 1999, the price of uranium was low. In subsequent years, the price of uranium increased substantially. As a result, the profits realized by CEL from buying and selling uranium were substantial. The Canadian Revenue Agency found that the transactions between Cameco Corp and the Swiss subsidiary constituted a sham arrangement resulting in improper profit shifting.  According to the Canadian Revenue Agency, Cameco would not have entered into any of the transactions that it did with CESA and CEL with any arm’s length person, cf. paragraph 247(2) of the Act. All of the profit earned by CEL should therefore be reallocated to Cameco Corp. Hence, a tax assessment was issued for FY 2003, 2005, and 2006 where $43,468,281, $196,887,068, and $243,075,364 was added to the taxable income of Cameco Canada. Cameco disagreed with the Agency and brought the case to the Canadian Tax Court. In 2018 the Tax Court ruled in favor of Cameco and dismissed the assessment. This decision was then appealed by the tax authorities to the Federal Court of Appeal. The Federal Court of Appeal dismissed the appeal and also ruled in favor of Cameco. “In this appeal, the Crown does not challenge any of the factual findings made by the Tax Court Judge. Rather, the Crown adopts a broader view of paragraphs 247(2)(b) and (d) of the Act and submits that Cameco would not have entered into any of the transactions that it did with CESA and CEL with any arm’s length person. As a result, according to the Crown, all of the profit earned by CEL should be reallocated to Cameco. The Crown, in its memorandum, also indicated that it was raising an alternative argument related to the interpretation of paragraph 247(2)(a) of the Act. … However, subparagraph 247(2)(b)(i) of the Act does not refer to whether the particular taxpayer would not have entered into the particular transaction with the non-resident if that taxpayer had been dealing with the non-resident at arm’s length or what other options may have been available to that particular taxpayer. Rather, this subparagraph raises the issue of whether the transaction or series of transactions would have been entered into between persons dealing with each other at arm’s length (an objective test based on hypothetical persons) — not whether the particular taxpayer would have entered into the transaction or series of transactions in issue with an arm’s length party (a subjective test). A test based on what a hypothetical person (or persons) would have done is not foreign to the law as the standard of care in a negligence case is a “hypothetical ‘reasonable person’” (Queen v. Cognos Inc., [1993] 1 S.C.R. 87, at page 121, 1993 CanLII 146). … The Crown’s position with respect to this hypothetical transaction is also contradicted by its position in this case. Essentially, in this case, Cameco became aware of an opportunity to purchase Russian sourced uranium from Tenex and Urenco and chose to complete those arrangements through a foreign subsidiary rather than purchasing this uranium itself and selling it to third-party customers in other countries. This was a foreign-based business opportunity to ...

In any application of a transactional profit split, care should be exercised to ensure that the method is applied without hindsight. See paragraph 3.74. That is, irrespective of whether a transactional profit split of anticipated or actual profits is used, unless there are major unforeseen developments which would have resulted in a renegotiation of the agreement had it occurred between independent parties, the basis upon which those profits are to be split between the associated enterprises, including the profit splitting factors, the way in which relevant profits are calculated, and any adjustments or contingencies, must be determined on the basis of information known or reasonably foreseeable by the parties at the time the transactions were entered into. This is so notwithstanding the fact that in many cases, the actual calculations can necessarily only be performed some time afterwards, where, for example they apply profit splitting factors determined at the outset to the actual profits. Additionally, it should be remembered that the starting point in the accurate delineation of any transaction will generally be the written contracts which may reflect the intention of the parties at the time the contract was concluded. See paragraph 1.42 ...

In 2016 the Swedish Tax Tribunal ruled against the tax administration in the case of The Absolut (vodka) Company AB. The Administrative Court of Appeal has now overturned the Tribunal’s ruling and consequently SEK 247 mio. are now added to the taxable income of The Absolut Company AB. The Swedish tax administration found that The Absolut Company AB sold Absolut Vodka below the arm’s length price to a group company – The Absolut Spirit Company Inc. (ASCI). Furthermore, the swedish company acquired distribution services from ASCI at a price above the arm’s length price. The Court adresses: – timing of data and information in a Benchmarking search – use of interquartile range or full range – use of multible years data – the issue of hindsight Click here for translation Sweden vs The Absolute Company, Jan 2018, Administrative Court of Appeal, No 1610-16 ...

Some businesses have indicated that multinational businesses, regardless of their products or sectors, have reorganised their structures to provide more centralised control and management of manufacturing, research and distribution functions. The pressure of competition in a globalised economy, savings from economies of scale, the need for specialisation and the need to increase efficiency and lower costs have all been described as important in driving business restructurings. Where anticipated synergies are put forward by a taxpayer as an important business reason for the restructuring, it would be a good practice for the taxpayer to document, at the time the restructuring is decided upon or implemented, what these anticipated synergies are and on what assumptions they are anticipated. This is a type of documentation that is likely to be produced at the group level for non-tax purposes, to support the decision-making process of the restructuring. For Article 9 purposes, it would be a good practice for the taxpayer to document the source of these synergies and how these anticipated synergies impact at the entity level in applying the arm’s length principle (see Section D.8 of Chapter I). Care should be taken to ensure that, where deliberate concerted group actions are taken through a business restructuring, the associated enterprises contributing to the synergistic benefit after the restructuring are appropriately remunerated (see the example in the following paragraph). Furthermore, while anticipated synergies may be relevant to the understanding of a business restructuring, care must be taken to avoid the use of hindsight in ex post analyses (see paragraph 3.74) ...

Data from years following the year of the transaction may also be relevant to the analysis of transfer prices, but care must be taken to avoid the use of hindsight. For example, data from later years may be useful in comparing product life cycles of controlled and uncontrolled transactions for the purpose of determining whether the uncontrolled transaction is an appropriate comparable to use in applying a particular method. The conduct of the parties in years following the transaction will also be relevant in accurately delineating the actual transaction ...

Both the arm’s length price-setting and the arm’s length outcome-testing approaches, as well as combinations of these two approaches, are found among OECD member countries. The issue of double taxation may arise where a controlled transaction takes place between two associated enterprises where different approaches have been applied and lead to different outcomes, for instance because of a discrepancy between market expectations taken into account in the arm’s length price-setting approach and actual outcomes observed in the arm’s length outcome-testing approach. See paragraphs 4.38 and 4.39. Competent authorities are encouraged to use their best efforts to resolve any double taxation issues that may arise from different country approaches to year-end adjustments and that may be submitted to them under a mutual agreement procedure (Article 25 of the OECD Model Tax Convention) ...

In other instances, taxpayers might test the actual outcome of their controlled transactions to demonstrate that the conditions of these transactions were consistent with the arm’s length principle, i.e. on an ex post basis (hereinafter “the arm’s length outcome-testing” approach). Such test typically takes place as part of the process for establishing the tax return at year-end ...

In some cases, taxpayers establish transfer pricing documentation to demonstrate that they have made reasonable efforts to comply with the arm’s length principle at the time their intra-group transactions were undertaken, i.e. on an ex ante basis (hereinafter “the arm’s length price-setting” approach), based on information that was reasonably available to them at that point. Such information includes not only information on comparable transactions from previous years, but also information on economic and market changes that may have occurred between those previous years and the year of the controlled transaction. In effect, independent parties in comparable circumstances would not base their pricing decision on historical data alone ...

In principle, information relating to the conditions of comparable uncontrolled transactions undertaken or carried out during the same period of time as the controlled transaction (“contemporaneous uncontrolled transactions”) is expected to be the most reliable information to use in a comparability analysis, because it reflects how independent parties have behaved in an economic environment that is the same as the economic environment of the taxpayer’s controlled transaction. Availability of information on contemporaneous uncontrolled transactions may however be limited in practice, depending on the timing of collection ...

There are timing issues in comparability with respect to the time of origin, collection and production of information on comparability factors and comparable uncontrolled transactions that are used in a comparability analysis. See paragraphs 5.27 and 5.36 of Chapter V for indications with respect to timing issues in the context of transfer pricing documentation requirements ...

The court determined that a transaction must be valued based on facts known (or facts that could/should have reasonably been known) at the time of the contract. Use of hindsight is not permitted. Click here for English translation Click here for other translation France vs Ford France 4mars 1992 no 87947 ...