Following an audit of “Raw Materials Ltd” an assessment was issued by the tax authority regarding pricing of intra-group transactions in FY 2018 and 2019. At issue was the pricing of intra group sales and purschases. A complaint was filed by “Raw Materials Ltd” with the Dispute Resolution Board claming that the tax authority had misapplied the chosen transfer pricing method. Decision of the Board The Board upheld the assessment of the tax authorities and rejected the appeal of “Raw Materials Ltd”. Excerpt in English “Because the tax authority, taking into account the activity, the organisation and the specific characteristics of the audited company itself, chose as more reliable the internal comparables relating to sales to third independent companies, because the internal comparables are more reliable due to their internal nature. In addition, it is ensured that identical accounting practices are followed in relation to the cost structure (….). Moreover, internal comparables have a more direct and closer relationship with intra-group transactions, in line with the OECD Guidelines (last updated version – July 2010), which in para. 3.27: “Step 4 of the formal process described in paragraph 3.4 is to review internal comparables that may exist. Internal comparables may have a more direct and closer relationship to the controlled transaction than external comparables. The financial analysis may be easier and more reliable as it will be based on identical accounting standards and practices between the internally comparable transaction and the controlled transaction. In addition, access to information on internally comparable transactions may be more comprehensive and less costly.” As stated in the relevant audit report, the applicant company did not sufficiently justify in the documentation file the rejection of the internal comparative sales data to third independent undertakings, and no further evidence was submitted at the appeal stage to substantiate that claim. As regards the applicant company’s claim that it sold products with a loss due to defects, as is apparent from the relevant report, the audit showed that the result of that transaction was profitable. Because the applicant’s claim that the audit has unjustifiably changed the treatment of the same tax subject matter in relation to previous audits of the financial years 2010-2011 and 2015-2017 is unfounded as, on the one hand, according to the principles of accounting there is independence of the financial years and, on the other hand, the table relied on by the applicant itself shows that the circumstances in the years under audit are different as the percentage of its turnover relating to sales to affiliated undertakings has varied significantly. Because according to Article 28 of the Code of Taxation: “1. The Tax Administration shall notify the taxpayer in writing of a note of findings containing the results of the tax audit and the provisional corrective tax assessment, which must be fully reasoned. The taxpayer may request to receive copies of the documents on which the corrective tax assessment is based. The taxpayer shall have the opportunity to express its views in writing on the provisional corrective tax assessment within twenty (20) days of the written notification. 2. The Tax Administration shall issue the final act of corrective determination of the tax, within one (1) month from the date of receipt of the taxpayer’s views or, in case the taxpayer does not submit his views, from the expiry of the deadline specified in par. 1. The final act of corrective tax assessment shall be issued on the basis of an audit report prepared by the Tax Administration. The audit report shall contain a detailed and reasoned account of the facts, data and provisions taken into account by the Tax Administration in determining the tax. The final tax assessment notice together with the audit report shall be communicated to the taxpayer.” Because Article 65 of the Tax Code states that: “In the event of a challenge to an act of assessment of tax in an appeal, the taxpayer or any other person making such a challenge shall bear the burden of proving that the act of assessment of tax is defective.” Since the audit complied with the provisions of Article 28 of the Tax Code and prepared the audit report no…… which it delivered to the applicant company with the provisional determination acts attached. The applicant responded to the abovementioned Memorandum of Acknowledgments by means of the letter No……Replying Memorandum. The audit examined the allegations set out in that memorandum, the positions of which are set out on pages 122 to 129 of the relevant audit report, and then proceeded to adopt the contested definitive acts. Consequently, the allegation of infringement of the right to a prior hearing. Since, in the present appeal, the applicant puts forward allegations essentially similar to those made during the audit, on which the audit has taken a position in the relevant report (see pages 122 to 129 of the relevant audit report), and does not submit any new evidence to alter the findings. Because the findings of the audit, as recorded in the tax division for large tax payers’s audit report, on which the contested acts are based, are considered to be well-founded, acceptable and fully reasoned.” Click here for English translation Click here for other translation ...