The Finnish tax authorities had made a transfer pricing adjustment to a Finnish marketing and sales subsidiary with continuous losses. The tax authorities had identified a “hidden” services transaction between the Finnish subsidiary and an unidentified foreign group company. The Administrative Court ruled in favor of the tax authorities. The adjustment was not considered by the Court as a recharacterisation. Reference was made to TPG 2010, paragraphs 1.34, 1.42 to 1.49, 1.64, 1.65 and 1.70 to 1.72. Click here for translation ...

A Czech toll manufacturer realized losses due to low capacity utilization. Transfer pricing for the manufacturing services, had been determined by applying a cost plus method based on a budget costs without a year-end true-up. In 2008, capacity utilization was low due to market conditions and the company incurred a loss. The tax authority performed a benchmarking study using the transactional net margin method to determine the arm’s length range of net cost plus mark-ups, and issued an adjustment on that basis. The Czech manufacturing company argued that the loss was a result of market conditions and appealed the assessment. The Supreme Administrative court held that capacity utilization risk should be absorbed by the principal and not the low risk toll manufacturer. A low risk toll manufacturer may only end up in a loss position if extra costs result from its own risks – manufacturing inefficiencies. Hence, the appeal was dismissed. Click here for other translation ...

SNF was a member of a global group with headquarters in France. SNF bought polyacrylamides from group companies overseas, and sold them to unrelated end-users in various industries in Australia. From its incorporation in 1990 until 2004, SNF consistently returned losses. SNF was subject to a transfer pricing audit. Determinations were made under Division 13 of Part III of the Income Tax Assessment Act 1936 to adjust the consideration for the company’s international related party transactions to reflect an arm’s length amount. For the income years from 1997 to 2003, the Commissioner made determinations under ss136AD(3) and (4) of the Act as to the arm’s length price of the chemicals. The tax authorities issued notices of assessment in 2007, and subsequently disallowed the taxpayer’s objections to those assessments. Before the Court the commissioner submitted that the taxpayer was able to continue to trade, not because of the alleged price support, but because of an injection over the period of $31.2 million in share capital from its parent.  It was said that an independent distributer would not have continued to trade at a loss for 13 years to further a market penetration strategy for the benefit of an unrelated supplier. The unstated conclusion is that the losses were being generated by the excessive prices paid by the taxpayer. In response SNF produced evidence of sales by the overseas suppliers to third party purchasers, which it submitted established comparable uncontrolled prices (CUP) that were as high as or higher than the prices paid by SNF. The Court found that losses in SNF had not been caused by excessive prises paid for polyacrylamides bought from group companies – but instead unreasonably low levels of sales, by competition in the Australian market, by excessive stock losses and by poor management. Based on these findings the Commissioner’s appeal was dismissed with costs ...