“Control Premium A”, hereinafter referred to as “company (AB)” is part of the Portuguese group (CD) and its entire share capital was held by the public limited company (EF). In 2014 (EF) sold 45% of the shares in (AB) to the following companies incorporated under Portuguese law: company (GH), shares representing 17,74% of the capital and voting rights of company (AB) ; company (IJ), shares representing 18,16% of the capital and voting rights of company (AB); company (KL), shares representing 9,10% of the capital and voting rights of company (AB). On the same day, (AB) acquired by share purchase and sale agreement 48,726,550 shares for a sale price of … € per share from the Portuguese company (MN), representing 55,06 % of the share capital of the companies (EF), (GH), (IJ) and (KL), so that it became the majority shareholder of the company (MN), the said sale price still being subject to review in the event that a higher or lower price resulted from a public takeover bid, hereinafter “takeover bid”, on 12 February 2014. By amendments to the aforementioned contract of sale on 19 March 2014, and following the takeover bid of 12 February 2014 for the remaining 39,773,450 shares in the company (MN), the price of one share was revised downwards, to …. and a capital increase took place with the creation of 7,042,254 new shares subscribed to by the general public, so that the final total acquisition price of the shares of company (MN) by company (AB) was ….-€ (… x 48,726,550), representing 51% of the share capital of company (MN). On 15 October 2014, company (AB) sold its 51% shareholding in company (MN), corresponding to 48,726,550 shares, to a Portuguese subsidiary of the Chinese group …, at a price of …. -€ per share, namely for a total amount of ….-€ (… x 48,726,550), with the result that company (AB) realised a gross book gain of ….-€ on the sale of the shares in question, which was recognised in the profit and loss account of the business accounts for the 2014 financial year. On 15 April 2015, company (AB) submitted a request for an advance ruling to the tax office, with a view to the recognition of a hidden contribution at the time of the acquisition of the shares in company (MN) on 23 January 2014, in that the value of the shares in company (MN) would in fact have been higher than the price paid by it – due to an added “control premium” – so that the capital gain realised for accounting purposes would be non-existent from a tax point of view. On 10 July 2018, the tax office informed company (AB) that it intended to deviate from the tax return as filed. The letter was worded as follows: ” (…) The Sociétés 6 tax office is of the opinion that the price initially paid, i.e. € … per share, does indeed reflect the arm’s length principle. Indeed, at the time of the IPO on 12 February 2014 involving 49% of the share capital of (MN), the value of these shares, intended to be sold to the general public [sic], was set at € … per share, i.e. at a price that a third party was prepared to pay without a control premium. As a result, the tax balance sheet submitted was rejected and tax was levied on the commercial balance sheet in accordance with article 40 of the amended law of 4 December 1967 on income tax (L.I.R.). The capital gain realised, which does not fall within the scope of the Grand-Ducal regulation of 21 December 2001 implementing Article 166, paragraph 9, number 1 L.I.R., is therefore fully taxable. (…)”. Company (AB) lodged a complaint with the Director of Direct Taxes, which by a decision dated 17 July 2019 rejected the claim as unfounded. An appeal was then filed by Company (AB) with the Administrative Tribunal. In March 2022 the Tribunal rejected the claims in the appeal as unfounded and upheld the decision of the Director of Direct taxes. An appeal was then filed with the Administrative Court. Judgement of the Administrative Court The Court rejected the claims in the appeal as unfounded and upheld the decision of the Administrative tribunal. Excerpt “The Court’s analysis First of all, the court was right to point out that the burden of proof in tax matters is governed by Article 59 of the amended Act of 21 June 1999 laying down rules of procedure before the administrative courts, which provides that “proof of the facts triggering the tax liability lies with the administration, proof of the facts releasing the taxpayer from the tax liability or reducing the tax assessment lies with the taxpayer”. The lower courts were again right to hold that, under the aforementioned article, the burden of proving that a control premium had been applied to the purchase price of the shares in the company (MN) rested with the appellant. Next, the Court noted that the parties were in general agreement as to the existence of the concept of a control premium in the context of an acquisition of a holding of securities in a company conferring control over the latter, but disagreed as to the application of such a premium in the case in point. Although there is no commonly accepted definition of a control premium, a number of legal and economic publications refer to it, such as the Guide issued by the French tax authorities. In addition, French case law has accepted the application of this concept of control premium by the French tax authorities, notably in the judgment handed down by the French Court of Cassation on 3 February 2015 (Appeal No. 13-25.306). It is therefore clear from the definitions proposed by the appellant and the French tax authorities that a control premium is an additional price, in relation to the market value of a company, that a purchaser agrees to pay in order to obtain control of the acquired company ...

“Control Premium A”, hereinafter referred to as “company (A)”, is part of a Portuguese group and all of its share capital was held by the limited company (B), hereinafter referred to as “company (B)”. Company (B) sold 45% of the shares in company (A) to the following companies incorporated under Portuguese law: – company (C), representing 17.74% of the capital and voting rights of company (A) ; – company (D), representing 18.16% of the capital and voting rights of company (A); – company (E), representing 9.10% of the capital and voting rights of company (A). On the same day, company (A) acquired 48,726,550 shares under share purchase and sale agreements for a sale price of ….. -per share of the Portuguese company (F), representing 55.06% of the share capital, of companies (B), (C), (D) and (E), so that it became the majority shareholder of company (F), the said sale price still being subject to revision in the event that a higher or lower price resulted from a public takeover bid on 12 February 2014. By amendments to the aforementioned contract of sale on 19 March 2014, and following the takeover bid of 12 February 2014 for the remaining 39,773,450 shares in the company (F), the price of one share was revised downwards, to …. and a capital increase took place with the creation of 7,042,254 new shares subscribed to by the general public, so that the final total acquisition price of the shares of company (F) by company (A) was ….-€ (… x 48,726,550), representing 51% of the share capital of company (F). On 15 October 2014, company (A) sold its 51% shareholding in company (F), corresponding to 48,726,550 shares, to the third-party company (G) SA, hereinafter referred to as “company (G)”, a Portuguese subsidiary of the Chinese group …, at a price of …. -€ per share, namely for a total amount of ….-€ (… x 48,726,550), with the result that company (A) realised a gross book gain of ….-€ on the sale of the shares in question, which was recognised in the profit and loss account of the business accounts for the 2014 financial year. On 15 April 2015, company (A) submitted a request for an advance ruling to the tax office, with a view to the recognition of a hidden contribution at the time of the acquisition of the shares in company (F) on 23 January 2014, in that the value of the shares in company (F) would in fact have been higher than the price paid by it – due to an added “control premium” – so that the capital gain realised for accounting purposes would be non-existent from a tax point of view. On 10 July 2018, the tax office informed company (A) that it intended to deviate from the tax return as filed. The letter was worded as follows: “The tax office … is of the opinion that the price initially paid, i.e. … per share, does indeed reflect the arm’s length principle. Indeed, at the time of the IPO on 12 February 2014 of 49% of the share capital of (F) S.A., the value of these shares, intended to be sold to the general public, was set at € …per share, i.e. at a price that a third party was prepared to pay without a control premium. As a result, the tax balance sheet submitted was rejected and tax was levied on the commercial balance sheet in accordance with article 40 of the amended law of 4 December 1967 on income tax (L.I.R.). The capital gain realised, which does not fall within the scope of the Grand-Ducal regulation of 21 December 2001 implementing Article 166, paragraph 9, number 1 L.I.R., is therefore fully taxable. […] “. Company (A) lodged a complaint with the Director of Direct Taxes, which by a decision dated 17 July 2019 rejected the claim as unfounded. An appeal was then filed by Company (A) with the Administrative Tribunal. Judgement of the Tribunal The Tribunal rejected the claims in the appeal as unfounded and upheld the decision of the Director of Direct taxes. Excerpt “Considering that it should be emphasised that the … group had already held the majority of the share capital of the company (F) prior to the transfer of the shares on 23 January 10 2014; that following the sale on 23 January 2014, there was no change in the majority of the shares held by the … group, the only difference being that the … group held the majority of the share capital of the company (F) prior to the transfer of the shares on 23 January 10 2014. group, the only difference being that the claimant has since held the majority of the shares in company (F) in place of companies (B), (C), (D) and (D); that in view of the majority control of company (F) within the … group, even well before 23 January 2014, there is no reason why, all of a sudden, a control premium should be recognised as a hidden contribution for the claimant, unless it is for purely tax reasons; Considering that, in the present case, the production of a transfer price study with an estimate of a control premium is to be declared irrelevant given that the … group was already the majority shareholder in the company (F) before the transfer of the 48,726,550 shares on 23 January 2014; Considering that, on the contrary, the claimant’s assertion that “a control premium should be taken into account in calculating the acquisition price” is even contradicted by the fact that when the 48,726,550 shares were resold to a company that was a third party to the … group, no control premium was charged by the claimant; Considering that it sold to a Chinese investor, through the intermediary of the Portuguese company (G), all the shares in the company (F), thus representing the majority of the capital of the company (F), at the stock market price without, however, requesting any control premium; ...

83. Birincil acquires 100% of the equity interests in an independent enterprise, Company T for 100. Company T is a company that engages in research and development and has partially developed several promising technologies but has only minimal sales. The purchase price is justified primarily by the value of the promising, but only partly developed, technologies and by the potential of Company T personnel to develop further new technologies in the future. Birincil’s purchase price allocation performed for accounting purposes with respect to the acquisition attributes 20 of the purchase price to tangible property and identified intangibles, including patents, and 80 to goodwill. 84. Immediately following the acquisition, Birincil causes Company T to transfer all of its rights in developed and partially developed technologies, including patents, trade secrets and technical know-how to Company S, a subsidiary of Birincil. Company S simultaneously enters into a contract research agreement with Company T, pursuant to which the Company T workforce will continue to work exclusively on the development of the transferred technologies and on the development of new technologies on behalf of Company S. The agreement provides that Company T will be compensated for its research services by payments equal to its cost plus a mark-up, and that all rights to intangibles developed or enhanced under the research agreement will belong to Company S. As a result, Company S will fund all future research and will assume the financial risk that some or all of the future research will not lead to the development of commercially viable products. Company S has a large research staff, including management personnel responsible for technologies of the type acquired from Company T. Following the transactions in question, the Company S research and management personnel assume full management responsibility for the direction and control of the work of the Company T research staff. Company S approves new projects, develops and plans budgets and in other respects controls the ongoing research work carried on at Company T. All company T research personnel will continue to be employees of Company T and will be devoted exclusively to providing services under the research agreement with Company S. 85. In conducting a transfer pricing analysis of the arm’s length price to be paid by Company S for intangibles transferred by Company T, and of the price to be paid for ongoing R&D services to be provided by Company T, it is important to identify the specific intangibles transferred to Company S and those retained by Company T. The definitions and valuations of intangibles contained in the purchase price allocation are not determinative for transfer pricing purposes. The 100 paid by Birincil for the shares of Company T represents an arm’s length price for shares of the company and provides useful information regarding the value of the business of Company T. The full value of that business should be reflected either in the value of the tangible and intangible assets transferred to Company S or in the value of the tangible and intangible assets and workforce retained by Company T. Depending on the facts, a substantial portion of the value described in the purchase price allocation as goodwill of Company T may have been transferred to Company S together with the other Company T intangibles. Depending on the facts, some portion of the value described in the purchase price allocation as goodwill may also have been retained by Company T. Under arm’s length transfer pricing principles, Company T should be entitled to compensation for such value, either as part of the price paid by Company S for the transferred rights to technology intangibles, or through the compensation Company T is paid in years following the transaction for the R&D services of its workforce. It should generally be assumed that value does not disappear, nor is it destroyed, as part of an internal business restructuring. If the transfer of intangibles to Company S had been separated in time from the acquisition, a separate inquiry would be required regarding any intervening appreciation or depreciation in the value of the transferred intangibles ...

78. Company A owns a government licence for a mining activity and a government licence for the exploitation of a railway. The mining licence has a standalone market value of 20. The railway licence has a standalone market value of 10. Company A has no other net assets. 79. Birincil, an entity which is independent of Company A, acquires 100% of the equity interests in Company A for 100. Birincil’s purchase price allocation performed for accounting purposes with respect to the acquisition attributes 20 of the purchase price to the mining licence; 10 to the railway licence; and 70 to goodwill based on the synergies created between the mining and railway licences. 80. Immediately following the acquisition, Birincil causes Company A to transfer its mining and railway licences to Company S, a subsidiary of Birincil. 81. In conducting a transfer pricing analysis of the arm’s length price to be paid by Company S for the transaction with Company A, it is important to identify with specificity the intangibles transferred. As was the case with Birincil’s arm’s length acquisition of Company A, the goodwill associated with the licences transferred to Company S would need to be considered, as it should generally be assumed that value does not disappear, nor is it destroyed as part of an internal business restructuring. 82. As such, the arm’s length price for the transaction between Companies A and S should take account of the mining licence, the railway licence, and the value ascribed to goodwill for accounting purposes. The 100 paid by Birincil for the shares of Company A represents an arm’s length price for those shares and provides useful information regarding the combined value of the intangibles ...

83. Birincil acquires 100% of the equity interests in an independent enterprise, Company T for 100. Company T is a company that engages in research and development and has partially developed several promising technologies but has only minimal sales. The purchase price is justified primarily by the value of the promising, but only partly developed, technologies and by the potential of Company T personnel to develop further new technologies in the future. Birincil’s purchase price allocation performed for accounting purposes with respect to the acquisition attributes 20 of the purchase price to tangible property and identified intangibles, including patents, and 80 to goodwill. 84. Immediately following the acquisition, Birincil causes Company T to transfer all of its rights in developed and partially developed technologies, including patents, trade secrets and technical know-how to Company S, a subsidiary of Birincil. Company S simultaneously enters into a contract research agreement with Company T, pursuant to which the Company T workforce will continue to work exclusively on the development of the transferred technologies and on the development of new technologies on behalf of Company S. The agreement provides that Company T will be compensated for its research services by payments equal to its cost plus a mark-up, and that all rights to intangibles developed or enhanced under the research agreement will belong to Company S. As a result, Company S will fund all future research and will assume the financial risk that some or all of the future research will not lead to the development of commercially viable products. Company S has a large research staff, including management personnel responsible for technologies of the type acquired from Company T. Following the transactions in question, the Company S research and management personnel assume full management responsibility for the direction and control of the work of the Company T research staff. Company S approves new projects, develops and plans budgets and in other respects controls the ongoing research work carried on at Company T. All company T research personnel will continue to be employees of Company T and will be devoted exclusively to providing services under the research agreement with Company S. 85. In conducting a transfer pricing analysis of the arm’s length price to be paid by Company S for intangibles transferred by Company T, and of the price to be paid for ongoing R&D services to be provided by Company T, it is important to identify the specific intangibles transferred to Company S and those retained by Company T. The definitions and valuations of intangibles contained in the purchase price allocation are not determinative for transfer pricing purposes. The 100 paid by Birincil for the shares of Company T represents an arm’s length price for shares of the company and provides useful information regarding the value of the business of Company T. The full value of that business should be reflected either in the value of the tangible and intangible assets transferred to Company S or in the value of the tangible and intangible assets and workforce retained by Company T. Depending on the facts, a substantial portion of the value described in the purchase price allocation as goodwill of Company T may have been transferred to Company S together with the other Company T intangibles. Depending on the facts, some portion of the value described in the purchase price allocation as goodwill may also have been retained by Company T. Under arm’s length transfer pricing principles, Company T should be entitled to compensation for such value, either as part of the price paid by Company S for the transferred rights to technology intangibles, or through the compensation Company T is paid in years following the transaction for the R&D services of its workforce. It should generally be assumed that value does not disappear, nor is it destroyed, as part of an internal business restructuring. If the transfer of intangibles to Company S had been separated in time from the acquisition, a separate inquiry would be required regarding any intervening appreciation or depreciation in the value of the transferred intangibles ...

78. Company A owns a government licence for a mining activity and a government licence for the exploitation of a railway. The mining licence has a standalone market value of 20. The railway licence has a standalone market value of 10. Company A has no other net assets. 79. Birincil, an entity which is independent of Company A, acquires 100% of the equity interests in Company A for 100. Birincil’s purchase price allocation performed for accounting purposes with respect to the acquisition attributes 20 of the purchase price to the mining licence; 10 to the railway licence; and 70 to goodwill based on the synergies created between the mining and railway licences. 80. Immediately following the acquisition, Birincil causes Company A to transfer its mining and railway licences to Company S, a subsidiary of Birincil. 81. In conducting a transfer pricing analysis of the arm’s length price to be paid by Company S for the transaction with Company A, it is important to identify with specificity the intangibles transferred. As was the case with Birincil’s arm’s length acquisition of Company A, the goodwill associated with the licences transferred to Company S would need to be considered, as it should generally be assumed that value does not disappear, nor is it destroyed as part of an internal business restructuring. 82. As such, the arm’s length price for the transaction between Companies A and S should take account of the mining licence, the railway licence, and the value ascribed to goodwill for accounting purposes. The 100 paid by Birincil for the shares of Company A represents an arm’s length price for those shares and provides useful information regarding the combined value of the intangibles ...

A Ltd, which belonged to the Norwegian X Group, owned the entire share capital of B Ltd and had on 18.5.2004 sold it to a Norwegian company in the same group. The Norwegian company had the same day transferred the shares back on to A Ltd. C ASA had also been transferred shares in other companies belonging to the X group. C ASA was listed on the Oslo Stock Exchange in June 2004. Following the transaction with the subsidiary the Tax Office had raised A Ltd’s income for 2004 with 62,017,440 euros on the grounds that the price used in the transaction were considered below the shares’ market value. Further, a tax increase of EUR 620 000 had been applied. A Ltd stated that the purchase price for the shares of B Ltd had been determined on the basis of the company’s net present value, calculated according to a calculation of the present value of cash flows in the B Ab. The calculation was made by an outside expert. The purchase price had been calculated using “media kalkyl” that led to a lower value than the optional price determination calculations, which were based on high and low growth. Media kalkyl differed from other calculations in respect of certain variables that significantly affected the final outcome. For several of the variables used a description of how they were derived from B Ltd’s budget was missing, from historical data, data for comparison companies or other data. Variables not declared were also used in the calculation by the external expert, which was based on factor analysis and which was presented to support the calculations. The Supreme Administrative Court noted that although the cash flow calculations in principle can be considered to be an acceptable way to determine the market price of shares in companies not listed on the stock exchange, the estimates presented by the company could not be considered a reliable account of the price that would have been used in a transfer between independent parties. Because any comparison price that would have been based on events that could be equated with those at issue in this case were not available, and the yield based value of B Ltd had been established in a reliable manner, and since B Ltd’s assets under the Company’s balance had essentially consisted of financial assets, the fair value of B Ltd’s for taxation considered B Ltd’s net asset value. Using the net asset value was not wrong either for the reason that C ASA immediately after the listing of company had a market value lower than the net asset value. Nor were the fact that C ASA at the time of listing of the company had a 20 percent minority stake, sufficient to show that the purchase price corresponded to the market price. Consequently, the Company’s income in the taxation could be relevant amounts. With regard to the measures with which the company had tried to clarify the current value and that the issue concerned the appeal could be considered to make room for interpretation, the Supreme Administrative Court, removed the tax increase imposed in connection with the taxation. Fiscal year 2004 The law on the taxation procedure (1558/1995) 31, 32 and 57 § Click here for other translation Finland-2014-February-Supreme-Administrative-Court-HFD-2014-33 ...