Following a tax audit the tax authority conducted a on-site inspection of PJSC Odesa Port Plant on the completeness of tax calculation in respect of controlled transactions on the export of mineral fertilisers to non-resident companies Ameropa AG (Switzerland), “Koch Fertilizer Trading SARL (Switzerland), Nitora Commodities (Malta) Ltd (Malta), Nitora Commodities AG (Switzerland), Trammo AG (Switzerland), Trammo DMCC (United Arab Emirates), NF Trading AG (Switzerland) for FY 2013 and 2014, as well as business transactions on import of natural gas in gaseous form from a non-resident company Ostchem Holding Limited (Republic of Cyprus) for FY 2013. Based on the results of the inspection, an assessment of additional taxable income was issued. The assessment was based on the following considerations of the tax authority: – it is impossible to use the “net profit” method to confirm the compliance of prices in PJSC Odesa Port Plant’s controlled transactions for the export of mineral fertilisers in 2013 and 2014, since the “comparable uncontrolled price” method should have been used to determine the price in the said controlled transactions. The position of the tax authority is based on the fact that the application of the “net profit” method for determining the price does not allow to objectively determine the relevance of the price of the controlled transaction due to the lack of consideration of the impact of global trends in the nitrogen fertiliser market; information on derivative data available in officially recognised sources of information may be considered sufficient to determine the market price range (range of exchange prices) and calculate the level of arm’s length prices; in the presence of a market price range (range of exchange prices), – PJSC Odesa Port Plant’s transactions with Ostchem Holding Limited for the purchase of natural gas are controlled and PJSC Odesa Port Plant used the method of comparable uncontrolled price in determining the price in controlled transactions for the import of natural gas. However, PJSC Odesa Port Plant is a related party of PJSC Sumykhimprom, therefore, comparing the price in the controlled transaction with the prices in transactions that are also recognised as controlled. – it is not possible to use the “comparable uncontrolled price” method and it is appropriate to use the “net profit” method for natural gas import transactions, since no official source of information contains information on comparable uncontrolled transactions; it is not possible to adjust for the price of natural gas transportation from the European hub to the territory of Ukraine to ensure the proper level of comparability of the price in controlled transactions, and therefore the tax authority to find comparable transactions to apply the “net profit” method. It was found that the contract holder, Ostchem Holding Limited, did not perform any functions that could have influenced the increase in the sale price of natural gas. In the course of the audit, the Amadeus database was used to select independent companies that are comparable to Ostchem Holding Limited in terms of activities within the controlled natural gas import transaction. The sample included, in the tax authority’s opinion, independent companies with comparable activities and a similar functional profile to Ostchem Holding Limited. As a result of the search for comparable companies, 3 companies were selected, which, in the tax authority’s opinion, are fully comparable to Ostchem Holding Limited with key financial indicators for 2013. Based on the results of the analysis of the financial indicators of the comparable companies and the calculation of the range of profitability indicators, the tax authority found that the minimum value of the net profitability range for the comparable year 2013 was 0.04%, and the maximum value of the net profitability range was 1.51%. Thus, the net profitability of the controlled transaction with Ostchem Holding Limited exceeds the maximum value of the market range of net profitability of comparable companies by 30.34%. PJSC Odesa Port Plant disagreed with the tax assessment and filed an appeal. The district court upheld the appeal and dismissed the tax assessment. Subsequently, the Court of Appeal upheld the decision of the District Court and ruled in favour of PJSC Odesa Port Plant. The tax authority then appealed to the Supreme Court, which sent the case back to the Court of Appeal, which in the new trail upheld the tax authority’s assessment. This decision was then appealed to the Supreme Court – again – because, according to PJSC Odesa Port Plant, the Court of Appeal did not follow the instructions and conclusions of the Supreme Court in the course of the new procedure. Judgement of the Court The Supreme Court found that the violations of procedural and substantive law had been committed by the courts of first instance and appeal, and the failure to take into account the relevant correct conclusions of the Supreme Court, give grounds for sending the case for a new trial. In the new trail, it is necessary to take into account the above, to comprehensively and fully clarify all the factual circumstances of the case, verifying them with appropriate and admissible evidence, and to make a reasoned and lawful court decision with appropriate legal justification in terms of accepting or rejecting the arguments of the parties to the case. Excerpt in English “Subparagraphs 39.2.2.8 – 39.2.2.9 of paragraph 39.2.2 of Article 39.2.2 of the TC of Ukraine stipulate that, when determining the comparability of commercial and/or financial terms of comparable transactions with the terms of the controlled transaction, the characteristics of the markets for goods (works, services) where such transactions are conducted are analysed. At the same time, differences in the characteristics of such markets should not significantly affect the commercial and/or financial terms of the transactions conducted there, or such differences should be taken into account when making the appropriate adjustment. In determining the comparability of the characteristics of markets for goods (works, services), the following factors are taken into account: geographical location of markets and their volumes; the presence of competition in the markets, the relative competitiveness of sellers and buyers in the market; the ...

Eni Norge AS was a wholly owned subsidiary of Eni International B.V., a Dutch company. Both companies were part of the Eni Group, in which the Italian company Eni S.p.A was the HQ. Eni Norway had deducted costs related to the purchase of “technical services” from Eni S.p.A. Following an audit, the tax authorities reduced these deductions pursuant to section 13-1 of the Taxation Act (arm’s length provision). This meant that Eni Norway’s income was increased by NOK 32,673,457 in FY 2015 and NOK 16,752,728 in FY 2016. The tax assessment issued by the tax authorities was later confirmed by a decision of the Petroleum Tax Appeal Board. The Appeals Board considered that there were price deviations between the intra-group hourly rates for technical services and the external hourly rates. The price deviations could be due to errors in the cost base and/or a lack of arm’s length in the distribution of costs. There was thus a discretionary right pursuant to section 13-1, first paragraph, of the Tax Act. Eni Norge A/S applied to the District Court for a review of the decision refering to a previous judgement from the Norwegian Supreme Court HR-2020-1130-A (the Shell R&D judgement). Judgement of the District Court The court did not find that the decision of the Appeals Board was based on incorrect facts or application of the law and upheld the decision. Excerpts “The Supreme Court held that the correct approach was to base the assessment on what was actually the cost burden for Norske Shell. Costs covered by others should not be included (paragraph 57). The Court cannot see that this judgement provides guidance for our case, because it concerns a different fact. The Supreme Court assumed that it concerned a case with an agreed cost contribution scheme: 51-52: (51) In the legislative proposal in connection with the addition of section 13-1 fourth paragraph of the Tax Act in 2007, Proposition No. 62 (2006-2007), the Ministry reviewed the content of the OECD Transfer Pricing Guidelines. Section 5.9 of the proposal provides an account of the guidelines relating to cost contribution arrangements (CCA) – referred to in the guidelines as Cost Contribution Arrangements (CCA). The content of such arrangements is described as follows: “A CCA is a contractual framework for sharing the costs and risks associated with the development, production or acquisition of assets, services or rights. The participants seek to obtain an expected benefit through their contributions to the KBO. Under a KBO, each participant will have the right to utilise its interests in the KBO as the actual owner of these, and the participants will thus not be liable to pay royalties or other remuneration to any other party for the utilisation of their interests in the arrangement. The most common KBOs are arrangements for joint development of intangible assets, but KBOs are also established for other purposes.” In my view, it is in good accordance with the arm’s length principle that follows from Section 13-1 of the Tax Act and the OECD Guidelines, when the Complaints Board in its decision has assumed that the relationship between Norske Shell and the group companies involves a cost-sharing arrangement. In this case, there is no transfer of assets for a consideration to be determined on the basis of the commercial principles that would apply to an ordinary sale of goods, services or rights.” The situation in our case concerns a case that the Supreme Court has limited itself to, namely the purchase of services between mother and daughter, which must be considered a transfer of assets for consideration. An ordinary sale has taken place. The service agreement and the individual sales do not involve a cost contribution scheme. Nor did the agreement state that revenues were to be deducted in a cost sharing arrangement, as was the situation in the Shell R&D judgement. The fact that the accounting agreement contains provisions on cost allocation between the licence partners does not change the facts. It concerns the sale of services between two independent parties, Eni S.p.A and Eni Norge. In the assessment, the income shall be determined as if the community of interest had not existed, cf. section 13-1, third paragraph, of the Tax Act. The Court agrees with the reasoning of the majority of the Appeals Board: “In the assessment, the income shall be determined as if the community of interest had not existed, cf. section 13-1 third paragraph of the Tax Act. § Section 13-1, third paragraph. If independent parties would have viewed the transactions in context, it is natural to do so also in controlled transactions. An independent service provider in a similar arrangement would naturally demand payment for all the services provided, regardless of whether the service recipient is subsequently re-invoiced or reimbursed for the costs of some of the services by others. An independent service recipient in such an arrangement would also accept to pay for all the services, but no more than what similar services would cost in the open market. This must also apply to the services that Eni Norge can charge the licence partners under the accounting agreement.” Without it being of decisive importance for the Court’s assessment, the Plaintiff has not been as clear in the administrative proceedings that there is a pure passing on of the service costs to the licence partners as it was during the main hearing. The Court refers to this description by the majority of the Board of Appeal of the charge: (…) As the Court understands the Plaintiff’s response during the proceedings, it confirms that there is not full correspondence between the costs from the purchase of the service from Eni S.p.A and the onward charge. The Plaintiff has at best been very unclear on this point. This supports the Court’s assessment that the transactions must be assessed separately. As stated, this is not decisive for the Court’s conclusion. The Court has no need to problematise the principle that it can only rely on the facts presented by the ...

Maersk Oil and Gas A/S (later TotalEnergies EP Danmark A/S) continued to make operating losses, although the group’s combined oil and gas operations were highly profitable. Following an audit of Maersk Oil, the tax authorities considered that three items did not comply with the arm’s length principle. Maersk Oil incurred all the expenses for preliminary studies of where oil and gas could be found, but the results of these investigations and discoveries were handed over to the newly established subsidiaries free of charge. Licence agreements were signed with Qatar and Algeria for oil extraction. These agreements were entered into with the subsidiaries as contracting parties, but it was Maersk Oil that guaranteed that the subsidiaries could fulfil their obligations and committed to make the required technology and know-how available. Expert assistance (time writing) was provided to the subsidiaries, but these services were remunerated at cost with no profit to Maersk Oil. An assessment was issued where additional taxable income was determined on an aggregated basis as a share of profits from the activities – corresponding to a royalty of approximately 1,7 % of the turnover in the two subsidiaries. In 2018, the Tax Court upheld the decision and Maersk Oil and Gas A/S subsequently appealed to the High Court. In 2022, the High Court held that the subsidiaries in Algeria and Qatar owned the licences for oil extraction, both formally and in fact. In this regard, there was therefore no transaction. Furthermore the explorations studies in question were not completed until the 1990s and Maersk Oil and Gas A/S had not incurred any costs for the subsequent phases of the oil extraction. These studies therefore did not constitute controlled transactions. The Court therefore found no basis for an annual remuneration in the form of royalties or profit shares from the subsidiaries in Algeria and Qatar. On the other hand, the Regional Court found that Maersk Oil and Gas A/S’ so-called performance guarantees for the subsidiaries in Algeria and Qatar were controlled transactions and should therefore be priced at arm’s length. In addition, the Court found that technical and administrative assistance (so-called time writing) to the subsidiaries in Algeria and Qatar at cost was not in line with what could have been obtained if the transactions had been concluded between independent parties. These transactions should therefore also be priced at arm’s length. The High Court referred the cases back to the tax authorities for reconsideration. An appeal was then filed by the tax authorities with the Supreme Court. Judgement of the Supreme Court The Supreme Court decided in favour of the tax authorities and upheld the original assessment. The court stated that the preliminary exploration phases in connection with oil exploration and performance guarantees and the related know-how had an economic value for the subsidiaries, for which an independent party would require ongoing payment in the form of profit share, royalty or the like. They therefore constituted controlled transactions. Furthermore, the court stated that Maersk Oil and Gas A/S’ delivery of timewriting at cost price was outside the scope of what could have been achieved if the agreement had been entered into at arm’s length. Finally, the transactions were considered to be so closely related that they had to be assessed and priced on an aggregated basis and Maersk Oil and Gas A/S had not provided any basis for overturning the tax authorities’ assessment. Click here for English translation Click here for other translation Denmark vs Mogas September 2023 Suprem Court Case no 15265-16812-2022 ...

Pgnig Upstream Norway AS (PUN) sold dry gas to its sister company (PST). According to the tax authorities the price for the gas had not been determined at arm’s length, cf. Section 13-1, first paragraph, of the Tax Act, and an assessment of additional income was issued. Judgement of the Court The Court decided in favour of the tax authorities. It found that the tax authorities had correctly concluded that there was a reduction in PUN’s income, and that the reduction was due to parties being under common control. The key point for the Court was that there was an imbalance in the functional profiles of PUN and the sister company, PST. Through certain deductions in the purchase price, PUN had indirectly been charged for parts of the sister company’s downside risk, without being allowed a share in potential upside profits. Excerpts “(…)In any event, the Court of Appeal finds reason to note that the [text removed] agreement in any event does not support PUN’s view that the price in the internal agreement is at arm’s length. In this regard, the Court of Appeal notes that the [text removed] agreement, like the Interconnection Agreement, concerned the purchase of all the gas offered by the seller ([text removed]) each day. The volume of gas was about 1/3-1/4 of the volume in the Interconnection Agreement, i.e. a fairly significant volume. The contract period was three years, whereas in the Interconnection Agreement it was ten years. The delivery point and price basis were essentially the same. Both contracts also contain deductions for balancing costs and transport/entry costs in the downstream market area. The main difference is that while the Interconnection Agreement makes deductions from PUN’s remuneration for MAC, DOF and OHSC (“Out of Hours Service-Cost”), the [text removed] Agreement instead provides for a premium for the seller. This amounts to [text removed] Euro/MWh. To the Court of Appeal, it appears prima facie balanced and market-based to grant the seller a share in the buyer’s profit potential upon resale, as the Court of Appeal understands the [text removed] Agreement to express. It is not necessary for the Court of Appeal to assess in detail the other agreements referred to by the Norwegian State, which have several differences from the Internal Agreement. In any event, it is more likely than not that there was a reduction in income due to the community of interest between PUN and PST. The Court of Appeal adds that the Appellant also cannot succeed with the argument that the Oil Tax Office, prior to the court proceedings, has selected agreements based on selection criteria that exclude relevant agreements. The nine agreements in question were selected by the Petroleum Tax Office and submitted to the Directorate of Taxes in connection with a request for evidence from the PUN relating to contracts that were the subject of the Petroleum Tax Office’s “observations” during the administrative proceedings, see above. The Directorate of Taxes did not grant an exemption from the duty of confidentiality for these agreements, see Section 22-3, second paragraph, of the Dispute Act. It is not argued by PUN that this constitutes a procedural error, but that it has an impact on the assessment of evidence as to whether there is a reduction pursuant to Section 13-1 of the Tax Act. The Court of Appeal cannot see that this is the case. It is in the nature of the case that the taxpayer may in practice find it difficult to substantiate its view. However, this must be seen in light of the fact that the content of dry gas agreements is highly sensitive information, which is subject to a duty of confidentiality. The Court of Appeal considers that any incomplete overall picture of the pricing of dry gas is not such as to indicate that the price in the internal agreement is at arm’s length. Moreover, any criticism of the administration’s selection of agreements during the court proceedings can hardly be seen to support the invalidity of the prior administrative decision. In any event, the selection appears to be objective, based on the considerations relating to the duty of confidentiality that apply. Accordingly, there is a reduction pursuant to Section 13-1 of the Tax Act due to the community of interest between PST and PUN. (…) The Court of Appeal notes that the assessment is clearly neither arbitrary nor grossly unreasonable. The exercise of the discretion is specific and thoroughly justified in relation to the facts of the case. Shell’s remuneration under the dispatching agreement with PUN appeared, at the time of the decision, to be the best available basis of comparison for PST’s services related to booking the necessary capacity and nominating the gas to make it available for sale at the hub. It was clearly relevant to emphasise that Shell performed dispatching up to the beach, and that PST’s tasks were (only) related to the further fate of the gas after this delivery point. There is no reason to doubt that neither the MAC deduction nor the relevant parts of the DOF deduction were a type of deduction recognised by the tax office in its own database. This could be taken into account in the circumstances, see above. The deductions that the administration did not accept must also be seen in the light of the deductions that were actually accepted: costs related to transport capacity (exit and entry tariffs), costs related to making the gas available for sale at the hub (nomination costs, etc. – i.e. the part of the DOF deduction that was accepted), and costs related to imbalances (discrepancies between nominated and allocated volume). These are costs that have either facilitated PUN’s access to the market in a larger perspective or are related to circumstances for which PUN is most likely to bear the risk. The Court of Appeal finds that the discretion takes due account of the division of functions between PUN and PST, when only those parts of the deductions that are specifically linked to ...

The tax authority had conducted a tax audit of “KOR Oil Company” on transfer pricing issues for FY 2013-2015. Based on the results of the audit, a notice was issued on corporate income tax in the amount of 138 515 235 and penalties in the amount 34 807 179. In the decision the tax authorities had based the pricing of the controlled oil transactions on market data provided by Argus China Petroleum, whereas the company had based the pricing on Brent quotation. On appeal, the assessment of additional tax was later canceled by the tax court and the court of appeal. In an appeal to the Supreme Court the tax authorities asked the court to cancel the the decision of tax court and the court of appeal. The tax authorities does not “…agree that the Argus China Petroleum source used by the Department does not contain information about daily quotations for goods, which does not comply with the requirements of paragraph 1 of Article 13 of the Law of the Republic of Kazakhstan “On Transfer Pricing” (hereinafter – the Law).The oil price published by Argus China Petroleum reflects the price on the border of Kazakhstan and China for actually completed transactions, and allows for a comparative analysis of supplies between unrelated parties with transactions involving interrelated parties. Therefore, such a price is appropriate to comparable economic conditions“. Furthermore, according to the tax authorities “…the Agreement between the Government of the Republic of Kazakhstan and the Government of the People’s Republic of China “On Certain Issues of Cooperation in the Development and Operation of the Kazakhstan-China Oil Pipeline” dated December 8, 2012 No. 1559 (hereinafter referred to as the Agreement), referred to by the plaintiff, does not regulate the taxation of subsoil users and the application of legislation on transfer pricing, and also does not establish a specific the formula for determining the price in oil purchase and sale transactions in the direction of China“. Judgement of the Court The Supreme Court ruled in favor of “KOR Oil Company”. Excerpts (Unofficial English Translation) “The plaintiff’s oil supply was carried out in the direction of China, where there is no price from the source of information. The absence of stock quotes in this direction is also confirmed by the defendant. Due to the absence of such quotations, the Company used the Brent quotation (DTD) published in Europe as the basis of the market price. …” “When checking, the Department applied the prices published in Argus China Petroleum, published by Argus Media Limited. However, as the local courts correctly note, the data published in Argus China Petroleum are statistical customs prices that were not calculated from the minimum and maximum values, and also are not an exchange quotation (market price) for oil, are not determined on the basis of exchange trading and are not published in their official documents. Thus, the data published in Argus China Petroleum are average monthly statistical prices, and not daily quotes, as required by Law. In addition, since 2018, the publication of data in this area has been stopped. Accordingly, the judicial board agrees with the conclusions of the local courts that in this case the prices published in Argus China Petroleum cannot be applied for taxation and transfer pricing purposes.” “The price level under oil purchase and sale agreements is determined on the basis of international oil quotations in units of oil volume per barrel and will be the same on the border of Kazakhstan and China for oil of all Kazakhstani shippers, regardless of the region of production. Thus, the Agreement assumes the application of a single price by all Kazakhstani exporters to China, taking into account international quotations. As the representatives of the defendant confirmed, in general, eight companies shipped crude oil to China via this pipeline during the period under review to one buyer. Everyone uses a single pricing approach. The resolution of the specialized judicial Board of the Supreme Court of the Republic of Kazakhstan dated October 26, 2020 established the illegality of the use by the state revenue authorities of the Argus China Petroleum information source for the export of oil from Kazakhstan to the PRC, the inconsistency of this approach with the requirements of the Agreement. ” “Thus, this resolution established the legality of the pricing approach of one of the eight exporting companies. In view of the fact that, according to the Agreement, a single pricing approach must be observed, the same pricing approach must be maintained with respect to the plaintiff.” “Having heard the participants of the court session, having examined the circumstances and materials of the case, the judicial board comes to the conclusion that the arguments of the cassation appeal were studied in detail in the court of appeal and they were given a proper legal assessment. In such circumstances, the defendant’s cassation complaint is subject to dismissal.” Click here for English Translation Click here for other translation KAZ vs KOR 24 January 2023 No 6001-22-00-6ap-1563 ...

Use of Quotation Medium. (i) On June 1, USOil, a United States corporation, enters into a contract to purchase crude oil from its foreign subsidiary, FS, in Country Z. USOil and FS agree to base their sales price on the average of the prices published for that crude in a quotation medium in the five days before August 1, the date set for delivery. USOil and FS agree to adjust the price for the particular circumstances of their transactions, including the quantity of the crude sold, contractual terms, transportation costs, risks borne, and other factors that affect the price. (ii) The quotation medium used by USOil and FS is widely and routinely used in the ordinary course of business in the industry to establish prices for uncontrolled sales. Because USOil and FS use the data to set their sales price in the same way that unrelated parties use the data from the quotation medium to set their sales prices, and appropriate adjustments were made to account for differences, the price derived from the quotation medium used by USOil and FS to set their transfer prices will be considered evidence of a comparable uncontrolled price ...

The case concerned pricing of the wet gas in FY 2012-2014 sold between Equinor Energy (subsidiary) and Equinor ASA (parent). The intra-group sales from Equinor Energy to Equinor were regulated by an internal agreement that was entered into as part of the transfer of rights in 2009. The income that Equinor Energy receives from the internal sales is subject to section 5 of the Petroleum Tax Act with a special tax that comes in addition to the general income tax. This means that Equinor Energy had a total tax burden of 78%. Equinor, for its part, is charged with ordinary income tax, which was 27/28%. In 2012 the pricing model was changed rom the so-called “OTS price model” to a “dividend model”, which led to the price (and taxable income in Equinor Energy) being reduced compared to the previously used pricing model. The reason stated by the group for this change was that Equinor Energy had later entered into an agreement with an unrelated party – Centrica – where the dividend model had been agreed. The tax authorities issued an assessment where the pricing of the controlled transactions for FY 2012 – 2014 was based on the OTS price model resulting in additional taxable income in Equinor Energy. An appeal was filed by Equinor Energy. Judgement of the Court of Appeal The Court dismissed the appeal of Equinor Energy and upheld the decision of the tax authorities. The Court of Appeal used the direct comparison method (the “CUP method”) as a basis. Apart from the agreement with Centrica, all other agreements in the period 2012-2014 were priced according to the OTS model. The Court of Appeal found that at least those of these agreements which were terminable constituted CUPs. The fact that the agreements were entered into before 2012 did not mean that these agreements should be excluded. The Court of Appeal further assumed that the Centrica agreement had been entered into under such circumstances that it alone could not justify a reduction in the market price. It could not be attributed decisive importance for the period 2012-2014 that several agreements had been changed to the dividend model from 2015-2016. The Court of Appeal assumed that from 2015 it was in a transition phase, where the market price was fluctuating. There was no basis for applying retroactive effect to individual transactions from this period. Click here for English translation. Click here for other translation Norway vs Equinor Energy AS August 2022 Court of Appeal Case No LB-2021-126759 ORG ...

In 2011, Petrolia SE established a wholly owned subsidiary in Norway – Petrolia Noco AS – to conduct oil exploration activities on the Norwegian shelf. From the outset, Petrolia Noco AS received a loan from the parent company Petrolia SE. The written loan agreement was first signed later on 15 May 2012. The loan limit was originally MNOK 100 with an agreed interest rate of 3 months NIBOR with the addition of a margin of 2.25 percentage points. When the loan agreement was formalized in writing in 2012, the agreed interest rate was changed to 3 months NIBOR with the addition of an interest margin of 10 percentage points. The loan limit was increased to MNOK 150 in September 2012, and then to MNOK 330 in April 2013. In the tax return for 2012 and 2013, Petrolia Noco AS demanded a full deduction for actual interest costs on the intra-group loan to the parent company Petrolia SE. An assessment was issued by the tax authorities for these years, where the interest deductions had been partially disallowed. The assessment for these years was later upheld in court. For FY 2014, 2015 and 2016, Petrolia Noco AS had also claimed a full deduction for actual interest costs on the entire intra-group loan to the parent company. It is the assessment for these years that is the subject of dispute in this case. The assessment was first brought to the Court of Oslo where a decision in favour of the tax authorities was issued in November 2021. This decision was appealed by Petrolia Noco AS to the Court of Appeal. Judgement of the Court The Court of Appeal dismissed the appeal and decided in favour of the Norwegian tax authorities. Excerpts “The Court of Appeal also agrees with the state that neither the cost plus method nor a rationality analysis can be considered applicable in this case. With the result the Court of Appeal has reached so far, the CUP method should be preferred – in line with the OECD guidelines. After this, in summary, it appears clear that the interest margin on the intra-group loan is significantly higher than in a comparable and independent market and thus not an arm’s length price. The higher interest implies a reduction in the appellant’s income, cf. Tax Act section 13-1 first paragraph. The Court of Appeal cannot see that the adjustments claimed by the appellant change this. In the Court of Appeal’s view, it is also clear that the reduction in income has its cause in the community of interest. Whether adjustments should be made to the basis of comparison at the time of the price change, the Court of Appeal comes back to when assessing the exercise of discretion. Consequently, there was access to a discretionary determination of the appellant’s income according to Section 13-1 first paragraph of the Tax Act, also with regard to the interest margin.” “In the Court of Appeal’s view, additional costs that would have been incurred by independent parties, but which are not relevant in the controlled transaction, must be disregarded. Reference is made to the OECD guidelines (2020) point C.1.2.2, section 10.96: In considering arm’s length pricing of loans, the issue of fees and charges in relation to the loan may arise. Independent commercial lenders will sometimes charge fees as part of the terms and conditions of the loan, for example arrangement fees or commitment fees in relation to an undrawn facility. If such charges are seen in a loan between associated enterprises, they should be evaluated in the same way as any other intra-group transaction. In doing so, it must be borne in mind that independent lenders’ charges will in part reflect costs incurred in the process of raising capital and in satisfying regulatory requirements, which associated enterprises might not incur. The decisive factor is whether the costs or rights that the effective interest margin in the observed exploration loans between independent parties is an expression of, are also relevant in the intra-group loan. As far as the Court of Appeal understands, the appellant does not claim that various fees or costs incurred in exploration loans from a bank have been incurred in the intra-group loan, and in any case no evidence has been provided for this. In the Court of Appeal’s view, such costs and fees are therefore not relevant in the comparison. The appellant, on the other hand, has stated that the loan limit that Petrolia SE had made available, and the fact that the loan limit was increased if necessary, means that a so-called “commitment fee”, which accrues in loans between independent parties where an unused credit facility is provided, must be considered built into the agreed interest rate. In the Court of Appeal’s view, Petrolia SE cannot be considered to have had any obligation to make a loan limit available or to increase the loan limit if necessary. It appears from the loan agreement point 3.2 that the lender could demand repayment of the loan at its own discretion. The appellant has stated that this did not entail any real risk for the borrower. It is probably conceivable that Petrolia SE did not intend for this clause to be used, and that the appellant had an expectation of this. In this sense, it was a reality in the loan framework. However, it is clear, and acknowledged by the appellant, that the point of financing the appellant through loans rather than higher equity was Petrolia SE’s need for flexibility. Thus, it appears to the Court of Appeal that it is clear that the appellant had no unconditional right to the unused part of the loan limit. The Court of Appeal therefore believes that the Board of Appeal has not made any mistakes by comparing with nominal interest margins. On this basis, the Court of Appeal can also see no reason why it should have been compared with the upper tier of the observed nominal interest margins in the exploration loans between independent parties. In ...

Promgas s.p.a. is 50% owned by the Italian company Eni s.p.a. and 50% owned by the Russian company Gazprom Export. It deals with the purchase and sale of natural gas of Russian origin destined for the Italian market. It sells the gas to a single Italian entity not belonging to the group, Edison spa, on the basis of a contract signed on 24 January 2000. In essence, Promgas s.p.a. performes intermediary function between the Russian company, Gazprom Export (exporter of the gas), and the Italian company, Edison s.p.a. (final purchaser of the gas). Following an audit for FY 2005/06, the tax authorities – based on the Transaction Net Margin Method – held that the operating margin obtained by Promgas s.p.a. (0.23% in 2025 and 0.06% in 2006) were not in line with the results that the company could have achieved at arm’s length. Applying an operating margin of l.39% resulted in a arm’s length profit of €4,227,438.07, for the year 2005, which was €3,426.803.00 higher than the profit declared by the company. Promgas s.p.a. appealed against the notice of assessment, which was upheld by the Provincial Tax Commission of Milan, with sentence no. 356/44/11, notified on 23/12/2011. The tax authorities then filed an appeal with the Regional Tax Commission of Lombardy which upheld the the tax authorities main appeal and rejected the company’s cross appeal. Promgas s.p.a. then filed an appeal with the Supreme Court Judgement of the Supreme Court The Supreme Court remanded the cast to the Regional Tax Commission of Lombardy Excerpts “…. 8.1. The failure to examine the facts put forward by the taxpayer company to oppose the set of comparables identified by the Revenue Agency resulted in a defect in the overall reasoning of the contested judgment, as denounced by the appellant company in its fifth and sixth grounds of complaint. 8.2. As is clear from the criteria indicated in the OECD Guidelines referred to above, in order for the application of the TNMM to be reliable, it is necessary to conduct an analysis of comparability that passes through the two moments of the choice of the tested party and the identification of the comparable companies, an identification that, under free market conditions (arm’s length principle), presupposes a “comparison” (internal or external) between the tested party and comparable companies that satisfies the five factors of comparability indicated by the OECD criteria (characteristics of goods and services functional analysis; contractual terms underlying the intra-group transaction; business strategies; economic conditions). It is through such a comparison that the factors that may significantly influence the net profit indicators (see paragraph 7.9 below) are identified on the basis of the facts and circumstances of the case. 8.3. Indeed, the reliability of such a method, according to the prevailing practice and interpretation, must pass through the following steps – selection of the tested party for the analysis; – determination of the financial results relating to the controlled transactions – selection of the investigation period; – identification of comparable companies; – accounting adjustments to the financial statements of the tested party and differences in accounting practices, provided that such adjustments are appropriate and possible; – assessment of whether adjustments are appropriate or necessary to take account of differences between the tested party and the identified comparable companies in terms of risks assumed or functions performed; – selection of a reliable profitability profit level indicator (so-called Profit Leverage/ Indicator, or PLI). 8.4. The CTR’s failure to verify the circumstances alleged by the taxpayer, resulted, in essence, in the pretermission of the comparability analysis for the selection of the TNMM applied to the case, and thus, of the procedure for the identification of comparable transactions and the use of relevant information to ensure the reliability of the analysis and the compliance of the PLI, or PLI, with the principle of free competition, or rather, the reliability of the selected TNMM. 9. The seventh ground of appeal – alleging breach of Article 6(1) of Legislative Decree 18/12/1997, no. The seventh ground of appeal – which alleges infringement of Article 6(1) of Legislative Decree No 472 of 18 December 1997, on the ground that the Regional Tax Commission held that the financial penalties applied by the Tax Office were lawful, erroneously excluding the existence of a ground of non-punishability, without specifically verifying the percentage of discrepancy between the amount declared by the company (0.23%) and the amount assessed by the Administration (1.39%) – is considered to be absorbed by the acceptance of the fifth and sixth grounds of appeal. 10. In conclusion, the appeal must be upheld limited to the fifth and sixth grounds of appeal, with absorption of the seventh and dismissal of the remainder. The judgement must be set aside in relation to the upheld grounds, with a reference back to the CTR, in a different composition, for a new examination of the merits of the dispute from the point of view of the standards of comparability relating to the method chosen and the penalty profile also in the light of the more favourable ius superveniens.” Click here for English translation Click here for other translation Italy-Sez-5-Num-15668-Anno-2022- ...

A Danish parent in the Maersk group’s oil and gas segment, Maersk Oil and Gas A/S (Mogas), had operating losses for FY 1986 to 2010, although the combined segment was highly profitable. The reoccurring losses was explained by the tax authorities as being a result of the group’s transfer pricing setup. “Mogas and its subsidiaries and branches are covered by the definition of persons in Article 2(1) of the Tax Act, which concerns group companies and permanent establishments abroad, it being irrelevant whether the subsidiaries and branches form part of local joint ventures. Mogas bears the costs of exploration and studies into the possibility of obtaining mining licences. The expenditure is incurred in the course of the company’s business of exploring for oil and gas deposits. The company is entitled to deduct the costs in accordance with Section 8B(2) of the Danish Income Tax Act. Mogas is responsible for negotiating licences and the terms thereof and for bearing the costs incurred in this connection. If a licence is obtained, subsequent expenditure is borne by a subsidiary or branch thereof, and this company or branch receives all revenue from extraction. Mogas shall ensure that the obligations under the licence right towards the State concerned (or a company established by the State for this purpose) and the contract with the independent joint venture participants are fulfilled by the local Mogas subsidiary or permanent establishment. Mogas has revenues from services provided to the subsidiaries, etc. These services are remunerated at cost. This business model means that Mogas will never make a profit from its operations. It must be assumed that the company would not enter into such a business model with independent parties. It should be noted that dividend income is not considered to be business income.” According to the tax authorities Mogas had provided know-how etc. to the subsidiaries in Algeria and Qatar and had also incurred expenses in years prior to the establishment of these subsidiaries. This constituted controlled transactions covered by the danish arm’s length provisions. Hence an estimated assessment was issued in which the additional income corresponded to a royalty rate of approximately 1,7 % of the turnover in the two subsidiaries. In 2018, the Tax Court upheld the decisions and Mogas subsequently appealed to the regional courts. Judgment of the Regional Court The Regional Court held that the subsidiaries in Algeria and Qatar owned the licences for oil extraction, both formally and in fact. In this regard, there was therefore no transaction. Furthermore the explorations studies in question were not completed until the 1990s and Mogas had not incurred any costs for the subsequent phases of the oil extraction. These studies therefore did not constitute controlled transactions. The Court therefore found no basis for an annual remuneration in the form of royalties or profit shares from the subsidiaries in Algeria and Qatar. On the other hand, the Regional Court found that Mogas’s so-called performance guarantees for the subsidiaries in Algeria and Qatar were controlled transactions and should therefore be priced at arm’s length. In addition, the Court found that technical and administrative assistance (so-called time writing) to the subsidiaries in Algeria and Qatar at cost was not in line with what could have been obtained if the transactions had been concluded between independent parties. These transactions should therefore also be priced at arm’s length. As a result, the Court referred the cases back to the tax authorities for reconsideration. Excerpts “It can be assumed that MOGAS’s profit before financial items and tax in the period 1986-2010 has essentially been negative, including in the income years in question 2006-2008, whereas MOGAS’s profit including financial items, including dividends, in the same period has been positive, and the Regional Court accepts that income from dividends cannot be regarded as business income in the sense that dividends received by MOGAS as owner do not constitute payment for transactions covered by section 2 of the Tax Act. However, the Regional Court considers that the fact that MOGAS’s profit before financial items and tax for the period 1986-2010 has been essentially negative cannot in itself justify allowing the tax authorities to make a discretionary assessment.” “As stated above, the performance guarantees provided by MOGAS and the technical and administrative assistance (timewriting) provided by MOGAS constitute controlled transactions covered by Article 2 of the Tax Code. The performance guarantees, which are provided free of charge to the benefit of the subsidiaries, are not mentioned in the transfer pricing documentation, and the Regional Court considers that this provides grounds for MOGAS’s income relating to the performance guarantees to be assessed on a discretionary basis pursuant to Section 3 B(8) of the Tax Control Act currently in force, cf. Section 5(3).” “Already because MOGAS neither participates in a joint venture nor acts as an operator in relation to oil extraction in Algeria and Qatar, the Court considers that MOGAS’ provision of technical and administrative assistance to the subsidiaries is not comparable to the stated industry practice or MOGAS’ provision of services to DUC, where MOGAS acts as an operator. Against this background, the Regional Court considers that the Ministry of Taxation has established that MOGAS’ provision of technical and administrative assistance (timewriting) to the subsidiaries at cost price is outside the scope of what could have been obtained if the agreement had been concluded between independent parties, cf. tax act Section 2 (1).” Only part of the decision have been published. Click here for English translation Click here for other translation bs-41574-2018-og-bs-41577-2018 ...

In 2009-2011 Fortis Petroleum Norway AS (FPN) bought seismic data related to oil exploration in the North Sea from a related party, Petroleum GeoServices AS (PGS), for NKR 95.000.000. FBN paid the amount by way of a convertible intra-group loan from PGS in the same amount. FPN also purchased administrative services from another related party, Consema, and later paid a substantial termination fee when the service contract was terminated. The acquisition costs, interest on the loan, costs for services and termination fees had all been deducted in the taxable income of the company for the years in question. Central to this case is the exploration refund scheme on the Norwegian shelf. This essentially means that exploration companies can demand cash payment of the tax value of exploration costs, cf. the Petroleum Tax Act § 3 letter c) fifth paragraph. If the taxpayer does not have income to cover an exploration cost, the company receives payment / refund of the tax value from the state. On 21 November 2018, the Petroleum Tax Office issued two decisions against FPN. One decision (the “Seismic decision”) which applied to the income years 2010 to 2011, where FPN was denied a deduction for the purchase of seismic services from PGS and interest on the associated seller credit, as well as ordinary and increased additional tax (hereinafter the «seismic decision»), and another decision (the “Consema decision”) which applied to the income years 2011 and 2012 where, FPN’s claim for deduction for the purchase of administrative services from Consema for the income years 2011 and 2012 was reduced at its discretion, and where FPN was also denied a deduction for the costs of the services and a deduction for termination fees. Finally in regards of the “Seismic decision” an increased additional tax of a total of 60 per cent, was added to the additional taxation on the basis of the incorrectly deducted seismic purchases as FPN had provided incorrect and incomplete information to the Oil Tax Office. In the “Seismic decision” the tax office argued that FPN used a exploration reimbursement scheme to run a “tax carousel” In the “Consema decision” the tax office found that the price paid for the intra-group services and the termination fee had not been determined at arm’s length. An appeal was filed by Fortis Petroleum Norway AS with the district court where, in December 2020, the case was decided in favour of the tax authorities. An appeal was then filed with the Court of Appel Judgement of the Court of Appeal The court upheld the decisions of the district court and decided in favour of the tax authorities. The Court concluded that the condition for deduction in the Tax Act § 6-1 on incurred costs on the part of Fortis Petroleum Norway AS was not met, and that there was a basis for imposing ordinary and increased additional tax. The Court of Appeal further found that the administrative services and the termination fee were controlled transactions and had not been priced at arm’s length. Excerpts – Regarding the acquisition of seismic exploration Based on the case’s extensive evidence, and especially the contemporary evidence, the Court of Appeal has found that there was a common subjective understanding between FPN and PGS, both at the planning stage, during the conclusion of the agreement, in carrying out the seismic purchases and in the subsequent process. should take place by conversion to a subscription price that was not market-based. Consequently, seismic would not be settled with real values. This was made possible through the common interest of the parties. The parties also never significantly distanced themselves from this agreement. The Court of Appeal has heard testimonies from the management of PGS and FPN, but can not see that these entail any other view on the question of what was agreed. The loan was never repaid, and in the end it was converted to the pre-agreed exchange rate of NOK 167. In the Court of Appeal’s view, there is no other rational explanation for this course than that it was carefully adapted to the financing through 78 per cent of the exploration refund. The share value at the time of conversion was down to zero. The Court of Appeal agrees with the state that all conversion prices between 167 and 0 kroner would have given a share price that reflected the value in FPN better and which consequently had given PGS a better settlement. On this basis, the Court of Appeal believes that the conversion rate did not cover the 22 percent, and that there was a common perception that this was in line with the purpose of the establishment of FPN, namely not to pay “a penny” of fresh capital. The Court of Appeal has also emphasized that the same thing that happened in 2009 was repeated in 2010 and 2011. For 2009, the Oil Tax Office came to the conclusion that it was a pro forma event and a shift in financial risk. In 2010 and 2011, the same actors used the same structure and procedure to finance all costs from the state. It is thus the Court of Appeal’s view that there was a common understanding between the parties to the agreement that the real relationship within was different from that which was signaled to the tax authorities regarding sacrifice and which provided the basis for the deduction. Furthermore, in the Court of Appeal’s view, the loan transactions were not fiscally neutral. The seismic purchases constituted the only source of liquidity and were covered in their entirety by the state. In light of ESA’s decision from 2018 as an element of interpretation, such a loss of fiscal neutrality would indicate that when the company has thus not borne any risk itself, sacrifice has not taken place either. Even if the debt had been real, assuming a sale without a common interest of the parties, in the Court of Appeal’s view in a tax context it could not be decisive, as long as 22 ...

ConocoPhillips Skandinavia AS (COPSAS) is a wholly owned subsidiary of the Norwegian branch of ConocoPhillips Norway, which is registered in Delaware, USA. ConocoPhillips Norway, which does not conduct special taxable business, is a wholly owned company in the ConocoPhillips Group. The group’s headquarters are in Houston, Texas, USA. The question at issue was whether the interest rate on a loan had been set too high, thus resulting in a reduction of the taxable income of COPSAS. In May 2013, COPSAS entered into a loan agreement with the related company ConocoPhillips Norway Funding Ltd (COPN Funding). The loan had a limit of NOK 20 billion and a term of 5 years. The agreed interest rate was NIBOR 6M + 1.25%. NIBOR 6M is a current interest rate (benchmark interest rate), while 1.25% is a fixed interest rate – the so-called «interest margin». The interest margin of 1.25% corresponds to 125 so-called basis points (bp). The loan facility was primarily established to finance investments in two fields on the Norwegian continental shelf, where the company is the operator. From previous years, the company has had several long-term loans in USD and NOK with an interest margin of 37.5 bp above a reference interest rate of either LIBOR or NIBOR. The loans have previously been rolled out and renewed for five years at a time. The interest margin of 37.5 bp was fixed. With effect from 27 October 2015, the loans in USD were combined into one loan in NOK. The interest margin of 37.5 bp was continued. The company’s loan of May 2013 did not replace any previous loans. The fixed interest margin of 1.25% on the company’s borrowing limit of May 2013 had been based on an interest rate analysis prepared by PwC in connection with the borrowing (“Intercompany interest rate analysis”, hereinafter the “interest rate analysis”) on 3 May 2013. On 8 March 2019, the Oil Tax Office issued a decision where the interest rate of the May 2013-loan was set at NIBOR 6M + 75 bp. This led to the following conclusion: «The determinations for the income years 2013-2017 are changed accordingly by ConocoPhillips Skandinavia AS’ interest expenses on interest-bearing debt being reduced by the following amounts: Income year 2013: NOK 27,875,000 Income year 2014: NOK 52,487,500 Income year 2015: NOK 70,972,223 Income year 2016: NOK 71,909,445 Income year 2017: NOK 63,777,778 » The Court of Appeal notes that when basis points are discussed in the following, reference is made to basis points beyond 6 months NIBOR, unless otherwise specified. The reason for this is that the borrowing rate is agreed as NIBOR 6M + 125 bp. COPSAS filed a lawsuit with the District Court where the decision issued by the tax authorities was upheld. COPSAS then filed an appeal with the Court of Appeal. Judgement of the Court of Appeal The Court dismissed the appeal and decided in favour of the Norwegian tax authorities. Excerpts “The Court of Appeal further points out that COPSAS has on average used around half the borrowing limit, and that the borrowing limit of NOK 20 billion was mostly used to borrow NOK 14 billion. Although it was not clear at the time of entering into the agreement how large a part of the loan framework was to be used, there is much to suggest that if it had been a loan between independent parties, COPSAS would not have taken out a loan of NOK 20 billion and paid for flexibility , when it has been shown that only a limited part of the borrowing limit was used. The Court of Appeal also points out that the loan agreement contains a clause on interest rate adjustment if COPSAS changes its “credit standing” during the term. This means that the agreement allows the interest rate to be adjusted if the loan is drawn up in full, and this can thus also reduce the value of the opportunity to use the entire loan framework. The question then is whether it should be adjusted for swap, ie currency risk. The experts, Hoddevik and Steen, explained why it is appropriate for companies operating on the Norwegian continental shelf to also borrow money in Norwegian kroner. There will be an extra risk if the companies borrow in dollars, when other income and expenses, including tax, are calculated in kroner. At the same time, a loan of the magnitude relevant in this case must be raised in the international dollar market. The Norwegian bond market is too small for it to be relevant to borrow such amounts in the Norwegian bond market. If COPSAS had borrowed in the market, they would therefore have had to take out a loan in dollars and pay a premium for the loan to be converted to Norwegian kroner. The various interest rate indices referred to do not take swap into account, but are based on loans taken out in the same currency in which they are to be repaid. The Court of Appeal points out that no consideration has been agreed for this component either, and that it can indicate that the parties have considered that no swap costs should be calculated. One view is that for the lender, COPN Funding, the exchange risk can go both ways, ie that it is basically coincidental whether there is a gain or a loss by the lender operating in the dollar market, while lending in kroner. When it is an intra-group loan, there is no basis for calculating consideration for swap as losses and gains are within the group. As emphasized by the State, compensation for counterparty risk is then not relevant. The Court of Appeal refers here to LG-2016-92595, the Hess judgment, The Court of Appeal considers that when the loan has been raised in Norwegian kroner and is to be repaid in Norwegian kroner, no adjustments shall be made as if the loan had been agreed in dollars, which would then be paid out and repaid in Norwegian kroner. In the same way ...

The question in the case was whether a Norwegian company had received an arm’s length price when selling gas to a French company in the same group. Judgement of the Court of Appeal The Court of Appeal came to the conclusion that the agreed transfer price had not been at arm’s length and this meant a reduction in income for the Norwegian company. The Appeal Board for Petroleum Tax’s decision was upheld.  Click here for English translation. Click here for other translation LG-2021-8008-–-UTV-2022-697-ORG ...

Article 260-8 of the Colombian Tax Statute established which taxpayers were obliged to file Transfer pricing documentation. The rule established two requirements for income taxpayers to be obliged to file DIIPT in the year 2010, the first is to have obtained a gross equity on 31 December of the taxable period of 100.100,000 UVT ($2,455,500,000) or gross income of 61,000 UVT ($1,497,855,000), and the second is to have carried out operations with economic associates or related parties domiciled abroad. In the present case, a Colombian branch of Petroleum Exploration International S.A presented a total gross income of $18,496,716,000 in the income tax return for 2010, and therefore complied with the first requirement. As for the second requirement, it is noted that according to the certificate of existence and legal representation of Colombian branch, it is a branch of the company Petroleum Exploration International S.A. whose principal place of business is Panama. (…) In the accounting inspection report of 2 April 2013, the company’s accountant stated that Ecopetrol paid directly for the oil services provided by the plaintiff to its parent company, which then made the payment to Forum Absolute Return Fund LTD abroad. Consequently, it is evident that there were transactions between the branch and its related company abroad, when the parent company was paid for services provided by the company in Colombia. The aforementioned evidence shows that the company that owned the drill was Petroleum Exploration Internacional S.A. of Panama, which, as recorded in the accounts, was leased by the Colombian branch to provide services in Colombia, but part of the payment went to the company Forum Absolute Return Fund LTD. Hence, there were transactions between the branch and its parent company during the taxable period 2010, so it was obliged to present transfer pricing documentation in the aforementioned period. (…) It is clarified that the acts being challenged do not disregard the principle of the prevalence of substantive law over formal law, as it was not appropriate to declare the drill as an asset of the company, since, as stated by the plaintiff in the appeal, the asset was acquired by its parent company, and therefore the branch could not depreciate an asset that did not belong to it. Moreover, the date of importation of the drill does not affect the fact that transactions had taken place between the branch and its parent company in 2010. (…) According to the above, the branch was obliged to file transfer pricing documentation in 2010 as it exceeded the gross income ceiling, and had carried out operations with its parent company abroad. FORMAL SOURCE: LAW 1437 OF 2011 (CPACA) – ARTICLE 188 / LAW 1564 OF 2012 (GENERAL CODE OF THE PROCESS) – ARTICLE 365 NUMERAL 8 Click here for English translation Click here for other translation Colombia vs Petroleum Exploration International November 2021 ...

K-GAS Corp had issued loans and performance guarantees to overseas subsidiaries but received no remuneration in return. The tax authorities issued an assessment where additional taxable income was determined by application of the arm’s length principle. An appeal was filed by K-GAS with the district court. Decision of the Court The court upheld the decision of the tax authorities and dismissed the appeal of K-GAS Corp. Excerpts related to loans “In light of the following circumstances, which can be known by the above acknowledged facts, in light of the above legal principles, it is not economically reasonable for the Plaintiff to decide not to receive interest on the self-financing portion of the case loan to the subsidiaries in question 1 until the end of the exploration phase, and there is no illegality in the method of calculating the normal price of the Defendant. … …the Plaintiff lent the money raised from the outside to the subsidiaries in the first issue, and in this type of financial transaction, it is the most reasonable and direct method to view the interest obtained by adding a certain profit to the borrowing interest corresponding to the procurement cost according to the cost plus method as the normal price (the Plaintiff also argued for the above effect on the normal price on the premise of ‘general loan and loan transactions’ (page 18 of the Complaint)). However, the Defendant not only calculated the normal price by applying the interest rate on the loan in this case, which is lower than the borrowing interest rate of the self-funding in this case, but also the price is lower than the interest rate calculated according to the Comparable Third Party Price Act when the Plaintiff lends funds for overseas resource development projects to Australian subsidiaries at the same time, so it cannot be considered that the normal price calculated by the Defendant exceeds the range of the price that is applied or is expected to be applied in ordinary transactions.” Excerpts related to performance guarantees “In light of the following circumstances, which can be seen by the above acknowledged facts, in the light of the legal principles seen in Paragraph (1) of A.A., it is not economically reasonable for the Plaintiff to not receive the performance guarantee fee from the subsidiaries, etc. of the third issue on the performance guarantee in this case, and there is no illegality in the method of calculating the normal price of the Defendant. … As seen earlier, the Plaintiff has received a performance guarantee fee when he/she guarantees the performance of the liability to pay the price under a gas sales contract of another overseas subsidiary or second-tier company. In cases of the performance guarantee in this case, it is deemed that there exists a reasonable ground not to receive the performance guarantee fee, in distinction from the above transaction, only a difference in the details of the principal obligation subject to the guarantee exists. The Plaintiff also explains that the above transaction is a payment guarantee for the business of an overseas subsidiary in the same position as an independent third-party company, so it is natural to receive a commission in return for the risks borne by the Plaintiff. There is no reason to deem otherwise in that the performance guarantee in this case is also for the business carried out by the subsidiary, etc., which is independent from the Plaintiff. The calculation of the reasonable performance guarantee fee by the Defendant for the provision of performance in this case is based on the risk approach that is the method of calculation of the performance guarantee fee that the Plaintiff has actually received from the overseas subsidiary, and as seen earlier, it is hard to deem that there is any illegality in the method of calculation of the reasonable performance guarantee fee by the Defendant, unless it is impossible to deem that the Plaintiff has no risk of performance guarantee in this case.” Click here for English translation Click here for other translation Korea 22561 Nov 2021 ORG ...

Interoil Colombia Exploration and Production S.A. paid it foreign parent for cost related to exploration and administrative services, and for tax purposes these costs had been deducted in the taxable income. In total $3,571,353,600 had been declared as operating expenses for geological and geophysical studies carried out in the exploratory phase of an oil project and $5.548.680.347 had been declared for administrative services rendered from its parent company abroad Following an audit the tax authorities issued an assessment where these deductions was denied. In regards of cost related to exploration, these should have been recorded as a deferred charge amortisable over up to five years, according to articles 142 and 143 of the Tax Statute. In accordance with Article 142, these investments are recorded as deferred assets and are also declared for tax purposes. (…) According to the general accounting regulations – Decree 2649 of 1993 – deferred assets are part of the company’s assets, and correspond to anticipated expenses or goods and services from which benefits are expected to be obtained in other periods. These items are recorded as assets until the corresponding economic benefit is fully or partially consumed or lost. In other words, as deferred assets are utilised, they are transferred to amortised expense. Expenses that have not been used by the company must be kept in the assets. But once the deferred asset starts to help generate income, it can be incorporated as an expense. In regards of deductions of $5.548.680.347 for payments made by Interoil Colombia to its parent company abroad for administration services, these were denied because Interoil Colombia did not, as required by law, withhold tax at source. Decision of the Administrative Court In a split decision the appeal of Interoil Colombia was dismissed and the assessment upheld. Excerpts Disallowed deductions for payments related to exploration “… as there is a precise regulation within the tax regulations on the form and requirements needed to make the amortisation of investments deductible, the application of accounting rules is not appropriate, in accordance with the provisions of article 136 of Decree 2649 of 1993 and in application of the special rules that are applied in preference to the general rules. Likewise, with regard to the method for the amortisation of investments, the Section pointed out that : “Article 143 E.T. contains, in a perfectly independent and separate manner, the requirements for the amortisation of each of the situations set out therein. Thus, in subsection 1° it refers to the investments described in article 142 and, with respect to these, it orders that ‘they may be amortised in a term of no less than five (5) years, unless it is demonstrated that, due to the nature or duration of the business, the amortisation must be made in a shorter term’. “It then sets out, in paragraphs 2 and 3, special cases of amortisation different from the general one, for which it determines particular requirements. Subsection 2 refers to when it is intended to amortise ‘Costs of acquisition or exploration and exploitation of non-renewable natural resources’, in which case, amortisation may be made ‘based on the system of technical estimation of the cost of operating units or by straight-line amortisation, over a period of not less than five (5) years’; and paragraph 3 refers specifically to ‘contracts where the taxpayer contributes goods, works, installations or other assets such as concession, shared risk or joint venture contracts’, in which case, the term for amortisation is limited to the duration of the contract until the moment of transfer, and, for the latter, it orders that the amortisation be carried out ‘by the straight line or balance reduction methods, or by another method of recognised technical value authorised by the National Tax and Customs Directorate’. The application of the successful efforts method is therefore rejected, taking into account that, as stated above, articles 142 and 143 of the E.T. are applicable, which indicate how the expenses incurred by the plaintiff in the exploratory stage should be treated. It is reiterated that the cited rules mention the accounting technique regarding the registration of the investment, either as a deferred asset or cost, and do not refer to the accounting to determine the conditions of amortisation, which are clearly described in Article 143 of the E.T. In this way, the Court finds that the accused acts are in accordance with the law in that they rejected the deduction for operating expenses for $3,571,353,600 and took this value as a deferred asset that can be amortised so that once the expected income is generated, it is incorporated as an expense and recognised as such. In this sense, article 69 of Decree 187 of 1975, which refers to the amortisation of investments or losses, foresees that in cases in which the explorations are unsuccessful or non-productive, the expenses in exploration, prospecting or installation of wells or mines can be amortised with income from other productive exploitations of the same nature. In other words, in the event that the project associated with the expenditure for geological and geophysical studies proves to be unsuccessful, the claimant can amortise these values with the income from other productive exploitations of the same nature.” Disallowed deductions for payments related to administrative services “Payments made to parent companies or offices abroad for administration or management expenses, as well as those recognised for royalties and exploitation or acquisition of intangibles, are deductible from their income as a cost or deduction, provided that the respective withholding at source of income tax and remittances has been made on such payments, and furthermore, that the same constitutes national source income for the person who receives it. Therefore, if the payments to the parent companies are taxable in Colombia and, therefore, are subject to withholding tax, they will be deductible for whoever pays them, obviously in the case of income considered to be of national source; on the contrary, if the payments referred to are of foreign source and, therefore, are not taxable through the withholding ...

Ukrainian company “PJSP Gals-K” had been involved in various controlled transactions – complex technological drilling services; sale of crude oil; transfer of fixed assets etc. The tax authority found, that prices had not been determined in accordance with the arm’s length principle and issued a tax assessment. Gals-K disagreed and filed a complaint. The Administrative Court dismissed the tax assessment and this decision was later upheld by the Administrative Court of Appeal. Judgement of the Supreme Administrative Court The Supreme Court set aside the decisions of the Court of Appeal and remanded the case to the court of first instance for a new hearing. The court considered that breaches of procedural and substantive law by both the Court of Appeal and the Court of First Instance have been committed, and the case should therefore be referred to the Court of First Instance for a new hearing. Excerpts “Thus, in order to properly resolve the dispute in this part, the courts must determine, on the basis of the relevant and admissible evidence, whether the oil sales by the plaintiff to the non-resident GFF AG (Swiss Confederation) are controlled transactions within the meaning of paragraph 39. 2.1 of Article 39.2 of Article 39 of the Code of Ukraine. In this case, when establishing the validity of the position on the extension of the provisions of Article 39 of the CP of Ukraine to other legal relationships, the courts should also assess the validity of the opinion of the State Traffic Department regarding the improper valuation by the caller of a controlled operation when using the method of “comparative uncontrolled price”. For example, in the SO No. 35/4, the price that was set at the auction (auction certificate No. A185-186 of 23 January 2014 for the sale of oil on the domestic market) was reversed as the price of the export of oil from GFF AG to Orlen Lietuva.” “According to the appellant’s position, the transfer of the tangible fixed assets by the managing directorate of SD No 35/4 in the name of all the parties to the contract to one of the parties (PJSC “Ukrnafta”) in the person of its structural division (NGVU “Chernihivnaftogaz”) cannot be considered a sale, since the goods were actually transferred to the entire legal entity of PJSC “Ukrnafta”. In connection with the above-mentioned circumstances, during the cassation examination of the case, the plaintiff also pointed to the absence of legislative grounds for considering such a transaction as controlled, and the mention of the latter in the Report on Controlled Transactions constitutes a mistake made by the relevant administrative department. In accordance with this position, the courts of the previous instances have found that the use of the “resale price” method was unjustified. The College of Judges considers that, in resolving the dispute between the parties in this part, the courts of the previous instances did not fully appreciate the parties’ arguments on the dispute, which resulted in an incorrect assessment of the circumstances of the case. It should be noted that the sub-clauses of clause 14.1.139 of Article 14.1 and clause 153.14.5 of Article 153.14 of the Ukrainian Civil Code provide that for the purposes of the disclosure the obligations of the parties to the joint venture under the Joint Venture Agreement are specific civil law contracts. At the same time, the accounting treatment of transactions involving the transfer/sale of tangible goods has been subject to respect and legal scrutiny by the courts. In order to properly resolve the dispute in this part, the following should have been addressed: who and for what money the goods were delivered; to whom (PJSC “Ukrznafta” as a separate legal entity or PJSC “Ukrznafta” as a member of the Agreement No. 35/4) and on what legal basis the goods were exchanged/sold; how the relevant transaction was recorded in the accounting records and whether such recording corresponds to the primary documents that were created in connection with the transfer/sale of the goods.” “The Collegium of Judges notes that, in addition to the above-mentioned deficiencies in the absence of primary documents and accounting documents, which were created for the results of the business transactions, the documentation from the transfer pricing, which was provided to the audit, is also absent (volume 1, page 30). The above makes it impossible to establish officially the conditions of the case as to the method used by the caller, the arguments of the latter in the absence of the conditions for the inclusion of the joint operation in the controlled order with the self-inclusion of the operations of PJSC “Ukrnafta” in the Report for 2014 with the inclusion of the methods 303 “costs plus” and 305 “revenue allocation”, whereas in the letter No 1855/10 dated 22 March 2017 the caller informed the State Tax Administration about the use of only the 303 “cost plus” method.” Click here for English translation Click here for other translation 620-1767-19 ORG ...

Ensco Gerudi provided offshore drilling services to the petroleum industry in Malaysia, including leasing drilling rigs, to oil and gas operators in Malaysia. In order to provide these services, the Ensco entered into a Master Charter Agreement dated 21.9.2006 (amended on 17.8.2011) (“Master Charter Agreement”) with Ensco Labuan Limited (“ELL”), a third-party contractor, to lease drilling rigs from ELL. Ensco then rents out the drilling rigs to its own customers. As part of the Master Charter Agreement, Ensco agreed to pay ELL a percentage of the applicable day rate that Ensco earns from its drilling contracts with its customers for the drilling rigs. By way of a letter dated 12.10.2018, the tax authorities initiated its audit for FY 2015 to 2017. The tax authorities issued its first audit findings letter on 23.10.2019 where it took the position that the pricing of the leasing transactions between the Applicant and ELL are not at arm’s length pursuant to s 140A of the Income Tax Act 1967 (“ITA”). The tax authorities proposed that the profit earned by ELL should remain with the Ensco by reducing the cost of the leasing asset by 20% or equivalent to the margin obtained by ELL. Ensco disputed the tax assessment and brought the case to court for an appeals review. Decision of the High Court The High Court granted orders in terms of Ensco’s application allowing an appeal. Excerpts “It has been said that additional assessment is rooted in fairness and that there is a duty on the part of the Respondent [tax authorities] being an important public authority to give its reasons more so, when the issues pertaining to transfer pricing are complex matters and can never be straightforward. As the Applicant [Ensco] has submitted and this Court agrees, that at the very least, the most basic Transfer Pricing Report by the Respondent will be able to shed some light on the Applicant on this issue because without some basis, how would the Applicant be able to adequately defend itself before the Special Commissioners of Income Tax. The Applicant’s [Ensco] basis and justifications for the pricing of the leasing transactions is definitely in stark contrast to the Respondent’s failure to provide its own Transfer Pricing Report to the Applicant. In the present matter, exceptional circumstances of the case have been established at the leave stage which is a starting point in judicial review cases. Illegality, unlawful treatment, error of law and failure to adhere to legal principles established by the Courts tantamount to an excess of jurisdiction and all of which this Court finds have been demonstrated by the Applicant. ensco gerudi v kphdn ...

In 2013 “Related Party B.V” entered into an agreement with “X BV” for the provision of transportation- and support services. The Dutch tax authority suspected that the parties were affiliated within the meaning of Section 8b of the Corporate Income Tax Act 1969. Decision of Court The Court decided in favor of the tax authority. Based on the documents in the case, the tax authority rightly suspected that there was an affiliation within the meaning of Section 8b of the Corporate Income Tax Act. The tax authority was therefore entitled to reasonably issue information decisions for the Vpb for 2013 to 2016 inclusive. Nemo Tenetur Principle – self incrimination “Related Party B.V” argued that it’s right not to incriminate itself had been violated because the information decision(s) had been issued to examine the possibility of imposing a fine. In this regard, the court observed that pursuant to the law a taxpayer is obliged to provide the Inspector with all data and information that may be relevant to his taxation and that it is ultimately up to the court, which decides on the fine or punishment, to ensure that a taxpayer can effectively exercise his right not to cooperate in self-incrimination. Now that in the present proceedings no tax fine has been imposed yet, the appeal to the nemo tenetur principle does not succeed. Click here for English translation Click here for other translation ECLI_NL_RBGEL_2021_3382 ...

In 2011, Petrolia SE established a wholly owned subsidiary in Norway – Petrolia Noco AS – to conduct oil exploration activities on the Norwegian shelf. From the outset, Petrolia Noco AS received a loan from the parent company Petrolia SE. The written loan agreement was first signed later on 15 May 2012. The loan limit was originally MNOK 100 with an agreed interest rate of 3 months NIBOR with the addition of a margin of 2.25 percentage points. When the loan agreement was formalized in writing in 2012, the agreed interest rate was changed to 3 months NIBOR with the addition of an interest margin of 10 percentage points. The loan limit was increased to MNOK 150 in September 2012, and then to MNOK 330 in April 2013. In the tax return for 2012 and 2013, Petrolia Noco AS demanded a full deduction for actual interest costs on the intra-group loan to the parent company Petrolia SE. Following an audit for FY 2012 and 2013, the tax authorities concluded that parts of the intra-group loan should be reclassified from loan to equity due to thin capitalization. Thus, only a deduction was granted for part of the interest costs. Furthermore, the authorities reduced the interest rate from 10 per cent to 5 per cent. For the income years 2012 and 2013, this meant that the company’s interest costs for distribution between the continental shelf and land were reduced by NOK 2,499,551 and NOK 6,482,459, respectively, and financial expenses by NOK 1,925,963 and NOK 10,188,587,respectively. The assessment was first brought to the Court of Oslo where a decision in favour of the tax authorities was issued in November 2019. This decision was appealed by Petrolia Noco AS to the Court of Appeal. Judgement of the Court The Court of Appeal also decided in favour of the Norwegian tax authorities. Excerpts “The Court adds for this reason that the appellant had higher debt ratio than the company could have had if the loan should have been taken up from an independent lender. In the Court of Appeal’s view, the fact that the appellant actually took out such a high loan as the intra-group loan is solely due to the fact that the lender was the company’s parent company. For this reason, there was a ” reduction ” in the appellant income ” due to” the community of interest. There is thus access to discretion in accordance with the Tax Act § 13-1 first paragraph.” “Thus, there is no basis for the allegation that the Appeals Board’s decision is based on an incorrect fact on this point, and in any case not a fact to the detriment of the appellant. Following this, the Court of Appeal finds that there are no errors in the Appeals Board’s exercise of discretion with regard to the determination of the company’s borrowing capacity. The decision is therefore valid with regard to the thin capitalization.” “The Court of Appeal otherwise agrees with the respondent that the cost- plus method cannot be considered applicable in this case. Reference is made to LB-2016-160306, where it is stated : For loans, however, there is a market, and the comparable prices are margins on loans with similar risk factors at the same time of lending . The cost- plus method provides no guidance for pricing an individual loan. An lender will, regardless of its own costs , not achieve a better interest rate on lending than what is possible to achieve in the market. The Court of Appeal agrees with this, and further points out that the risk picture for Petrolia Noco AS and Petrolia SE was fundamentally different. The financing costs of Petrolia SE therefore do not provide a reliable basis for assessing the arm’s length interest rate on the loan to Petrolia Noco AS.” “…the Court of Appeal can also see no reason why it should have been compared with the upper tier of the observed nominal interest margins in the exploration loans between independent parties. In general, an average such as the Appeals Board has been built on must be assumed to take into account both positive and negative possible variables in the uncontrolled exploration loans in a responsible manner. The Court of Appeal cannot otherwise see that the discretion is arbitrary or highly unreasonable. The decision is therefore also valid with regard to the price adjustment.” Click here for translation NO vs Petrolia march 2021 Dom_ LB-2020-5842 ...

Azot is a producer of mineral fertilizers and one of the largest industrial groups in Ukraine. Following an audit the tax authorities concluded that Azot’s export of mineral fertilizers to a related party in Switzerland, NF Trading AG, had been priced significantly below the arm’s length price, and moreover that Azot’s import of natural gas from Russia via a related party in Cyprus, Ostchem Holding Limited, had been priced significantly above the arm’s length price. On that basis, an assessment of additional corporate income tax in the amount of 43 million UAH and a decrease in the negative value by 195 million UAH was issued. In a decision from 2019 the Administrative Court ruled in favor of the tax authorities. This decision was then appealed by Azot to the Supreme Administrative Court. The Supreme Administrative Court dismissed the appeal and decided in favor of the tax authorities. Click here for translation Єдиний державний реєстр судових рішень ...

The disputed issue concerns the purchase prices of natural gas by SC A from an affiliated company SC B. By orders of the National Energy Regulatory Authority (NERA), the prices of supply of natural gas to domestic and non-domestic consumers were regulated and fixed, but not the price at which SC A purchased it from the SC B. The tax authority issued an assessment where the price of the controlled gas transaction was determined by reference to profit level indicators of comparable businesses. SC A brought the decision to the Romanian courts. Judgement of the Court of Appeal The appeal of SC A was dismissed and the assessment of the tax authorities upheld. Excerpt “In the present case, in order to adjust the expenses for the cost of the goods purchased from SC “B.” SRL, based on the level of the central market trend, the tax body used the information provided by the ORBIS and FISCNET applications. Following the comparative analysis of the information provided by the two IT applications, the tax body identified 22 potentially comparable companies in Romania, of which only one met the qualitative criteria, which is why it correctly moved to a higher search level, namely that of the European Union, identifying 6 companies that were comparable in terms of quantity and quality. In this regard, it was noted that, according to Article 8 of OPANAF No 442/2016, transactions between related persons are considered to be carried out according to the market value principle if the financial indicator of the transaction/transaction value (margin/profit/price) falls within the range of comparison. The following provisions shall be respected in determining the comparator range: 1. the comparability analysis will consider territorial criteria in the following order: national, European Union, pan-European, international; 2. reasonable availability of data at the time of transfer pricing or at the time of their documentation, for which the taxpayer/payer being verified provides supporting documentation for the data used at the time of transfer pricing; 3. the margin of comparison is the range of price or margin/profit values for comparable transactions between independent comparable companies; 4. for the determination of outliers, the margin of comparison shall be divided into 4 segments. The maximum and minimum segments represent the extreme results. The range of comparison is the range of price or margin/output values for comparable transactions between independent comparators, after eliminating the extreme results from the margin of comparison; 5. the extreme results within the margin of comparison shall not be used in determining and calculating the estimate/adjustment; 6. if the median value cannot be identified (the median value is the value at the middle of the range of comparison), the arithmetic mean of the two middle values of the range of comparison shall be taken. In so far as the tax authority complied with the legal procedure for estimating the purchase prices, as required by ANAF Order 442/2016, the appellant’s criticisms are unfounded, especially as they do not essentially concern the specific procedure carried out by the tax authority. Consequently, the appellant’s criticisms, which relate to the ground for annulment relied on, are unfounded, which is why the appeal was dismissed as unfounded.” Click here for English translation Click here for other translation Romania vs SC A Case no 238-12032021 ...

Companies carrying on “oil-related activities” are subject to both corporation tax and a “supplementary charge”. “Oil-related activities” are treated as a separate trade and the income from them represents “ring fence profits” on which corporation tax is charged. The “supplementary charge” is levied on “adjusted” ring fence profits, in calculating which financing costs are left out of account. Between 2006 and 2011, the supplementary charge amounted to 20% of adjusted ring fence profits. On 23 March 2011, however, it was announced that the supplementary charge would be increased to 32% from midnight. The change in rate was subsequently carried into effect by section 7 of the Finance Act 2011, which received the royal assent on 19 July 2011. Total E&P, previously Maersk Oil North Sea UK Limited and Maersk Oil UK Limited, carried on “oil-related activities” and so were subject to the supplementary charge. The question raised by the appeal is how much of each company’s adjusted ring fence profits for 2011 are liable to the charge at 20% and how much at 32%. The accounting period which ran from 1 January to 31 December 2011 and so straddled the point at which the supplementary charge was raised. The approach elected by Maersk Oil North Sea UK Limited and Maersk Oil UK Limited – an “actual” basis in place of the time apportionment basis – resulted in all the adjusted ring fence profits for the 2011 accounting period being allocated to the period before 24 March (“the Earlier Period”) rather than that from 24 March (“the Later Period”) and so in escaping the “new” 32% rate of supplementary charge. HMRC did not consider the basis on which Maersk Oil North Sea UK Limited and Maersk Oil UK Limited had approached apportionment of their adjusted ring fence profits to be “just and reasonable”. The Court of Appeal concluded that treating each time period as if they were two separate accounting periods, and allocating income, expenditure and allowances to the periods accordingly was just and reasonable. Capital allowances could be treated similarly for notionally separate periods. UK vs TOTAL E&P 2020 ...

A / S Norske Shell runs petroleum activities on the Norwegian continental shelf. By the judgment of the Court of Appeal in 2019, it had been decided that there was a basis for a discretionary tax assessment pursuant to section 13-1 of the Tax Act, based on the fact that costs for research and development in Norway should have been distributed among the other group members. According to section 13-1 third paragraph of the Norwegian Tax Act the Norwegian the arms length provisions must take into account OECD’s Transfer pricing guidelines. And according to the Court of Appeal the Petroleum Tax Appeals Board had correctly concluded – based on the fact – that this was a cost contribution arrangement. Hence the income determination then had to be in accordance with what follows from the OECD guidelines for such arrangements (TPG Chapter VIII). The question before the Supreme Court was whether this additional income assessment should also include the part of the costs charged to A/S Norske Shell’s license partners in recovery projects on the Norwegian continental shelf. The Supreme Court concluded that the tax assessment should not include R&D costs charged to A/S Norske Shell’s license partners on the Norwegian continental shelf. Click here for translation Norges Høyesterett - Dom HR-2020-1130-A ...

The principal activity of Shell Services Asia Sdn Bhd in Malaysia is to provide services to related companies within the Shell Group. For FY 2011 – 2016 the company was part of a contractual arrangement for the sharing of services and resources within the Shell Group as provided in a Cost Contribution Arrangement. The tax authorities conducted a transfer pricing audit, and based on the findings, issued a tax assessment, where the Cost Contribution Arrangement had instead been characterised as an intra-group services arrangement. As a result the taxable income was adjusted upwards by imposing a markup on the total costs of the services provided for fiscal years 2012, 2014, 2015 and 2016. Consequently, the company had to pay the additional taxes in the amount of: RM 3,474,978.44; RM 2,559,754.38; RM 7,096,984.69; RM 2,537,458.50; RM 15,669,176.01. The company did not agree with the proposal and an appeal for leave was filed with the High Court related to statutory powers/legal jurisdiction of the authorities. Courts decision The appeal was dismissed. The judgement by the High Court only relates to proceedings and no views is expressed regarding the tax assessment. Excerpt “this judgement concerns solely DGIR’s decision on s 140A ITA which do not fall within the 3 Catagories. There may be decisions of DGIR under the ITA which fall within any one or more of the 3 Catagories and in such cases, leave of court should therefore be granted pursuant to O 53 r 3(1) RC for a judicial review of those decisions.” Malaysia vs Shell_High_Court BA-25-68--08-2019 ...

In 2011, Petrolia SE established a wholly owned subsidiary in Norway – Petrolia Noco AS – to conduct oil exploration activities on the Norwegian shelf. From the outset Petrolia Noco AS received a loan from the parent company Petrolia SE. The written loan agreement was first signed later on 15 May 2012. The loan limit was originally MNOK 100 with an agreed interest rate of 3 months NIBOR with the addition of a margin of 2.25 percentage points. When the loan agreement was formalized in writing in 2012, the agreed interest rate was changed to 3 months NIBOR with the addition of an interest margin of 10 percentage points. The loan limit was increased to MNOK 150 in September 2012, and then to MNOK 330 in April 2013. In the tax return for 2012 and 2013, Petrolia Noco AS demanded a full deduction for actual interest costs on the intra-group loan to the parent company Petrolia SE. Following an audit for FY 2012 and 2013, the tax authorities concluded that parts of the intra-group loan should be reclassified from loan to equity due to thin capitalization. Thus, only a deduction was granted for part of the interest costs. Furthermore, the authorities reduced the interest rate from 10 per cent to 5 per cent. For the income years 2012 and 2013, this meant that the company’s interest costs for distribution between the continental shelf and land were reduced by NOK 2,499,551 and NOK 6,482,459, respectively, and financial expenses by NOK 1,925,963 and NOK 10,188,587,respectively. The Court decided in favor of the Norwegian tax authorities. Click here for translation Norway vs Petrolia Noco ASnew ...

The Transfer Pricing Department of the General Directorate of Revenue of the Ministry of Economy and Finance, through Resolution 201-1429 of 24 October 2014, decided to sanction the taxpayer Chevron Products Antilles, LTD, now Chevron Panama Fuels Limited, with a fine of one million balboas (B/. 1,000,000.00), for failure to file the Transfer Pricing Report-Form 930 for the 2012 tax period. As a result of the issuance of the resolution mentioned in the previous paragraph, Chevron’s legal representative filed an appeal for reconsideration with the tax authority, which was resolved by Resolution 201-1321 of 1 March 2016, through which the accused act was maintained in all its parts. This resolution was notified to the taxpayer on 8 April 2016. Chevron then filed an appeal before the Administrative Tax Court, which by Resolution TAT-RF-057 of 22 May 2019, confirmed the provisions of the main administrative act and its confirmatory act, being notified of this appeal ruling on 18 June 2019, thus exhausting the governmental channels. Chevron then appealed to the Third Chamber, on 30 July 2019, in order to declare null and void, as illegal, the administrative resolution through which the General Directorate of Revenue of the Ministry of Economy and Finance, decided to sanction Chevron Products Antilles, LTD, now Chevron Panama Fuels Limited, with a fine of one million balboas (B/. 1,000,000.00), and that as a consequence of such declaration, it be resolved that Chevron has not failed to comply with the obligation to file the transfer pricing report-form 930 for the fiscal period 2012; that it should not pay any fine or sanction; and that, in the event that its principal had paid the fine, the amount of money should be returned to it. In support of its claim, Chevron points out that the contested administrative act does not recognise the right of its principal to be exempt from paying income tax, due to its location in an oil-free zone and for carrying out foreign operations, whose costs and expenses come from foreign sources; in other words, it is excluded from taxable income. In addition to the above, Chevron alleges that by not reporting transactions with related parties abroad, which have the effect of income, costs or deductions in the determination of the taxable base for the calculation of income tax, is under no obligation to file the transfer pricing report (form 930); for which reason, the sanction imposed violates the principles of due process and strict legality. The Judgement of the Court The court dismissed the appeal of Chevron and upheld the fine issued for not filing tranfer pricing documentation. Excerpt: “From the foregoing, it follows that the plaintiff, Chevron Panama Fuels Limited, was obliged to include in the income tax return filed, the data relating to operations with related countries tax residents of other jurisdictions together with the submission of the transfer price report-form 930, within six (6) months after the date of the close of the tax period, a requirement stipulated in article 762-I of the Tax Code, which states the following: “Article 762-1. Transfer pricing report. Taxpayers must submit, on an annual basis, a report of the operations carried out with related parties, within six (6) months following the closing date of the corresponding tax period, under the terms established in the regulations to be drawn up for this purpose. Failure to submit the report shall be punishable by a fine equivalent to 1% of the total amount of the related party transactions. For the purpose of calculating the fine, the gross amount of t he transactions shall be considered, regardless of whether they represent income, costs or deductions. The fine referred to in this paragraph shall not exceed one million balboas (B/.1,000,000.00). The sworn income tax return shall include the data related to related operations, as well as their nature or other relevant information, under the terms provided therein. The Directorate General of Revenue shall adapt the internal administrative procedures in order to comply with this regulation”. (Emphasis added). It is for the above reasons that the Directorate General of Revenue imposed the corresponding fine on the plaintiff taxpayer, Chevron Panama Fuels Limited, since it failed to file the transfer pricing report form 930, within six (6) months after the closing date of the tax period, as required by article 762-I of the aforementioned Tax Code.” Click here for English translation Click here for other translation V-1060-19-559-19 Chevron Panama Fuels Limited (Anteriormente denominada Chevron Products Antilles Limited) vs MEF ...

The Ukrainian group Rivneazot imports natural gas from – and exports mineral to – foreign related companies. The tax authority carried out an audit and concluded that the controlled prices of these transactions had not been determined in accordance with the arm’s length principle, which had resulted in an understatement of taxable income. Rivneazot disagreed. According to the company the CUP method had correctly been applied to the controlled natural gas import transactions and the TNMM had correctly been applied to the controlled export transactions. In 2018 the Administrative Court decided in favor of Rivneazon and set aside the tax assessment. The court concluded that information provided by the company were sufficient to use the preferred CUP method with a defined market price range for natural gas. The decision was then appealed to the Administrative Court of Appeals. The Court of Appeal upheld the decision of the Administrative court. This decision was then appealed by the tax authorities to the Supreme Administrative Court. Judgement of the Supreme Administrative Court The Supreme Court partially set aside the decision of the Court of Appeal. According to the Supreme Administrative Court, amendments to the Tax Code of Ukraine, which took effect on 1 January 2015, introduced more clarity in regards to transfer pricing methods. The CUP method has priority (compared to other methods) in case of its applicability. However, the use of the CUP method for the controlled natural gas import transactions is not possible due to the absence of information on the underlying uncontrolled transactions. Therefore, the tax authority had rightly used the TNMM as the most appropriate method for determining the prices of these transactions. Click here for English translation Click here for other translation Ukrain vs Rivneazot Oct 2019 no 817-1737-17ORG ...

In the Saipem case the Norwegian tax authorities found that the price paid by a related party for an oil rig had not been at arm’s length and issued an assessment. The majority of judges in the Court of Appeal found that the tax assessment was valid. The tax authorities had made sound and well-reasoned assessments and concluded that the price was outside the arm’s length range. According to the decision courts may show reluctance in testing discretionary assessments, thus giving the authorities a reasonable room for pricing transactions where the value is highly uncertain. An appeal of the case to the Supreme Court was not allowed (HR-2019-2428-U). Click here for translation Norway vs Saipem August 2019 ...

Azot is a producer of mineral fertilizers and one of the largest industrial groups in Ukraine. Following an audit the tax authorities concluded that Azot’s export of mineral fertilizers to a related party in Switzerland, NF Trading AG, had been priced significantly below the arm’s length price, and moreover that Azot’s import of natural gas from Russia via a related party in Cyprus, Ostchem Holding Limited, had been priced significantly above the arm’s length price. On that basis, an assessment of additional corporate income tax in the amount of 43 million UAH and a decrease in the negative value by 195 million UAH was issued. The Court ruled in favor of the tax authorities. Click here for translation UK v Az 2019 ...

Like other sectors of the economy, there are base erosion and profit shifting risks in the mining sector. Based on the ongoing work on BEPS, the IGF (Intergovernmental Forum on Mining) and OECD has released guidance for source countries on transfer pricing in the mining sector. The transfer pricing and tax avoidance issues identified in the sector are: 1. Excessive Interest Deductions Companies may use related-party debt to shift profit offshore via excessive interest payments to related entities. “Debt shifting” is not unique to mining, but it is particularly significant for mining projects that require high levels of capital investment not directly obtainable from third parties, making substantial related-party borrowing a frequent practice. 2. Abusive Transfer Pricing Transfer pricing occurs when one company sells a good or service to another related company. Because these transactions are internal, they are not subject to market pricing and can be used by multinationals to shift profits to low-tax jurisdictions. Related-party transactions in mining can be broadly grouped into two categories: (1) the sale of minerals and/or mineral rights to related parties; and (2) the purchase or acquisition of various goods, services and assets from related parties. Developing countries require sector-specific expertise to detect and mitigate transfer mispricing in the mining sector. 3. Undervaluation of Mineral Exports Profit shifting via the pricing of mineral products sold to related parties is a major concern for many mineral exporting countries. For developing countries, these risks are elevated where government agencies lack the mineral-testing facilities required to verify the grade and quality of mineral exports, as well as detailed sector-specific knowledge of the mining transformation process and mineral product pricing. 4. Harmfull Tax Incentives Mining and exploration tax incentives are common in developing countries. While tax incentives could encourage expansion of the sector, they may also lead to excess transfers of the gains from countries. It is unrealistic to expect that developing countries will forego incentives entirely due to the pressures of attracting investment. However, it is important that countries understand when tax incentives may be appropriate, how companies are likely to respond to incentives, and the distinction between tax incentives that permanently reduce taxes and from provisions affecting timing impacts. 5. Tax Stabilisation Clauses Fiscal stabilization clauses are problematic from a tax perspective because they can freeze the fiscal terms in the contract such that changes in tax law may not be applicable to existing mines, foregoing significant government revenue. 6. International Tax Treaties Developing countries consistently raise concerns about tax treaty abuse. Countries with abundant mineral resources need particular assistance in this area, considering how treaty provisions might have a significant impact on taxes imposed on the mining sector. 7. Offshore Indirect Transfers of Mining Assets Transfers of ownership of company assets (or the companies themselves) can generate significant income, which many countries seek to tax as capital gains. Transactions may be structured to fall outside the mining country’s tax base by selling shares in an offshore company holding the asset, without notifying tax authorities in the country where the asset/company is located. 8. Metals Streaming Metals streaming involves mining companies selling a certain percentage of their production at a fixed cost to a financier in return for funds for partial or complete mine development and construction. Since the amount of financing provided is linked to the discounted mineral price, companies have strong incentives to agree to lower fixed prices to increase the up-front finance available. Streaming reduces the tax base of resource-producing countries, where royalties and income tax use sales revenue as part of calculations. There is virtually no guidance on these arrangements in the mining tax literature. 9. Abusive Hedging Arrangements Hedging is a legitimate business practice in many commodity markets. It consists of locking in a future-selling price in order for both parties to the transaction to plan their commercial operations with predictability. A problem arises when companies engage in abusive hedging with related parties. They use hedging contracts to set an artificially low sale price for production and therefore record systematic hedging losses, reducing their taxable income. 10. Inadequate Ring-Fencing It is possible that mining companies will have multiple activities within a country, creating opportunities to use losses incurred in one project (e.g., during exploration for a new mine), to offset profits earned in another project, thereby delaying payment of corporate income tax. Ring-fencing is one way of limiting income consolidation for tax purposes; however, getting the design right is critical to securing tax revenues while attracting further investment. The following reports adresses some of these issues: Limiting the impact of Excessive Interest Deductions on Mining Revenue Tax incentives in Mining: Minimising risk to Revenue Comparables Data for Transfer Pricing Analyses – Prices of Minerals Sold in an Intermediate Form Toolkit for Transfer Pricing Risk Assessment in the African Mining Industry Transfer Pricing Cases in Mining and Commodity Case NameDescriptionDateCourtCatagoriesKeywords ...

In July 2018 Center for Global Development published a study of special transfer pricing practices in the oil sector, and their potential application to hard rock minerals. According to the study, governments of mining countries are vulnerable to investors manipulating transfer prices as a means of avoiding paying taxes. The two main risks are mining companies undercharging for mineral exports sold to related parties, and overpaying for goods and services. The “solution” has been to apply the “arm’s length principle,” which gives governments the right to adjust the value of a related party transaction so that it accords with similar transactions carried out between independent parties. However, it has been apparent for many years that the arm’s length principle, with its reliance on “comparables” that in practice can rarely be found, is an inadequate response. The paper looks at whether special practices in the oil sector that provide materially greater protection against transfer pricing risk could be applied to hard rock minerals. These are (1) administrative pricing, where government, rather than the taxpayer sets the price for crude oil; and (2) the no-profit rule, which prevents joint venture partners from charging a profit mark-up on the cost of providing goods and services to the group. The paper finds that administrative pricing may be effective at curtailing undercharging of specific mineral products, for example, base and precious metals. The no-profit rule is a less obvious “fit” for mining given the lack of joint ventures, and alternative rules to limit cost overstatement may be required instead. Oil and Gas Transfer Pricing - what-mining-can-learn-oil-study-special-transfer-pricing-practices-oil-sector ...

In May 2018 the final report on corporate tax avoidance in Australia was published by the Australian Senate. The report contains the findings, conclusions and recommendations based on 4 years of hearings and investigations into tax avoidance practices by multinationals in Australia. Australian-final-report-on-tax-avoidance ...

The Platform for Collaboration on Tax (IMF, OECD, UN and the WBG) has published a toolkit for addressing difficulties in accessing comparables Data for Transfer Pricing Analyses. The Toolkit Includes a supplementary report on addressing the information gaps on prices of Minerals Sold in an intermediate form. PUBLIC-toolkit-on-comparability-and-mineral-pricing ...

The UN Transfer Pricing Manual does not address industry-specific issues, but, in 2017 a guidance note was developed by a subcommittee looking into transfer pricing issues in extractive industries, both relating to the production of oil and natural gas and relating to mining and minerals extraction. The note draws on materials that have been published in other fora, including the Platform for Cooperation on Tax (hereafter: “the Platform”), reflecting enhanced collaboration between the IMF, OECD, UN and WBG for the benefit of developing countries. Reference can be made to the Discussion Draft published by the Platform on Addressing the Information Gaps on Prices of Minerals Sold in an Intermediate Form and the Discussion Draft presenting A Toolkit for addressing Difficulties in Accessing Comparable data for Transfer Pricing Analyses. Reference can also be made to the WBG’s Extractive Industries Transparency Initiative and materials3 and the publication Transfer Pricing in Mining with a Focus on Africa. Table 1 in the first part of the note identifies some of the transfer pricing issues that often arise in the extractive industries. The table is organized by reference to the various major stages in the extractive industry value chain. The table makes some general suggestions on methods and approaches that might be used in addressing the identified issues. Thereafter, the guidance note provides several case examples, some of which result from discussions with tax inspectors working in developing countries. Taken together, the table and the examples provide useful background information for developing countries to utilize in addressing transfer pricing issues in extractive industries. The note does not aspire to provide comprehensive transfer pricing guidance for the extraction industries, but should provide a useful summary and checklist of some of the issues that commonly arise. It is recommended that this extractive industry guidance note and the Manual be consulted together. UN TP-and-Extractive-Industries 310317 ...

This case relates to sales of crude oil from the Russian company, Dulisma Oil,  to an unrelated trading company, Concept Oil Ltd, registered in Hong Kong. The Russian tax authorities found that the price at which oil was sold deviated from quotations published by the Platts price reporting agency. They found that the prices for particular deliveries had been lower than the arm’s length price and issued a tax assessment and penalties of RUB 177 million. Dulisma Oil had set the prices using quotations published by Platts, which is a common practice in crude oil trading. The contract price was determined as the mean of average quotations for Dubai crude on publication days agreed upon by the parties, minus a differential determined before the delivery date “on the basis of the situation prevailing on the market”. Transfer pricing documentation had not been prepared, and the company also failed to explain the method by which the price had been calculated and how the price differential was determined. In the tax assessment, the tax authorities used the same quotation for comparison in the pricing of the transactions, but adjusted for ESPO M1 differential (added the minimum premium), which was determined at the date closest to the signing of the contract addendum. The court ruled in favor of the Russian tax authorities. In the judgement the court pointed to the fact that there was no transfer pricing documentation supporting the pricing of the transaction as an argument in favor of the transfer pricing method used by the Russian tax authorities. The court did not accept the company’s arguments that the Hong Kong trader was an unrelated party. Counteragents registered in offshore zones are to be treated as related parties according to Russian legislation. Click here for translation A40-123426-2016_20170127_Reshenija-i-postanovlenija1 ...

Ensco Gerudi provided offshore drilling services to the petroleum industry in Malaysia. The company did not own any drilling rigs, but entered into leasing agreements with a rig owner within the Ensco Group. One of the rig owners in the group incorporated a Labuan company to facilitate easier business dealings for the taxpayer. Ensco Gerudi entered into a leasing agreement with the Labuan company for the rigs. Unlike previous transactions, the leasing payments made to the Labuan company did not attract withholding tax. The tax authorities found the Labuan company had no economic or commercial substance and that the purpose of the transaction had only been to benefit from the tax reduction. The High Court decided in favour of the taxpayer. The Court held that there was nothing artificial about the payments and that the transactions were within the meaning and scope of the arrangements contemplated by the government in openly offering incentives. The High Court ruled that taxpayers have the freedom to structure transactions to their best tax advantage in so far as the arrangement viewed in a commercially and economically realistic way makes use of the specific provision in a manner that was consistent with Parliament’s intention. Malaysia vs Ensco_Gerudi-drilling_high_court ...

Total E&P Norge AS (Total) is engaged in petroleum exploration and production activities on the Norwegian Continental Shelf. Income from such activities is subject to a special petroleum tax, in addition to the normal corporate tax, resulting in a total nominal tax rate of 78%. In 2002-2007, Total sold gas to the controlled trading companies, and the trading companies resold the gas to third parties on the open market. The Supreme Court concluded that Total did not have a right to full access to the comparables. Although section 3-13 (4) of the Tax Assessment Act states that information subject to confidentiality may be given to third parties with the effect that such third parties are subject to the same duty of confidentiality, this rule could not, according to the Supreme Court, be applied in the present case. This was because the very point of the confidentiality obligation in this case was to avoid business secrets’ being shared with competitors such as Total. “ If the pricing of internal sales shall be deviated, the tax authorities shall still be bound by the general rules in the General Tax Act and the Tax Assessment Act, including the guidelines from the OECD on transfer pricing, which do not prohibit the use of information unknown to the taxpayer, but do call for caution as to how the information is used, so that the taxpayer is given a reasonable opportunity to defend itself, and judicial oversight is ensured.” Further, the Supreme Court found justification for its understanding in a Norwegian article of B. Thu-Gundersen in, Skatteprosess (Ole Gjems-Onstad and Hugo Matre eds., Gyldendal 2010), at 93, on the use of secret comparables, which states as follows: “ The comment regarding secret comparables [in the 2010 OECD Guidelines] has, in other words, received a more central placement, and is applicable to all transfer pricing methods. Based on the discussion in the White Paper one can, as before, read the statement as a lowest common denominator of very different points of view. The comment does not appear to state that secret comparables are not allowed, but serves as a warning and call for caution so that the interests of each taxpayer are protected in a reasonable manner.” The Supreme Court unanimously upheld the tax assessment and ruled in favour of the tax authorities. Click here for translation Norway vs Total-EP-Norge-AS-saknr2014-498-HRD-2015-00699-A ...

Distribuidora Salvadorena de Petroleo S.A. DE C.V. (DSP), is active in “the wholesale and retail marketing of oil, derivatives, gas, lubricants, additives and energy in general. Following an audit the tax authorities issued an assessment regarding sale of oil. According to the authorities the prices determined by DSP for oil sold to a related party – Nejapa Power Company L.L.C. – had not been at arm’s length. An appeal was filed by the DSP. Judgement of the Supreme Court The court set aside the assessment and decided in favour of DSP. “The method of estimated, indexed or presumptive base is constructed through the use of indications, its application becomes indispensable when the Tax Administration does not have the direct means to provide it with certain data, the failure to file returns or those filed by the taxpayers do not allow the knowledge of the data necessary for the complete estimation of the taxable bases or income, or when the taxpayers themselves offer resistance, excuses or refusals in the face of the audit action ordered against them, or substantially fail to comply with their accounting obligations, or when the background information provided lacks probative value. etc. In the above cases, although not the only ones, the Tax Administration is empowered to proceed to determine the tax on the basis of an estimated or indicative basis known as “presumptive basis”, using for this purpose the verification of indications, otherwise the Treasury would be circumvented by tax evaders. The important thing is that in the application of this method, the tax office must gather a series of facts or circumstances in which their normal link or connection with those foreseen by the Law as the material budget of the tax, allow it to infer in the investigated case the existence and amount of the obligation. The purpose of the Law is to establish the real value of the transaction, at no time to establish non-existent income, therefore, by attempting to create non-existent income by applying a legal provision referring to market prices, which constitute an element of the index base, it creates an inaccuracy, since it is not in line with reality. Hence, the actions of the Directorate General of Internal Taxes are unlawful, since it unjustifiably applied the method of the estimated, indexed or presumed base for the unofficial tax assessment made on the plaintiff company, which according to the parameters established by the tax legislation was not the corresponding one.” “In accordance with the foregoing considerations, this Chamber concludes that the actions of the Directorate General of Internal Taxes are illegal, having used both the mixed base and the estimated, indexed or presumed base for the liquidation of the Income Tax of the company”. Click here for English translation Click here for other translation El Salvador vs OIL 386-2010 ORG ...

Svenske Shell AB imported crude oil from its UK sister company SIPC over a five-year period. Imports included the purchase and shipping of crude oil to the port of Gothenburg i Sweden from different parts of the world. The price of the oil was based on a framework agreement entered into between the parties, while the freight was calculated based on templates with no direct connection to the actual individual transport. The tax authorities considered that the pricing in both parts was incorrect and therefore partially refused deduction of the costs of oil imports. The assessment (and the later judgement of the Supreme Administrative Court) was based on the wording of the former Swedish “arm’s length” provision dating back to 1965. Decision of Court The Court did not consider that a price deviation has been sufficiently established where the applied price of only a single transaction deviates from the market price. Applying such a narrow view on price comparisons in general lacks support in the preparatory work, nor can it be justified in the light of the purpose of the legislation, which is to prevent unauthorized transfers of profits abroad. Where the controlled parties have continuous business transactions with each other, it is more aligned with the purpose of the legislation to focus on the more long-term effects of the bases and methods of pricing applied during the period under review. This means that “overprices” and “underprices” that have occurred within the same tax year should normally be offset against each other. According to the Court, it is therefore often necessary to make an overall assessment of the Swedish and foreign company’s business transactions with each other. The Court also concluded that it is sometimes possible to deviate from the principle of separate tax year’s when applying the arm’s length provisions. A pricing system that in a longer perspective is fully acceptable from an arm’s point of view can lead to overcharging in one year and undercharging in another year. It can also lead to costs in the form of premiums for a number of years leading to higher incomes or losses at a later stage. For a period of three years, Swedish Shell had applied one and the same business strategy with regard to its oil purchases. The strategy was considered justified for business reasons, which meant that the results during two of the tax years were taken into account in the assessment of the results in the third year. The price method used in the case was the market price method (CUP). This method was chosen as no material had been presented that could form the basis for using any of the other methods. The price test and choice of method had to be made in the light of the information available on the price conditions in the crude oil and freight markets. The Court stated that a market comparison presupposed that the contractual conditions and the market situation could be established. The sale of crude oil from SIPC to Svenska Shell had taken place on CIF terms (cost, insurance and freight) in the sense that SIPC had been responsible for shipping and insurance of the oil sold. It could have been worthwhile, the Court held, to base the arm’s length test on a comparison between that total price and the CIF prices which occurred in similar transactions on the market between independent parties. However, there was no investigation of such CIF prices and in fact it was the case that SIPC’s and Svenska Shell’s contractual relations in significant parts had no direct equivalent on the market during the relevant time period. Even though the sale of crude oil had taken place on CIF terms, the contractual relationship between Svenska Shell and SIPC had contained separate agreements on the pricing of crude oil and shipping. As a result of these agreements, prices of oil were more similar to FOB (free on board) prices and the prices of freight could be linked to standards that directly or indirectly reflected market prices. A separate price comparison of oil and shipping was therefore possible. According to the Court, there were also other reasons for making such a separate assessment of the prices, since the fundamental problems that arose during the arm’s length examination in the two areas differed in significant respects. Swedish Shell claimed that SIPC had the function of an independent trader and therefore took out a certain trading margin on crude oil sales. The Swedish Tax Agency claimed that SIPC was only a group-wide service body and therefore not entitled to any profit margin at all. However, the Swedish Tax Agency accepted a certain remuneration for the services provided by SIPC. The Court found that SIPC had borne certain risks in its purchasing and sales activities and that these risks were such that a certain trading profit was justified. To assess the trading margin when pricing crude oil, different types of list prices were used as a comparison. Some of these list prices contained a certain trading margin that amounted to different levels. The Court found that it was not possible to determine any general levels for the size of the trading margin based on the material. An acceptable margin therefore had to be estimated in the individual case. The Court did not find it clear that the trading margin taken by SIPC on crude oil exceeded the level that would have been agreed between independent parties. When it came to the pricing of crude oil, different price types were used based on price quotations in different markets. The Court assessed the extent to which the different price types could be used for purpose of pricing the controlled transaction. One of the price types used was the US list prices. These were average prices that the US tax authorities produced as comparative prices for one year at a time. The list consisted of a large number of sales worldwide. The Court found that these list prices were based on a ...