SA Saint Louis Sucre, whose main activity is the production of beet-based sugar and which is a member of the Südzucker group, was the subject of an accounting audit covering the period from 1 March 2010 to 28 February 2013, at the end of which the tax authorities notified it of, on the one hand, additional corporation tax and social security contributions, as well as default interest, in respect of the financial year ended 28 February 2011 in the amount of EUR 1,801,398, resulting from a transfer pricing reassessment and, secondly, additional corporate income tax, social security contributions and exceptional contributions, as well as penalties for deliberate non-compliance, in respect of the financial year ended 28 February 2013 in the amount of 4,908,559 euros, arising from the reconsideration of an extra-accounting deduction of an indemnity from the Belgian intervention and restitution office received following a court decision. In a judgment of 17 July 2020, the Montreuil Administrative Court ruled that there was no need to adjudicate in respect of the disgorgement that had occurred in the course of the proceedings, corresponding to late payment interest in respect of that allowance, that the additional corporation tax, social security contribution and exceptional contribution should be discharged, and that the penalty for wilful misconduct in respect of that allowance should be waived, and dismissed the remainder of the claim. SA Saint Louis Sucre asked the Court to set aside that judgment insofar as it dismissed the remainder of its claim. In its application, the authorities appealed against the same judgment and asked the Court to reinstate the taxes at issue, the discharge for which was wrongly granted by the first judges. Judgement of the Court of Appeal In regards of the transfer pricing adjustment, the Court of Appeal dismissed the appeal of Saint Louis Sucre. Excerpt “10. In order to contest the existence of a tariff advantage granted to its parent company Südzucker AG, and therefore of an indirect transfer of profits within the meaning of the aforementioned provisions of Article 57 of the General Tax Code, Saint Louis Sucre maintains that the price of EUR 427.20 per tonne, determined using the alternative method, corresponds to the arm’s length price. To justify the use of this method, it produced a methodology sheet provided for in the transfer pricing documentation, entitled “Swap SZAG-) SLS: Derivation transfer price 2009/10”. This sheet mentions a resale price of EUR 495 per tonne, to which the applicant company deducted an amount of EUR 70 corresponding to logistical costs, on the grounds that the transfer prices did not take them into account, and then added an amount of EUR 2.70 per tonne, corresponding to the profit margin granted to it by Südzucker AG. To justify the resale price of EUR 495 per tonne, however, it merely took into account the sole reference sales contract between Südzucker AG and its Italian customer Maxi, i.e. EUR 510 per tonne, after deducting Maxi’s profit margin of EUR 15 per tonne. Although Südzucker AG also produced a table to justify the amount of the logistical costs, it does not make it possible to establish the reality of the figures put forward by the company. Moreover, as the Minister maintains in his defence, Annex 5 to the applicant company’s application states that average sugar prices on the European market are determined ‘ex works’, i.e. at the factory gate, without taking logistics costs into account. From 2010 to 2011, the average price of sugar varied between €476 and €654 per tonne. Accordingly, the applicant company does not substantiate, on the basis of the documents produced, the sales price of EUR 427.70 per tonne to its parent company resulting from its application of the alternative method. 11. Saint Louis Sucre also points to the lack of outlets following the fall in the price of quota sugar in 2009/2010. It maintains that its parent company could not have purchased it at the UPC price of EUR 472.80 per tonne, given the transport costs generated by deliveries to southern Europe. Without this sale at the price of 427.20 euros per tonne, it would have had to either store its goods with a view to selling them in the following marketing year, incurring significant storage costs, or sell them in the European Union on loss-making markets, in particular the Spanish market, at a lower price than that negotiated with its parent company. However, it does not provide any evidence in support of its allegations, merely producing two invoices with the Spanish company Südzucker Iberica SLU, showing a selling price of EUR 446 on 15 July 2010 and EUR 471 on 23 August 2010, even though prices fluctuated widely over those few weeks. Furthermore, the applicant company did not demonstrate that its “quota sugar” could only be sold in Spain. 12. Consequently, in light of all of these elements, the alternative method relied on by Saint Louis Sucre was insufficiently documented, and the tax authorities could dismiss it as irrelevant for determining the transfer price in light of the arm’s length principle and rely on the comparable price method. Although the applicant company maintains that the tax authorities did not provide any comparables for determining the transfer price using this method, it is clear from the investigation that they used the price of €472.84 defined by the Südzucker group itself and based on the prices charged to customers Barry Callebaut, Ferrero, Kraft Foods, Coca-Cola and Maxi in October 2009. This price corresponds to the estimated market price at the beginning of the period on the basis of contracts currently being signed. By simply maintaining that the price of EUR 427.20 per tonne, determined using the alternative method, corresponds to the arm’s length price, Saint Louis Sucre is not contesting that the UPC method used by the department could be applied to establish the arm’s length price. The tax authorities could therefore consider that the price of EUR 427.20, which was lower than the average for comparable contracts using the UPC ...

The tax authority, based on the results of an audit, found that the prices in controlled export transactions of goods, carried out between “LK Ukraine Group” and related parties, did not comply with the arm’s length principle, i.e. the selling prices of the goods were lower than the minimum values of the arm’s length range. Disagreeing with this conclusion, “LK Ukraine Group” stated that the the method applied by the tax authority during the audit of prices in controlled transactions was unlawful and inappropriate due to the lack of information on all possible costs. At the request of the supervisory authority, “LK Ukraine Group” provided evidence that when determining the prices of goods, the group was guided by information based on monitoring, in particular, prices on the Euronext exchange, namely, the average selling prices of agricultural products on the terms of delivery EXW-port, which refuted the assertion of the authority that the controlled transactions did not comply with the arm’s length principle. The District Administrative Court dismissed the claim in a decision upheld by the Administrative Court of Appeal. The courts of previous instances concluded that, based on the Tax Code of Ukraine, the tax authority had calculated the median of the range to determine the price in a controlled transaction, which is consistent with the arm’s length principle. Judgement of the Supreme Court The Supreme Court also dismissed the appeal of “LK Ukraine Group” and upheld the challenged court decisions. If the audit of controlled transactions on export of “rapeseed” goods establishes that prices in controlled transactions on export of goods of the commodity carried out by the taxpayer (taking into account the adjustment for the cost of transshipment of goods on board the vessel) are less than the minimum values of price intervals (ranges), i.e., do not comply with the arm’s length principle and the selling prices are lower than the price range, the terms of such transactions differ from the terms and conditions applied between unrelated parties in comparable uncontrolled transactions. Click here for English translation Click here for other translation TPcase - Ukrain 23 March 2023 ...

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 ...

Poltova GZK is a Ukrainian subsidiary of the Ferrexpo group – the world’s third largest exporter of iron ore pellets. In FY 2015 the iron ore mined in Ukraine by Poltava GZK was sold to other companies in the group – Ferrexpo Middle East FZE, and the transfer prices for the ore was determined by application of the CUP method using Platts quotations. However, according to the tax authorities Poltava GZK used Platts quotations for pellets with a lower iron content when pricing the higher quality pellets, resulting in non arm’s length prices for the controlled transactions and lower profits in the Ukraine subsidiary. The tax authorities also found that Poltava GZK had overestimated the cost of freight – in the case of actual transportation of pellets by ships of different classes (“Panamax”, “Capesize”), the adjustment of the delivery conditions was carried out only at the maximum rate. On that basis an assessment was issued. Not satisfied with the assessment an appel was filed Poltova GZK, and in 2019 the Administrative Court and later the Court of Appeal set aside the assessment of the tax authorities. An appeal was then filed by the tax authorities with the Supreme Court. Judgement of the Supreme Court The Supreme Court partially annulled the decision of the Administrative Court and Court of Appeal and ruled predominantly in favor of the tax authorities approving the position that the transfer prices of the iron ore pellets did not correspond to the arm’s length price. The Court confirmed the validity of the tax assessment and the legality of the issued tax notice-decision regarding the reduction of the negative taxable income in an amount of 1.3 billion hryvnias (~$35 millions).  The Court confirmed that the taxpayer did not take into account the actual properties of the products specified in the Quality Certificates, namely: the content of impurities (silicon dioxide) and the moisture level when pricing the controlled transactions. The court confirmed that the constant fluctuation of prices on the market of iron ore pellets is not a basis for comparing prices in CU with the average indicator in comparable operations for a certain period (month) without constructing a price range. Also, the taxpayer had overestimated the cost of freight. Click here for English translation Click here for other translation Ukrain vs PrJSC Supreme Administrative Court case no 440-1053-19 ...

A particularly relevant factor for commodity transactions determined by reference to the quoted price is the pricing date, which refers to the specific time, date or time period (e.g. a specified range of dates over which an average price is determined) selected by the parties to determine the price for commodity transactions. Where the taxpayer can provide reliable evidence of the pricing date agreed by the associated enterprises in the controlled commodity transaction at the time the transaction was entered into (e.g. proposals and acceptances, contracts or registered contracts, or other documents setting out the terms of the arrangements may constitute reliable evidence) and this is consistent with the actual conduct of the parties or with other facts of the case, in accordance with the guidance in Section D of Chapter I on accurately delineating the actual transaction, tax administrations should determine the price for the commodity transaction by reference to the pricing date agreed by the associated enterprises. If the pricing date specified in any written agreement between the associated enterprises is inconsistent with the actual conduct of the parties or with other facts of the case, tax administrations may determine a different pricing date consistent with those other facts of the case and what independent enterprises would have agreed in comparable circumstances (taking into considerations industry practices). When the taxpayer does not provide reliable evidence of the pricing date agreed by the associated enterprises in the controlled transaction and the tax administration cannot otherwise determine a different pricing date under the guidance in Section D of Chapter I, tax administrations may deem the pricing date for the commodity transaction on the basis of the evidence available to the tax administration; this may be the date of shipment as evidenced by the bill of lading or equivalent document depending on the means of transport. This would mean that the price for the commodities being transacted would be determined by reference to the average quoted price on the shipment date, subject to any appropriate comparability adjustments based on the information available to the tax administration. It would be important to permit resolution of cases of double taxation arising from application of the deemed pricing date through access to the mutual agreement procedure under the applicable Treaty ...

Under the CUP method, the arm’s length price for commodity transactions may be determined by reference to comparable uncontrolled transactions and by reference to comparable uncontrolled arrangements represented by the quoted price. Quoted commodity prices generally reflect the agreement between independent buyers and sellers in the market on the price for a specific type and amount of commodity, traded under specific conditions at a certain point in time. A relevant factor in determining the appropriateness of using the quoted price for a specific commodity is the extent to which the quoted price is widely and routinely used in the ordinary course of business in the industry to negotiate prices for uncontrolled transactions comparable to the controlled transaction. Accordingly, depending on the facts and circumstances of each case, quoted prices can be considered as a reference for pricing commodity transactions between associated enterprises. Taxpayers and tax administrations should be consistent in their application of the appropriately selected quoted price ...

Subject to the guidance in paragraph 2.2 for selecting the most appropriate transfer pricing method in the circumstances of a particular case, the CUP method would generally be an appropriate transfer pricing method for establishing the arm’s length price for the transfer of commodities between associated enterprises. The reference to “commodities” shall be understood to encompass physical products for which a quoted price is used as a reference by independent parties in the industry to set prices in uncontrolled transactions. The term “quoted price” refers to the price of the commodity in the relevant period obtained in an international or domestic commodity exchange market. In this context, a quoted price also includes prices obtained from recognised and transparent price reporting or statistical agencies, or from governmental price-setting agencies, where such indexes are used as a reference by unrelated parties to determine prices in transactions between them ...

The tax authorities had adjusted the agreed prices of agricultural commodities transferred by ADM Argentina to a foreign related party. Following receipt of the additional income assessment, ADM Argentina appealed to the Federal Tax Court. The Federal Tax Court overturned the assessment. The court concluded that the adjustments made by the tax authorities were arbitrary because they were made only in respect of certain export transactions where the quoted price at the time of the transaction was lower than the quoted price at the time the goods were loaded. Furthermore, the transactions used by the tax authorities as external comparables were not valid for transfer pricing purposes because they suffered from significant comparability flaws and deficiencies. The Court of Appeal later upheld the Federal Tax Court’s decision and the Supreme Court dismissed a final appeal by the tax authorities. Excerpts “On the basis of these premises, I consider that the extraordinary appeal is inadmissible and has been properly denied since, in order to validate the decision of the Tax Court, the a quo provided grounds of fact and evidence which, in my opinion, provide sufficient support for the decision, without the appellant’s discrepancies being effective to enable the exceptional remedy sought. Indeed, the Chamber concluded that the products marketed by Nidera S.A. and O.M.H.H.S.A. differ from those exported by the plaintiff, both in their type and in their quantities and markets (countries) of destination and, therefore, they are not suitable to support the adjustment claimed by the tax authorities. In this regard, it explained that, while Nidera S.A. exported to Cuba, Canada, United Kingdom, the Netherlands, Costa Rica, France, Chile and the United States of America, ADM Argentina S.A. exported to the United States of America. In terms of products, it was established that both Nidera S.A. and O.M.H.S.A. traded refined soybean oil in bulk; soybean meal in bulk; refined sunflower oil; sunflower pellets in bulk; crude soybean oil and bread wheat, while in the same fiscal period, ADM Argentina S.A. sold Argentine corn in bulk; Argentine wheat in bulk; bran pellets, soybeans in bulk and sorghum in bulk. Regarding prices, the Chamber stated that it was established that in 76.67% of the transactions concluded by O.M.H.S.A. with independent third parties, the agreed price was closer to the price published by SAGPyA at the date of the agreement than at the date of shipment. It added that, measured in tonnes, 93.56% of O.M.H.H.S.A.’s exports to independent third parties corresponded to transactions concluded on dates on which the quotation price published by SAGPyA on the date of the contract was higher than the price published by the same body on the date of shipment. In these circumstances, it is clear to me that the Treasury’s complaints, aimed at defending its adjustment made on the basis of comparable prices whose use was rejected by both the Tax Court and the Chamber, merely reflect a mere disagreement with the assessment of the evidential material used by the judges in the case, which is not covered by the charge of arbitrariness that the federal remedy alleges (Judgments: 280:320; 295:165; 297:333), whose exceptional nature does not tend to replace the judges when they decide issues that are their own (Judgments: 394:394: 295:356; 297:173), even when an error in the solution of the case is invoked (Judgments: 296:82, 445; 302:1030), reasons for which I think that the extraordinary appeal filed has been rightly denied.” Click here for English Translation Click here for other translation FALLO CAF 029982_2017_1_RH001 ...

A particularly relevant factor for commodity transactions determined by reference to the quoted price is the pricing date, which refers to the specific time, date or time period (e.g. a specified range of dates over which an average price is determined) selected by the parties to determine the price for commodity transactions. Where the taxpayer can provide reliable evidence of the pricing date agreed by the associated enterprises in the controlled commodity transaction at the time the transaction was entered into (e.g. proposals and acceptances, contracts or registered contracts, or other documents setting out the terms of the arrangements may constitute reliable evidence) and this is consistent with the actual conduct of the parties or with other facts of the case, in accordance with the guidance in Section D of Chapter I on accurately delineating the actual transaction, tax administrations should determine the price for the commodity transaction by reference to the pricing date agreed by the associated enterprises. If the pricing date specified in any written agreement between the associated enterprises is inconsistent with the actual conduct of the parties or with other facts of the case, tax administrations may determine a different pricing date consistent with those other facts of the case and what independent enterprises would have agreed in comparable circumstances (taking into considerations industry practices). When the taxpayer does not provide reliable evidence of the pricing date agreed by the associated enterprises in the controlled transaction and the tax administration cannot otherwise determine a different pricing date under the guidance in Section D of Chapter I, tax administrations may deem the pricing date for the commodity transaction on the basis of the evidence available to the tax administration; this may be the date of shipment as evidenced by the bill of lading or equivalent document depending on the means of transport. This would mean that the price for the commodities being transacted would be determined by reference to the average quoted price on the shipment date, subject to any appropriate comparability adjustments based on the information available to the tax administration. It would be important to permit resolution of cases of double taxation arising from application of the deemed pricing date through access to the mutual agreement procedure under the applicable Treaty ...

Under the CUP method, the arm’s length price for commodity transactions may be determined by reference to comparable uncontrolled transactions and by reference to comparable uncontrolled arrangements represented by the quoted price. Quoted commodity prices generally reflect the agreement between independent buyers and sellers in the market on the price for a specific type and amount of commodity, traded under specific conditions at a certain point in time. A relevant factor in determining the appropriateness of using the quoted price for a specific commodity is the extent to which the quoted price is widely and routinely used in the ordinary course of business in the industry to negotiate prices for uncontrolled transactions comparable to the controlled transaction. Accordingly, depending on the facts and circumstances of each case, quoted prices can be considered as a reference for pricing commodity transactions between associated enterprises. Taxpayers and tax administrations should be consistent in their application of the appropriately selected quoted price ...

Subject to the guidance in paragraph 2.2 for selecting the most appropriate transfer pricing method in the circumstances of a particular case, the CUP method would generally be an appropriate transfer pricing method for establishing the arm’s length price for the transfer of commodities between associated enterprises. The reference to “commodities” shall be understood to encompass physical products for which a quoted price is used as a reference by independent parties in the industry to set prices in uncontrolled transactions. The term “quoted price” refers to the price of the commodity in the relevant period obtained in an international or domestic commodity exchange market. In this context, a quoted price also includes prices obtained from recognised and transparent price reporting or statistical agencies, or from governmental price-setting agencies, where such indexes are used as a reference by unrelated parties to determine prices in transactions between them ...