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 ...

“XZ Insurance SA” is the parent company in a group engaged in insurance activities in its various branches, both life and non-life, finance, investment property and services. An audit was conducted for FY 2013-2016 and in 2020 an assessment was issued in relation to both controlled transactions and other transactions. Among outher issued the tax authorities determined that “XZ Insurance SA” did not receive any royalty income from the use of the XZ trademark by to other entities of the group, both domestic and foreign. In the assessment the tax authorities determined the arm’s length royalty percentage for use of the trademarks to be on average ~0,5%. “In order to estimate the market royalty, the first aspect to be studied is the existence of an internal comparable or comparable trademark assignment contracts. And we have already stated that the absence of valid internal and external comparables has led us to resort to the use of other generally accepted valuation methods and techniques. In this respect, it should be noted that this situation is frequent when valuing transactions related to intangibles, and the Guidelines have expressly echoed this situation (in particular, in paragraphs 6.138, 6.153, 6.156, 6.157 and 6.162, which are transcribed in section 6.2 of this Report).” A complaint was filed by “XZ Insurance SA” Judgement of the TEAC The TEAC dismissed the complaint of “XZ Insurance SA” and upheld the tax assessment. Excerpts from the decision concerning the assessment of income for use of the trademarks by other group companies “On this issue, it is worth pointing out an idea that the complainant uses recurrently in its written submissions. The complainant considers that if there is no growth in the number of policies and premiums, it should not be argued that the use of the XZ brand generates a profit in the subsidiaries. However, as the Inspectorate has already replied, it is not possible to identify the increase in the profit of the brand with the increase in premiums, nor that the growth, in certain countries, of the entities is exclusively due to the value of the brand. Logically, increases and decreases in premiums are due to multiple factors, including the disposable income of the inhabitants of each country, tax regulations, civil liability legislation, among others, and we cannot share the complainant’s view that the brand does not generate a profit in the event of a decrease in premiums in the market. Furthermore, insofar as the enforceability of the royalty is conditioned by the fact that the assignment produces a profit for the company using the brand, there is greater evidence as to the usefulness of the brand in the main markets in which the group operates and in which it is most relevant: Spain, COUNTRY_1, Latin American countries, COUNTRY_2, COUNTRY_3, COUNTRY_4 and COUNTRY_5. Finally, one aspect that draws the attention of this TEAC is the contrast between what the complainant demands that the administration should do and the attitude of the administration in the inspection procedure. On the one hand, it demands that the administration carry out a detailed analysis of the valuation of the profit generated by the trademark for the group, but, on the other hand, there is a total lack of contribution on the part of the entity in providing specific information on the valuation of the trademark that could facilitate the task it demands of the administration. In fact, this information was requested by the Inspectorate, to which it replied that “there are no studies available on the value or awareness and relevance of the XZ brand in the years under inspection” (…) “It follows from the above that it has not been proven that the different entities of the group made direct contributions or contributions that would determine that, effectively, the economic ownership of the trademark should be shared. Therefore, this TEAC must consider, given the existing evidence, that both the legal and economic ownership of the trademark corresponds to the entity XZ ESPAÑA. In short, it is clear from the facts set out above that certain entities of the group used, and use, for the marketing of their services and products, a relevant and internationally established trademark, the “XZ” trademark, which gives them a prestige in the market that directly and undoubtedly has an impact on their sales figures, with the consequent increase in their economic profit. It is clear from the above that there was, in the years audited, a transfer of use of an established, international brand, valued by independent third parties (according to the ONFI report, according to …, between … and …. million euros in the years under review) and maintained from a maintenance point of view (relevant advertising and promotional expenses). Therefore, it is reasonable to conclude, as does the Inspectorate, that, in a transaction of this type – the assignment of the “XZ” trademark – carried out at arm’s length, a payment for the use of the intangible asset would have been made to its owner, without prejudice to the fact that the value assigned to the assignment of use of the aforementioned trademark may be disputed; but what seems clear, and this is what the TEAC states, is that it is an intangible asset whose assignment of use has value. In conclusion, the TEAC considers that the entity owning the trademark (XZ SPAIN) had an intangible asset and transferred its use, for which it should receive income; by transferring the use of the asset to group entities, both domiciled in Spain and abroad, it is appropriate to calculate that income for XZ SPAIN by applying the regime for related-party transactions.” (…) “In section 6 of the report, as we have already analysed, ONFI attempts to find external comparables, insofar as there are no internal comparables within the group, reaching the conclusion that they cannot be identified in the market analysed. Consequently, it proceeds to estimate the royalty that XZ Spain should receive, by applying other methodologies that allow an approximation to the arm’s length price, based ...

Tax administrators may have information available to them from examinations of other taxpayers or from other sources of information that may not be disclosed to the taxpayer. However, it would be unfair to apply a transfer pricing method on the basis of such data unless the tax administration was able, within the limits of its domestic confidentiality requirements, to disclose such data to the taxpayer so that there would be an adequate opportunity for the taxpayer to defend its own position and to safeguard effective judicial control by the courts ...

There are also proprietary databases that are developed and maintained by some advisory firms. In addition to the issues raised above for commercial databases that are more broadly commercialised, proprietary databases also raise a further concern with respect to their coverage of data if they are based on a more limited portion of the market than commercial databases. When a taxpayer has used a proprietary database to support its transfer prices, the tax administration may request access to the database to review the taxpayer’s results, for obvious transparency reasons ...

There are various sources of information that can be used to identify potential external comparables. This sub-section discusses particular issues that arise with respect to commercial databases, foreign comparables and information undisclosed to taxpayers. Additionally, whenever reliable internal comparables exist, it may be unnecessary to search for external ones, see paragraphs 3.27-3.28 ...

In order for the process to be transparent, it is considered a good practice for a taxpayer that uses comparables to support its transfer pricing, or a tax administration that uses comparables to support a transfer pricing adjustment, to provide appropriate supporting information for the other interested party (i.e. tax auditor, taxpayer or foreign competent authorities) to be able to assess the reliability of the comparables used. See paragraph 3.36 for a discussion of information available to tax administrations that is not disclosed to taxpayers. General guidance on documentation requirements is found at Chapter V of these Guidelines. See also the Annex II to Chapter IV “Guidelines for conducting Advance Pricing Arrangements under the Mutual Agreement Procedure (MAP APAs)” ...

At issue in the case of „RĪGAS DZIRNAVNIEKS” was if the interest rates charged on loans between related parties were at arm’s length. Judgement of the Court of Appeals The Court remanded the case to the Regional Court for a new hearing. Excerpts “As already indicated above, paragraphs 84, 91 and 92.3.1 and 92.3.2 of Regulation No 556 deal with the need for adjustments and mathematical calculations when significant differences in the comparable data and their material effects are established. The need for adjustments is also underlined in point 1.35 of the Guidelines. Guidance on how differences between comparables are to be addressed is provided, inter alia, in paragraph 3.57 of the Guidelines. It may be the case that, although every effort is made to exclude items with a lower level of comparability, the result is a series of figures for which it is considered that, given the process used to select the comparables and the information available on the limitations of the comparables, certain comparability defects remain which cannot be identified and/or quantified and are therefore not corrected for. In such cases, if the range includes a large number of observations, a statistical tool that takes into account the central tendency to narrow the range (e.g. to an interquartile range or other percentiles) could help to improve the reliability of the analysis. Thus, the Guidelines consider those cases where the analysis ends with a series of numbers. In such cases, various statistical tools should be used to narrow the range as much as possible. Reading these legal provisions in their context, it is clear that, although Regulation No 556 does not explain how adjustments and mathematical calculations are to be made, it is clear that, according to these legal provisions, the consistency of the transaction price with the price range indicated in the database used for a given type of product is not sufficient in itself to recognise the conformity of the price to be verified with the market price. The above-mentioned provisions of paragraphs 84, 91 and 92 of Regulation No 556 set out a number of relevant factors for the comparability of transactions. This means that for each transaction carried out with a related company, a detailed comparison should be made with the data used, indicating similar and dissimilar circumstances and adjusting the data where necessary. Consequently, the fact that the interest rates applied in the transactions between the applicant and its related companies fall within the range of interest rates used by the District Court does not, in itself, give rise to a finding beyond reasonable doubt that the applicant’s transaction prices are in line with market prices and that no corresponding adjustments are necessary. Moreover, the Regional Court merely referred to the first paragraph of Article 6(4) of the Law on Corporation Tax, which governed the adjustment of taxable income for interest payments during the audit period. However, the Regional Court has not explained whether that provision is also applicable in the present case. Nor has the Revenue Service, in its cassation appeal, put forward any arguments concerning the application and applicability of that provision to the dispute in the present case. Therefore, when examining the merits of the case, if it is concluded that the use of the statistical data compiled by the Bank of Latvia requires an adjustment, it must also be ascertained whether appropriate adjustments are not to be made in accordance with the procedure laid down in the first paragraph of Section 6.4 of the Law on Corporate Income Tax.” Click here for English translation Click here for other translation ...

18 June 2019 the Polish Minister of Finance issued the first explanations on transfer pricing concerning – technical aspects of preparing comparability analyses and transfer pricing documentation. With regard to the technical aspects of preparing comparability analyses, the explanations cover such detailed issues as: data comparability vs. locality feasibility of using internal data feasibility of using bid data the appropriateness of using comparables that are not publicly available (so-called secret comparables) reasonableness of discarding from the comparables sample entities with extreme results (including those with loss) minimum sample size for benchmark data analysis selection of an interval point updating the benchmark data analysis. The second key issue addressed by the explanatory notes is the preparation of descriptions of the consistency of the terms of transactions and other events agreed with related parties with the terms that would be agreed among independent parties. Click here for unofficial English translation ...

Tax administrators may have information available to them from examinations of other taxpayers or from other sources of information that may not be disclosed to the taxpayer. However, it would be unfair to apply a transfer pricing method on the basis of such data unless the tax administration was able, within the limits of its domestic confidentiality requirements, to disclose such data to the taxpayer so that there would be an adequate opportunity for the taxpayer to defend its own position and to safeguard effective judicial control by the courts ...

There are also proprietary databases that are developed and maintained by some advisory firms. In addition to the issues raised above for commercial databases that are more broadly commercialised, proprietary databases also raise a further concern with respect to their coverage of data if they are based on a more limited portion of the market than commercial databases. When a taxpayer has used a proprietary database to support its transfer prices, the tax administration may request access to the database to review the taxpayer’s results, for obvious transparency reasons ...

There are various sources of information that can be used to identify potential external comparables. This sub-section discusses particular issues that arise with respect to commercial databases, foreign comparables and information undisclosed to taxpayers. Additionally, whenever reliable internal comparables exist, it may be unnecessary to search for external ones, see paragraphs 3.27-3.28 ...

In order for the process to be transparent, it is considered a good practice for a taxpayer that uses comparables to support its transfer pricing, or a tax administration that uses comparables to support a transfer pricing adjustment, to provide appropriate supporting information for the other interested party (i.e. tax auditor, taxpayer or foreign competent authorities) to be able to assess the reliability of the comparables used. See paragraph 3.36 for a discussion of information available to tax administrations that is not disclosed to taxpayers. General guidance on documentation requirements is found at Chapter V of these Guidelines. See also the Annex to Chapter IV “Guidelines for conducting Advance Pricing Arrangements under the Mutual Agreement Procedure (MAP APAs)” ...

Lesprom Forestry Company had sold sand and construction services to a related party, Road Company LLC. The tax authority concluded that the Company had created a tax avoidance scheme aimed at artificially underestimating the income on transactions with Road Company LLC. The price for sand and construction work was revised and tax liabilities on income tax and VAT recalculated. Determining the arm’s length price of sandAn official website of the Federal State Statistics Service posted information on the average prices of manufacturers of industrial goods… [however] this statistical information does not contain the physical characteristics of the product and the terms for its sale. Therefore this information could not be used.The minimum and maximum gross margin amounted to: 14.25 and 27.04 in 2012, 2.39 and 6.57 in 2013, and 3.04 and 25.58 in 2014. The gross profitability received by Road Company LLC in 2013-2014, was significantly above the arm’s length range of gross margins, 51.87% and 73.55%, respectively.” Determining the arm’s length price for construction workGiven that the Company’s accounting of income and expenses in the audited period was conducted on the basis of the cash method, the amount of costs required and incurred by the taxpayer in connection with the performance of contract works could not be reliably determine. To determine the price of the work performed , the tax authorities had analysed the cost of comparable work (preparatory work on the development of exploration wells, construction of bridges on the road entrance to exploratory wells, preparatory work for drilling wells in public sources of information. According to the information and price agencies Platts, Argus etc. do not contain detailed information on the terms of the transactions. Thus, publicly available information could not be used ….The only comparable transactions available to Lesprom LLC, were transactions concluded between Road Company LLC and a sub contractor, Trans-Stroy LLC. According to these agreements cost of the general construction services amounted to 5% of the total cost of the work. On that basis, the market price for construction services delivered by Lesprom was set to 5% of the total cost of the work. The courts of three instances found the tax assessment legal. Click here for translation ...

In this case ZERAIM IBÉRICA SA argues that the OECD Transfer Pricing Guidelines has not been applied propperly, as secret comparables have been used in determining the arm’s length price of controlled transactions between the Spanish company and its Dutch parent company. The court concludes that the “..Guidelines are considered to be merely recommendations to States, which are given an interpretative value.” The appeal filed by the company is dismissed by the court. Click here for other translation ...

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 ...

“X Beverages S.A.” had entered into an agreement with the ABCDE Group for the use of concentrate and trademarks for the production and sale of beverages in Spain, but according to the agreement, “X Beverages S.A.” only paid for the concentrate. Following an audit for the financial years 2005-2007, the tax authorities issued an assessment which considered part of the payment to be royalties on which withholding tax should have been paid. Court’s Judgement The Court agreed that part of the payment could be qualified as royalties, but the assessment made by the tax authorities had been based on secret comparables – leaving the taxpayer defenceless – and on this basis the Court annulled the assessment. Excerpts “The taxpayer itself seems to recognize that the so-called “Contract of …” contains both a distribution contract and a trademark assignment contract when it says on page 127 of its statement of allegations “Indeed, this authorization of use is necessary to be able to carry out the activity of packaging and distribution that is the object of the contract, and it would not be possible for X to carry out its obligations under the contract if it did not have this authorization to use the trademark. If X did not have the right to use the trademark, it would not be able to package and label the product as required by its principal (Z), nor would it be able to distribute it under said trademark, in accordance with the terms of the contract.” And although the “authorization of use” of the trademark recognized by the taxpayer is qualified by the latter as an obligation and not as a right of the same, seeming to want to reach the conclusion that only if it were a right it would generate a royalty, in the opinion of this Court both aspects (obligation and right) are not mutually exclusive but complementary: X acquires the right to use the trademark and the obligation to use the same with respect to the products (the beverages) made by it with the “concentrates” acquired from the ABCD Group. And without the existence of limits and/or conditions. Limits and/or conditions which, on the other hand, are inherent to any assignment of rights contract, which is never absolute. In the present case, such limits would be that X may not use the trademark to identify other products not made with the “concentrates” purchased from the ABCD Group and that it may not identify the products made with such “concentrates” under another trademark. Both things are logical since the trademark owner remains the owner of the trademark (he only assigns its use in a certain temporal and territorial scope) and must protect its prestige by means of the indicated precautions (previously called limits and/or conditions). Por otro lado, y en contra de lo alegado (pág. 129 of the pleadings), the right to use the trademark is not something merely “instrumental” but something “substantial” to the contracts entered into between the parties in the sense that it is in the interest of the supplier to sell its concentrates and of X to market the products it manufactures with such concentrates under certain trademarks (ABCD or M8), of special diffusion and prestige in the market and whose use implies a volume of sales notably higher than that which it would obtain if it marketed the products under X ‘s own denomination without such diffusion and prestige in the market. The importance of the trademark is such (and more so the ones we are now dealing with) that it would be difficult to understand in the opinion of the Inspectorate a purely “instrumental” transfer of use of the same, and much less free of charge, as the claimant defends. This circumstance is supported by the Inspection in the Valuation Report, which grants to the assignment of the trademark, as an example, percentages of 61.17% of the price of the concentrate in the case of ABCD-1 and 46.18% in the case of ABCD-2.” “Thus, it is clear that the promotion of the ABCD trademark in Spain (not of the products themselves, which is what is made with the “concentrates” acquired by X) generates expenses for the holder of the trademark[2] ( ABCD Group and, specifically,ABCD C…), the inspection revealed that “it does not seem reasonable to think that the ABCD trademarks in Spain only generate expenses and no income” (….) “From a strictly economic perspective, the actions of the ABCD group, assuming such an amount of expenses to make the brand known to the consumer without this action generating any income for the brand in Spain, lacks all rationality”. This is an additional fact taken into account by the Inspectorate for the purpose of confirming the rationality of the fact that the assignment of use of the trademark is not free of charge but that the ABCD Group obtains income from it.” “In the case at hand, we cannot properly speak of “lack of evidence” but more properly of “lack of externalized evidence” since, even if such evidence exists (which this Court, in principle, has no doubt about), it cannot be incorporated into the file that is made available to the interested party, Therefore, the latter is defenseless when it comes to being able to oppose the suitability of the comparables used, so that, as stated in the previously transcribed SAN, we are faced with an “inadequate assessment method” in terms of generating defenselessness in the taxpayer. This Central Court has recently pronounced in the same sense as above in its RG of 05-09-2013 (RG 3780/11). Having said the above with respect to the “subjective motivation”, it should be noted that the objections raised by the taxpayer with respect to the “technical motivation” refer basically to the fact that the data used by the Inspection to assess are not in any case comparable with those of ABCD because ABCD is unique and neither by its product characteristics, nor by the characteristics of the product …. . In ...

EcoloJeans SL had made purchases from its majority shareholder, Mr Donato. According to the tax authorities, the agreed prices for these purchases were higher than the arm’s length price, resulting in lower taxation. The tax authorities had determined the arm’s length price by applying the resale price method, based on the margin obtained by companies in the same sector in comparable transactions with independent parties. For this purpose, a sample of six wholesalers had been selected – two whose identification data were known and four that had not been identified by the authorities for reasons of confidentiality. EcoloJeans SL filed a complaint against the assessment to the TEAR, but the complaint was later rejected. An appeal was then lodged with the TEAC (Tribunal Económico Administrativo Central), which was partially upheld in the sense that the Tribunal found a lack of reasoning (due to use of secret comparables), leaving EcoloJeans SL defenceless. Judgement of the National Court. The Court upheld the TEAC’s decision in regards of lack of reasoning (use of secret comparables) in the pricing of the controlled transactions. Excerpt “In the contested decision, the TEAC analyses the valuation method used by the Actuary, which was based on data obtained from certain companies in the sector, and states, textually: “Having analysed the file by this Central Court, the only documentation relating to these companies that is contained is a sheet for each one on which, obtained from the AEAT database, the recorded profit and loss account of the 1998 Corporation Tax returns is reflected, the ‘screenshots’ of the AEAT’s CDB to which the interested party refers, and which contain the data used by the inspection (turnover and supplies), without figuring either the tax identification number or the name of the holder of those data, or any reference to the activity carried on. The regulations require that the act of determining the normal market value be reasoned, containing the grounds on which the valuation made is based; that the valuation that gives rise to the increase in the taxable base with respect to that declared is rationally and sufficiently justified. And the meaning or purpose of that statement of reasons is to preserve the interested party’s right of defence, and therefore the Administration must use in that valuation procedure data that can be made fully known to the interested party so that it can defend itself adequately, and not data affected by confidentiality, and which, for that reason, the interested party is denied knowledge thereof, as occurs in the present case, however relevant such data may be for the specific case. Therefore, this Court considers that the interested party’s right of defence has been impaired as a result of the Inspectorate’s actions, preventing the lack of identification of the companies used in the sampling to determine the market value, the verification by the interested party of their suitability or unsuitability for the purposes of the valuation and, therefore, preventing it from timely defending its right and adequately opposing the valuation carried out, causing it, in short, a defencelessness that would lead to the annulment of the act. For all of the above reasons, and considering that this Court considers that there is a lack of reasoning in the valuation agreement which caused him to be defenceless, his claim on this point must be upheld and the adjustment made must be annulled”. Click here for English translation Click here for other translation ...