The Court of First Instance found no merit in the argument that the tax authority should have compared the price at issue with the prices obtained in the liquidation procedure, since the “Inventory-Corp” was not in the liquidation procedure. The three bidders relied on by “Inventory-Corp” do not provide a sufficiently reliable basis for the decision in view of the fact that the applicant did not sell any of its stock to any of them without explanation and the fact that it sold part of its stock to another, unrelated party at cost. In finding the value of the stock to be the amount of the transfer prices, the tax authority in fact decided in favour of “Inventory-Corp”, since the said value of the stock did not contain any mark-up. Judgment of the Court The Supreme court explained that, although Slovenian legislation in force at the time did not specifically provided for the methods of determining transfer market comparable prices, the OECD Guidelines can be used as an interpretative aid or indicative aid in assessing transfer pricing within the meaning of Article 10 of the ITA in the present case. Excerpt “16. However, in the Supreme Court’s view, the transfer prices in the present case were determined in accordance with the regulations in force at the time of the decision, as well as in the light of the OECD Guidelines and the subsequent statutory and regulatory framework for transfer pricing in the Republic of Slovenia. Article 10 of the ITA already provided for the use of the comparative price method (average prices on the domestic or comparable market) for the determination of transfer prices, and the OECD Guidelines also laid down the so-called independent market principle, which is otherwise enshrined as the basic principle for transfer pricing in Article 9 of the OECD Model Agreement. This principle is based on comparing the terms and conditions of directed transactions with those of non- directed transactions, or on determining whether the reported values of related transactions are consistent with comparable market prices that would be obtained between unrelated parties in the same or comparable circumstances. The application of the arm’s length principle involves assessing whether the transfer price accepted by the related undertakings is consistent with the price accepted by unrelated parties in a comparable arm’s length transaction. 17. In determining the transfer prices of inventories at cost, the Primary Authority has satisfied the standard of average prices in the domestic or comparable market, or has reasonably determined those transfer prices on the basis of the so-called free internal price comparability method, i.e. comparing the prices achieved by the auditor with a related party with the prices achieved by the auditor with unrelated parties. In fact, the tax authority found that, in the present case, the only prices realised with unrelated parties were the prices on the basis of which the auditor purchased the material from suppliers on the domestic and foreign markets (purchase prices) and the same (selling) price agreed by the auditor with the unrelated party, B. d.o.o., for a part of this material, to which the auditor, on the same day as to the related party A. Ltd, sold part of the same stock of material that was also the subject of the sale with the related party, at cost, but not at 15% of cost as he had sold it to the related party. In doing so, he also reasonably checked the price obtained against the so-called special conditions of the business (within the meaning of Article 9 of the OECD Model Agreement) alleged by the auditor (that the business was being wound up and, in the case of the sale to B.o.o., a prior order), but found that these alleged special conditions were not present or had not been demonstrated by the auditor in the present case. 18. In the Court’s view, therefore, for the reasons correctly stated by both tax authorities and the Court of First Instance in the contested judgment, in the light of the totality of the circumstances of the present case, the correct decision was not to recognise the purchase prices less the 85% rebate to the auditor for the material sold, but to determine them at the cost of purchase in accordance with the definition of transfer prices as tax-recognised prices set out in Article 10(3) of the ITA.” Click here for English translation Click here for other translation ...