The principles of Chapters I – III of these Guidelines apply equally to transactions involving intangibles and those transactions which do not. Under those principles, as is the case with other transfer pricing matters, the analysis of cases involving the use or transfer of intangibles should begin with a thorough identification of the commercial or financial relations between the associated enterprises and the conditions and economically relevant circumstances attaching to those relations in order that the actual transaction involving the use or transfer of intangibles is accurately delineated. The functional analysis should identify the functions performed, assets used, and risks assumed1 by each relevant member of the MNE group. In cases involving the use or transfer of intangibles, it is especially important to ground the functional analysis on an understanding of the MNE’s global business and the manner in which intangibles are used by the MNE to add or create value across the entire supply chain. Where necessary, the analysis should consider, within the framework of Section D.2 of Chapter I, whether independent parties would have entered into the arrangement and if so, the conditions that would have been agreed ...

Garnet-SPb was the exclusive representative of a German manufacturing company in Russia. Following introduction of restrictions on the supply of certain categories of goods to Russia by the European Union in 2014, the Company had used the services of an intermediary trading company. The intermediary offered the Company to purchase products previously purchased directly from the manufacturer. The difference between the export price of goods according to the manufacturer’s data and the price at which the goods were now purchased by the Company – through the intermediate – was over 40%. During the audit, the tax authority considered that the Company was able and actually exported the goods itself, the transition to the new delivery scheme was aimed at obtaining unjustified tax benefits in the form of overstatement of VAT deductions. The amount of additional income tax and VAT was calculated by the tax authority on the basis of the export value of these goods. The court of first instance ruled in favor of the taxpayer. The court did not see an unjustified tax benefit in the acquisition of goods from abroad through a chain of intermediaries due to the existence of restrictions due to EU sanctions. The new setup of supply was due to objective factors, and the tax authority unreasonably failed to take into account the Company’s arguments that under the EU restrictive measures the Company had grounds to engage intermediaries to guarantee the supply of equipment within the time agreed with its further customers. The tax authority has not proved, multiple deviation from market prices. The tax authorities had not established the market price of identical goods in Russia – taking into account its uniqueness and the current regime of measures limiting the turnover of such goods. The Court of Appeal overturned the decision of the Court of first instance and ruled in favor of the tax authorities. “On the basis of the investigation of the case materials the court of appeal concluded that in the case under consideration the tax authority rightfully proceeded from the established circumstances of artificial inclusion of disputed counter parties into the supply chain as intermediaries for the purpose of unjustified increase of the value of goods in order to overestimate the tax deductible expenses, therefore, it reasonably established the amount of expenses incurred by the taxpayer, taken into account for the purposes of taxation, based on the value of the equipment specified by the manufacturer” Click here for translation ...

The principles of Chapters I – III of these Guidelines apply equally to transactions involving intangibles and those transactions which do not. Under those principles, as is the case with other transfer pricing matters, the analysis of cases involving the use or transfer of intangibles should begin with a thorough identification of the commercial or financial relations between the associated enterprises and the conditions and economically relevant circumstances attaching to those relations in order that the actual transaction involving the use or transfer of intangibles is accurately delineated. The functional analysis should identify the functions performed, assets used, and risks assumed1 by each relevant member of the MNE group. In cases involving the use or transfer of intangibles, it is especially important to ground the functional analysis on an understanding of the MNE’s global business and the manner in which intangibles are used by the MNE to add or create value across the entire supply chain. Where necessary, the analysis should consider, within the framework of Section D.2 of Chapter I, whether independent parties would have entered into the arrangement and if so, the conditions that would have been agreed ...