ZERAIM IBERICA SA, a Spanish subsidiary in the Swiss Syngenta Group (that produces seeds and agrochemicals), had first been issued a tax assessment relating to fiscal years 2006 and 2007 and later another assessment for FY 2008 and 2009 related to the arm’s length price of seeds acquired from Zeraim Gedera (Israel) and thus the profitability of the distribution activities in Spain. The company held that new evidence – an advance pricing agreement (APA) between France and Switzerland – demonstrated that the comparability analysis carried out by the Spanish tax authorities suffered from significant deficiencies and resulted in at totally irrational result, intending to allocate a net operating result or net margin of 32.79% in fiscal year 2008 and 30.81% in 2009 to ZERAIM IBERICA SA when the profitability of distribution companies in the sector had average net margins of 1.59%. The tax authorities on there side argued that the best method for pricing the transactions was the Resale Price Method and further argued that the companies in the benchmark study provided by the taxpayer were not comparable. The authorities also pointed to the fact that ZERAIM IBERICA SA prior to entering the distribution agreement had a gross margin of around 40%, and now after entering the agreement would have a net margin of only 1.5%. The Court held in favor of the tax authorities due to (1) lack of explanation to the shift in profitability of ZERAIM IBERICA SA before and after entering the distribution agreement and (2) lack in comparability between the companies selected for the benchmark study and the Spanish distributor and (3) the transactional net margin method presented by the taxpayer in accordance with Spanish regulations is subordinated to the direct methods (resale price minus etc.). Click here for English translation Click here for other translation ...