Tag: Verifiable data

TPG2022 Chapter II paragraph 2.166

Profits should be split on an economically valid basis that reflects the relative contributions of the parties to the transaction and thus approximates the division of profits that would have obtained at arm’s length. The relevance of comparable uncontrolled transactions or internal data (see Section C.5.2) and the criteria used to achieve an arm’s length division of the profits depend on the facts and circumstances of the case. It is therefore not desirable to establish a prescriptive list of criteria or profit splitting factors. See paragraphs 2.146-2.148 for general guidance on the consistency of the determination of the splitting factors. In addition, the criteria or splitting factors used to split the profit should be: independent of transfer pricing policy formulation, i.e. they should be based on objective data (e.g. sales to independent parties), not on data relating to the remuneration of controlled transactions (e.g. sales to associated enterprises), verifiable, and supported by comparables data, internal data, or both ...

Spain vs “Benchmark SA”, November 2021, TEAC, Case No Rec. 4881/2019

The tax authorities excluded some of the entities selected by the taxpayer in a benchmark study, as it considered that they did not meet the necessary comparability requirements, and also included some of the excluded entities, as it considered that they were comparable. These modifications to the benchmark resulted in a variation of the arm’s length range, with the margin earned by the taxpayer falling outside the range. The taxpayer argued that the recalculation of market value should be based on a complete new analysis to replace the one provided by the entity. In relation to the rejection of certain comparables, the taxpayer argued that the information used by the tax authorities and consulted on the internet was not available at the time the transfer pricing documentation was prepared. Judgement of the TEAC The TEAC rejected the claim filed by the taxpayer and upheld the assessment of the tax authorities. It is not necessary to carry out a new economic analysis to replace the one provided by the entity, given that the inspection accepts said analysis, and what it limits itself to is correcting the defects present in the same. It is considered reasonable for the inspectorate to apply a rejection criterion based on the number of employees, taking into account that the taxpayer has more than 200 employees on its payroll and that the claimant applied other rejection criteria in order to ensure comparability of the size of the companies. It is understandable that the administration uses the information contained in the websites of the companies selected as comparable at the time of the inspection, it is quoted “as it could not be otherwise”. The TEAC refers to the OECD Guidelines on Transfer Pricing for Multinational Enterprises and Tax Administrations, which stress the importance of verifying the information obtained in the databases. The inspection is justified in making the adjustment to the median because the Administration has revealed  comparability defects in the benchmark provided by the taxpayer in the economic analysis. Click here for English translation Click here for other translation Spain vs XZ SA, Resolución de 23 noviembre 2021 (Rec. 4881-2019) ...

TPG2018 Chapter II paragraph 2.166

Profits should be split on an economically valid basis that reflects the relative contributions of the parties to the transaction and thus approximates the division of profits that would have obtained at arm’s length. The relevance of comparable uncontrolled transactions or internal data (see section C.5.2) and the criteria used to achieve an arm’s length division of the profits depend on the facts and circumstances of the case. It is therefore not desirable to establish a prescriptive list of criteria or profit splitting factors. See paragraphs 2.146-2.148 for general guidance on the consistency of the determination of the splitting factors. In addition, the criteria or splitting factors used to split the profit should: Be independent of transfer pricing policy formulation, i.e. they should be based on objective data (e.g. sales to independent parties), not on data relating to the remuneration of controlled transactions (e.g. sales to associated enterprises), Be verifiable, and Be supported by comparables data, internal data, or both ...