TPG2010 Chapter II paragraph 2.82

Category: TPG2010 Part III: Transactional profit methods | Tag: ,
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Whether foreign exchange gains and losses should be included or excluded from the determination of the net profit indicator raises a number of difficult comparability issues. First, it needs to be considered whether the foreign exchange gains and losses are of a trading nature (e.g. exchange gain or loss on a trade receivable or payable) and whether or not the tested party is responsible for them. Second, any hedging of the foreign currency exposure on the underlying trade receivable or payable also needs to be considered and treated in the same way in determining the net profit. In effect, if a transactional net margin is applied to a transaction in which the foreign exchange risk is borne by the tested party, foreign exchange gains or losses should be consistently accounted for (either in the calculation of the net profit indicator or separately).






Related Guidelines

  1. TPG2022 Chapter II paragraph 2.88Whether foreign exchange gains and losses should be included or excluded from the determination of the net profit indicator raises a number of difficult comparability issues. First, it needs to be considered whether the foreign exchange gains and losses are of a trading...
  2. TPG2022 Chapter II paragraph 2.87In those cases where there is a correlation between the credit terms and the sales prices, it could be appropriate to reflect interest income in respect of short-term working capital within the calculation of the net profit indicator and/or to proceed with a...
  3. TPG2022 Chapter II paragraph 2.86Non-operating items such as interest income and expenses and income taxes should be excluded from the determination of the net profit indicator. Exceptional and extraordinary items of a non-recurring nature should generally also be excluded. This however is not always the case as...
  4. TPG2022 Chapter II paragraph 2.85Similarly, when analysing the transactions between the independent enterprises to the extent they are needed, profits attributable to transactions that are not similar to the controlled transactions under examination should be excluded from the comparison. Finally, when net profit indicators of an independent...
  5. TPG2022 Chapter II paragraph 2.84Costs and revenues that are not related to the controlled transaction under review should be excluded where they materially affect comparability with uncontrolled transactions. An appropriate level of segmentation of the taxpayer’s financial data is needed when determining or testing the net profit...
  6. TPG2022 Chapter II paragraph 2.75Prices are likely to be affected by differences in products, and gross margins are likely to be affected by differences in functions, but net profit indicators are less adversely affected by such differences. As with the resale price and cost plus methods that...


Related Case Law

  1. Spain vs MAHOU (SAN MIGUEL) S.A., December 2021, Audiencia Nacional, Case No SAN 5537/2021 – ECLI:ES:AN:2021:5537The Mahou (SAN MIGUEL) S.A Group is active in brewing and sale of beers. Penibética de cervezas y bebidas SL and Andaluza de cervezas y bebidas SL are wholly owned by Cervezas Alhambra SL, which again is owned by MAHOU (SAN MIGUEL) S.A....
  2. Spain vs Universal Pictures International Spain SL, December 2022, Audiencia Nacional, Case No SAN 5855/2022 – ECLI:EN:AN:2022:5855Universal Pictures International Spain SL is a distributor of films on the Spanish Market. It distributes films both from related parties (Universal Pictures) and from unrelated parties. Following an audit, the Spanish tax authorities issued an assessment where the remuneration received for distribution...
  3. Spain vs Ferroli España, S.L.U., May 2023, Audiencia Nacional, Case No 3400/2023 – ECLI:EN:AN:2023:3400Ferroli España, S.L.U. is a Spanish manufacturer manufacture of cookers and heaters. In FY 2010 and 2011 the company had various transactions with other companies in the Ferroli Group and reported negative profit margins on these transactions. According to the company this was...
  4. Tanzania vs Amadeus Global Travel Distribution Limited, March 2026, Court of Appeal, Civil Appeal No. 227 of 2025Amadeus Global Travel Distribution Limited is a Tanzanian branch of a Kenya-resident entity, itself a wholly owned subsidiary of Amadeus ITG based in Madrid, Spain. The appellant's business consists of commercialising the Amadeus GDS system in Tanzania. The dispute concerned the income year...
  5. Indonesia vs PT Pacific Palmindo Industri, May 2023, Supreme Court, Case No. 1396/B/PK/Pjk/2023PT Pacific Palmindo Industri challenged a Tax Court decision upholding a business turnover correction of IDR 97.6 billion on related-party commodity sales. The tax authority applied the CUP method using Malaysian Palm Oil Board market quotations. Indonesia's Supreme Court rejected the taxpayer's review...