Generally speaking, a loss-making uncontrolled transaction should trigger further investigation in order to establish whether or not it can be a comparable. Circumstances in which loss-making transactions/ enterprises should be excluded from the list of comparables include cases where losses do not reflect normal business conditions, and where the losses incurred by third parties reflect a level of risks that is not comparable to the one assumed by the taxpayer in its controlled transactions. Loss-making comparables that satisfy the comparability analysis should not however be rejected on the sole basis that they suffer losses.
TPG2022 Chapter III paragraph 3.65
Category: A. Performing a comparability analysis | Tag: Arm’s length range, Comparability analysis, Continuous losses, Extreme results, Interquartile range (IQR), Loss-making comparables, Median
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Next » Related Guidelines
- TPG2022 Chapter III paragraph 3.66A similar investigation should be undertaken for potential comparables returning abnormally large profits relative to other potential comparables....
- TPG2022 Chapter III paragraph 3.64An independent enterprise would not continue loss-generating activities unless it had reasonable expectations of future profits. See paragraphs 1.149-1.151. Simple or low risk functions in particular are not expected to generate losses for a long period of time. This does not mean however...
- OECD COVID-19 TPG paragraph 32For example, assume that geographic comparability is deemed as the most relevant comparability factor given the nature of the effects of COVID-19 in a particular market. In these circumstances, in order to obtain reliable data from a particular market it may potentially be...
- TPG2022 Chapter III paragraph 3.42The second possibility, the “deductive” approach, starts with a wide set of companies that operate in the same sector of activity, perform similar broad functions and do not present economic characteristics that are obviously different. The list is then refined using selection criteria...
- OECD COVID-19 TPG paragraph 39In all circumstances it will be necessary to consider the specific facts and circumstances when determining whether a so-called “limited-risk” entity could incur losses at arm’s length. This is reflected in the OECD TPG which states that “simple or low risk functions in...
- TPG2022 Chapter I paragraph 1.59This section provides guidance on the nature and sources of risk relevant to a transfer pricing analysis in order to help identify relevant risks with specificity. In addition, this section provides guidance on risk assumption under the arm’s length principle. The detailed guidance...
- TPG2022 Chapter I paragraph 1.52The actual contributions, capabilities, and other features of the parties can influence the options realistically available to them. For example, an associated enterprise provides logistics services to the group. The logistics company is required to operate warehouses with spare capacity and in several...
- TPG2022 Chapter I paragraph 1.57Risk is inherent in business activities. Enterprises undertake commercial activities because they seek opportunities to make profits, but those opportunities carry uncertainty that the required resources to pursue the opportunities either will be greater than expected or will not generate the expected returns....
- 2018: ATO Taxpayer Alert on Mischaracterisation of activities or payments in connection with intangible assets (TA 2018/2)The ATO is currently reviewing international arrangements that mischaracterise intangible assets[1] and/or activities or conditions connected with intangible assets. The concerns include whether intangible assets have been appropriately recognised for Australian tax purposes and whether Australian royalty withholding tax obligations have been met. Arrangements...
- EU JTPF, March 2017, Report on the Use of Comparables in the EUIn March 2017 the JTPF agreed the Report on the Use of Comparables in the EU. The report establishes best practices and pragmatic solutions by issuing various recommendations for both taxpayers and tax administrations in the EU and aims at increasing in practice...
Related Case Law
- Spain vs Ikea, March 2019, Audiencia Nacional, Case No SAN 1072/2019The tax administration had issued an adjustment to the taxable profit of IKEA’s subsidiary in Spain considering that taxable profit in years 2007, 2008, and 2009 had not been determined in accordance with the arm’s length principle. In 2007 taxable profits had been...
- Argentina vs Boehringer Ingelheim S.A. , April 2012, Tribunal Fiscal de la Nación, Case No 26713The tax authorities had not contested but have accepted the method (TNMM) used by the company to assess their transactions with related or affiliated parties, the dispute is therefore limited to certain aspects of the application of the methodology. Boehringer had used ROS...
- Finland vs A Oy, September 2021, Supreme Administrative Court, Case No. KHO:2021:127A Oy, the parent company of group A, had not charged a royalty (the so-called concept fee) to all local companies in the group. The tax authorities had determined the level of the local companies’ arm’s length results and thus the amounts of...
- Spain vs Transalliance Iberica SA, November 2022, Audiencia Nacional, Case No SAN 5336/2022 – ECLI:EN:AN:2022:5336Transalliance Iberica SA had priced its controlled transactions for the years 2008-2013 by comparing the gross margin achieved on an overall basis with the gross margins of comparable companies. Following an audit, the tax authorities issued a notice of assessment rejecting the method...