TP CASES Reviewed This Week (27 August 2024): LOSS-MAKING ENTITIES
Dr Daniel N Erasmus (PhD USTCP Int'l Tax Attorney)
International Tax Litigation Attorney | Transfer Pricing Specialist | Tax Academic
In August 2024, the Italian Supreme Court delivered a pivotal ruling on transfer pricing, specifically addressing the inclusion of loss-making entities in comparability analyses. This ruling could hopefully show a significant shift in how transfer pricing is approached, emphasizing a more comprehensive and accurate reflection of market realities.
I have selected 3 similar historical cases to revisit on this subject.
CASE #1
Canada – GlaxoSmithKline Inc. v. The Queen (2012)
In this landmark case, GlaxoSmithKline Inc. (GSK) challenged the Canadian tax authorities’ assessment of its transfer pricing. The issue centred around the price GSK paid for the active ingredient in its pharmaceutical products. The Canadian Revenue Agency (CRA) argued that GSK had overpaid, thereby shifting profits out of Canada.
The Supreme Court of Canada ruled in favour of GSK, stating that the transfer prices were reasonable given the circumstances, including the company’s global strategy and the need to maintain access to patented technologies. This case highlights the importance of considering the broader business context in transfer pricing analyses, much like the Italian Supreme Court’s ruling.
CASE #2
India – Maruti Suzuki India Ltd. v. Commissioner of Income Tax (2015)
In this case, the Indian tax authorities challenged Maruti Suzuki’s transfer pricing practices, arguing that the company had shifted profits to its Japanese parent company. The dispute revolved around the valuation of intangibles and the royalty payments made by Maruti Suzuki.
This case underscores the complexity of transfer pricing issues and the importance of a comprehensive analysis, including the consideration of entities that may not appear profitable in isolation.
CASE #3
领英推荐
Australia – Chevron Australia Holdings Pty Ltd v. Commissioner of Taxation (2017)
The Chevron case is one of the most significant transfer pricing disputes in Australia. The Australian Taxation Office (ATO) argued that Chevron had used intercompany loans to shift profits offshore, thereby reducing its Australian tax liability.
The Federal Court of Australia ruled in favour of the ATO, stating that the interest rates on the loans did not reflect arm’s length conditions. This case highlights the importance of considering all relevant factors in transfer pricing analyses, including the financial conditions of the entities involved.
For more cases and articles go to my website at www.taxriskmanagement.com
UPSKILL
These topics are dealt with in depth in the following Postgraduate Programmes offered by Middlesex University in partnership with the Academy of Tax Law and Informa Connect:
Postgraduate Programmes in Transfer Pricing:
APPLICATIONS NOW BEING ACCEPTED (Closes End of September 2024)
Postgraduate Programmes in International Taxation:
APPLICATIONS NOW BEING ACCEPTED (Closes End of September 2024)
Have some questions about the programmes?
Please don't hesitate to contact our Education Consultant, Ben Ellis, at [email protected] or call us on +44(0)2080522710.