All Posts By

Vanessa Ramos Ferrin

27 October 2023
0

Administrative Tribunal decision about economic rationality of some intra-group services

By | Court cases update

In a recent case, the Luxembourg Tax Authorities challenged the limited risk service approach used by a Company in Luxembourg to justify a remuneration allocation to an associated Company in Switzerland.

Here are some key points of this case:

A. 𝗧𝗮𝘅 𝗽𝗿𝗼𝗯𝗹𝗲𝗺

On 22 June 2020, the Luxembourg tax authorities (LTA) informed to the Company A the payments performed to Company D concerning to some variable remuneration during the fiscal year 2015, 2016 and 2017 are not deductible for tax purposes because there is no economic justification.

B. 𝗕𝗮𝗰𝗸𝗴𝗿𝗼𝘂𝗻𝗱

The Company A is a distributor of several pharmaceutical products in Luxembourg.

The Company D is a distributor of several pharmaceutical products in Switzerland.

In 2014, the rights and obligations of Company D’s pharmaceutical contracts were transferred to Company A. The transfer included variable annual remuneration: payments made from Company A to Company D, determined by:

➡ product turnover generated by Company A,

➡ minus operational costs of Company A and a

➡ 4% profit margin of Company A.

C. 𝗟𝗧𝗔’𝘀 𝗺𝗮𝗶𝗻 𝗮𝗿𝗴𝘂𝗺𝗲𝗻𝘁𝘀

LTA contested Company A’s lack of evidence regarding Company D’s commitment and responsibility for operational risks post-formation. Company A presented operating expenses, including marketing, salaries, and other costs, contrasting with Company D’s minimal overheads, devoid of similar expenses or remunerations.

D. 𝗖𝗼𝗺𝗽𝗮𝗻𝘆 𝗔’𝘀 𝗺𝗮𝗶𝗻 𝗮𝗿𝗴𝘂𝗺𝗲𝗻𝘁𝘀

Company A negotiated significant concessions from Company D, reducing risks and securing favorable terms during the transfer of main contracts. Despite this transfer, Company D retained the primary obligations and strategic decision-making, including financial responsibilities and transaction risks, as confirmed by a transfer pricing study. According to this analysis, Company A functions as a limited risk distributor and legal asset owner, justifying routine remuneration, while the residual profit allocation belongs to Company D.

E. 𝗧𝗿𝗶𝗯𝘂𝗻𝗮𝗹 𝗱𝗲𝗰𝗶𝘀𝗶𝗼𝗻

The Administrative Tribunal ruled in favor of Company A, validating the deductions.

The LTA can appeal the decision (role number 46054 dated 14 of June 2023).

F. Takeaways

This audit case allows us to have a view of the recent trends of transfer pricing audits of intercompany services in Luxembourg. This case confirms the importance of:

  • Performing a selection of the business model of the tested party should be in line with the actual conduct of the related parties and the economic rationality of the transactions.
  • Checking the alignment of functionalities expressed in transfer pricing documentation with the actual conduct of the related parties.
  • Confirming that the arm’s length remuneration is in accordance with the actual conduct of the related parties.
  • Validating the proper application of the transfer pricing policy within the Group.

 

2 October 2023
0

TFPS was awarded in the Leaders League 2024

By | Announcements

The Leaders League awarded TransFair Pricing Solutions (“TFPS”) with the notation “Excellent” within the Best Transfer Pricing Agencies – ranking 2024 – Luxembourg.

This notation is thanks to the positive feedback of our clients and peers, and it recognizes TFPS’s high quality, expertise, commitment, independence, and fair solutions in the market.

Leaders League’s rankings comprise extensive research and interviews with company executives, in-house counsel, associations, institutions, and industry experts.

TFPS is an independent firm dedicated to providing tailor-made transfer pricing and valuation solutions to financial and corporate entities. TFPS team comprises transfer pricing and valuation experts who provide quality, expertise, commitment, independence, and fair solutions to its clients.

All details about the ranked companies are available at this link.

20 August 2023
0

TFPS was awarded in the World Transfer pricing 2024

By | Announcements

The International Tax Review (ITR) awarded TransFair Pricing Solutions (“TFPS”) with tier two ranking in the 2024 World Transfer Pricing guide. This tier rating is thanks to the positive feedback of our clients and peers, and it recognizes TFPS’s high quality, expertise, commitment, independence, and fair solutions in the market.

The World Transfer Pricing 2024 is a comprehensive guide to the world’s leading transfer pricing practitioners, which includes rankings and profiles of the most effective professionals in the world in this field, covering over 64 jurisdictions on every continent. ITR editorial team’s research produced this guide based on the feedback from the market and tax professionals around the world.

TFPS is an independent firm dedicated to providing tailor-made transfer pricing and valuation solutions to financial and corporate entities. TFPS team comprises transfer pricing and valuation experts who provide quality, expertise, commitment, independence, and fair solutions to its clients.

All details about the ranked companies are available at this link.

17 October 2022
0

TFPS was awarded in the Leaders League 2023

By | Announcements

The Leaders League awarded TransFair Pricing Solutions (“TFPS”) with the notation “Excellent” within the Best Transfer Pricing Agencies – ranking 2023 – Luxembourg.

This notation is thanks to the positive feedback of our clients and peers, and it recognizes TFPS’s high quality, expertise, commitment, independence, and fair solutions in the market.

Leaders League’s rankings comprise extensive research and interviews with company executives, in-house counsel, associations, institutions, and industry experts.

TFPS is an independent firm dedicated to providing tailor-made transfer pricing and valuation solutions to financial and corporate entities. TFPS team comprises transfer pricing and valuation experts who provide quality, expertise, commitment, independence, and fair solutions to its clients.

All details about the ranked companies are available at this link.

Leadersleague2023

 

28 September 2022
0

TFPS was awarded in the World Transfer pricing 2023

By | Announcements

The International Tax Review (ITR) awarded TransFair Pricing Solutions (“TFPS”) with tier two ranking in the 2023 World Transfer Pricing guide. This tier rating is thanks to the positive feedback of our clients and peers, and it recognizes TFPS’s high quality, expertise, commitment, independence, and fair solutions in the market.

The World Transfer Pricing 2023 is a comprehensive guide to the world’s leading transfer pricing practitioners, which includes rankings and profiles of the most effective professionals in the world on this field, covering over 64 jurisdictions on every continent. ITR editorial team’s research produced this guide based on the feedback from the market and tax professionals around the world.

TFPS is an independent firm dedicated to providing tailor-made transfer pricing and valuation solutions to financial and corporate entities. TFPS team comprises transfer pricing and valuation experts who provide quality, expertise, commitment, independence, and fair solutions to its clients.

All details about the ranked companies are available at this link.

 

4 January 2022
0

TFPS was awarded in the Leaders League 2022

By | Announcements

The Leaders League awarded TransFair Pricing Solutions (“TFPS”) with the notation “Excellent” within the Transfer pricing tax – ranking 2022 – Auditing and accounting firms – Luxembourg.

This notation is thanks to the positive feedback of our clients and peers, and it recognizes TFPS’s high quality, expertise, commitment, independence, and fair solutions in the market.

Leaders League’s rankings comprise extensive research and interviews with company executives, in-house counsel, associations, institutions, and industry experts.

TFPS is an independent firm dedicated to providing tailor-made transfer pricing and valuation solutions to financial and corporate entities. TFPS team comprises transfer pricing and valuation experts who provide quality, expertise, commitment, independence, and fair solutions to its clients.

All details about the ranked companies are available at this link.

7 November 2021
0

TFPS was awarded in the World Transfer pricing 2022

By | Announcements

The International Tax Review (ITR) awarded TransFair Pricing Solutions (“TFPS”) with tier three ranking in the 2022 World Transfer Pricing guide. This tier rating is thanks to the positive feedback of our clients and peers, and it recognizes TFPS’s high quality, expertise, commitment, independence, and fair solutions in the market.

The World Transfer Pricing 2022 is a comprehensive guide to the world’s leading transfer pricing practitioners, which includes rankings and profiles of the most effective professionals in the world on this field, covering over 64 jurisdictions on every continent. ITR editorial team’s research produced this guide based on the feedback from the market and tax professionals around the world.

TFPS is an independent firm dedicated to providing tailor-made transfer pricing and valuation solutions to financial and corporate entities. TFPS team comprises transfer pricing and valuation experts who provide quality, expertise, commitment, independence, and fair solutions to its clients.

All details about the ranked companies are available at this link.

6 July 2021
0

TFPS wins award at Global Advisory Experts 2021

By | Announcements

The Global Advisory Experts (GAE) awarded TransFair Pricing Solutions (“TFPS”) as Transfer Pricing Advisory Firm of the Year in Luxembourg – 2021.

GAE has conducted its extensive nomination and research process for its 12th Annual GAE Awards. The shortlisted candidates were judged on client testimonials, key cases, rankings, overall reputation, publication contributions, speaking engagements and the performance and standing of teams and individual experts.

TFPS is an independent firm dedicated to providing tailor-made transfer pricing and valuation solutions to financial and corporate entities. TFPS team comprises transfer pricing and valuation experts who provide quality, expertise, commitment, independence, and fair solutions to its clients.

GAE is one of the world’s leading online resources for locating specialist advisers for the services required by businesses, investors and individuals around the world with over 40,000 users visiting our website each month. GAE is the premier guide to leading advisory experts throughout the world. It is the only organisation to recommend just one expert in each chosen specialism and country.

All details about the winner companies are available at this link.

 

 

 

10 March 2021
0

TFPS was awarded in the Leaders League 2021

By | Announcements

The Leaders League awarded TransFair Pricing Solutions (“TFPS”) with the notation “Highly recommended” within the Transfer pricing – ranking 2021 – Law firm & Agencies – Luxembourg.

This notation is thanks to the positive feedback of our clients and peers, and it recognizes TFPS’s high quality, expertise, commitment, independence, and fair solutions in the market.

Leaders League’s rankings comprise extensive research and interviews with company executives, in-house counsel, associations, institutions, and industry experts.

TFPS is an independent firm dedicated to providing tailor-made transfer pricing and valuation solutions to financial and corporate entities. TFPS team comprises transfer pricing and valuation experts who provide quality, expertise, commitment, independence, and fair solutions to its clients.

All details about the ranked companies are available at this link.

14 January 2021
0

New OECD guidance for Transfer pricing implications of the COVID-19 pandemic

By | Regulations update

A. Background & Scope

On 18 December 2020, the new Guidance on the transfer pricing implications of the COVID-19 pandemic was released by the OECD. This Guidance represents a consensus view of the 137 members of the Inclusive Framework on BEPS regarding the application of the arm’s length principle and the OECD Transfer Pricing Guidelines.

This guidance focuses on how the arm’s length principle and the OECD TPG 2017 apply to certain issues that may arise or be exacerbated in the context of the COVID-19 pandemic. In addition, this guidance is helpful both for taxpayers in reporting the financial periods affected by the pandemic and for tax administrations in evaluating the implementation of taxpayers’ transfer pricing policies.

B. Priority issues

This Guidance provides 31 pages with comments, illustrations, and the practical application of the arm’s length principle in four priority issues:

  • comparability analysis.
  • losses and the allocation of COVID-19 specific costs.
  • government assistance programmes.
  • advance pricing agreements.

The following points highlight the scope and additional analyses necessary for managing each priority issue:

         1. Comparability analysis

The pandemic may have a significant impact on the pricing of some transactions between independent enterprises and may reduce the reliance that can be placed on historical data. The impact may be a non-reliable comparability analysis.

This issue may require an analysis of the following aspects:

    • Sources of information
    • Forecasted financial information
    • Timing of information of comparables
    • Arm’s length outcome testing approach
    • Application of more than one transfer pricing method
    • Financial information from the global financial crisis 2008/2009
    • Price adjustment mechanisms in controlled transactions approach
    • Use of loss making and existing set of comparables.

2. Losses and the allocation of COVID-19 specific costs

The allocation of losses between associated entities can give rise to disputes, and even more given the probable increase in the frequency and magnitude of losses in the current economic environment.

This issue may require an analysis of the following aspects:

    • Risk assumption among what entities operating under limited risk arrangements may incur losses.
    • Circumstances under which arrangements may be modified.
    • Allocation and comparability aspects of operational or exceptional costs between related parties.
    • Impact of the force majeure clauses on the allocation of losses.

3. Government assistance programmes

Grants, subsidies, forgivable loans, tax deductions, investment allowances, broader financial or liquidity supports together qualified as “government assistance programmes” could potentially have transfer pricing implications on the accurately delineated controlled transaction.

The impact may happen whether the government assistance is provided to a member of a multinational enterprise “MNE” group directly or made available to independent parties within the market where an MNE group operates.

This issue may require an analysis of the following aspects:

    • Economic relevant characteristic of the government assistance in the local and counterparty jurisdiction.
    • Effect of the receipt of government assistance on the comparability analysis and pricing & allocation of risk of a controlled transaction.

 4. Advance pricing agreements (“APA”)

The existing unilateral, bilateral, and multilateral APAs might be not applied correctly because of disregard of the terms and breach of the critical assumptions as consequence of change in economic conditions driven by the pandemic.

This issue may require an analysis of the following aspects:

    • Boundaries of existing APAs considering the changes in economic conditions
    • Reasons applicable for breaching a critical assumption
    • Reactions of the tax administrations against the failure to meet critical assumptions
    • Timing for notifying to the tax administrations the failure to meet critical assumptions
    • Documentation for supporting the failure to meet critical assumptions
    • Reactions of the tax administrations against the non-compliance of an existing APA
    • Impact of COVID-19 on APAs under negotiation

5. Takeaways

The application of the guidance for tackling the transfer pricing issues of the COVID-19 pandemic imply a cooperation between the tax administration and taxpayers in terms of flexibility and the exercise of good judgment.

In that regard, the next steps should be performed by taxpayers to ensure the application of this guidance on the existing and upcoming controlled transactions of the year 2020 and year 2021 (“intercompany transactions”), respectively:

    • Review intercompany transactions and relevant documents impacted by the COVID-19 pandemic.
    • Identify which of the four priority issues affects the application of the arm’s length principle on the intercompany transactions.
    • Perform a risk assessment including the revision, identification, and quantification of the possible risks in connection with the intercompany transactions.
    • Understand in details the comments expressed in the new guidance in connection with the priority issue(s).
    • Prepare a transfer pricing documentation, including the analyses described in the new guidance in connection with the priority issue(s).
    • Verify the alignment of the information reflected in the transfer pricing documentation with the COVID-19 market conditions and actual conduct of the parties involved in the intercompany transactions.

Transfer Pricing Webinar
Register for our Webinar on 12th February at 10h00 AM to learn more about this new OECD Guidance.