Background
The case referred to in this resolution focuses on a company whose economic activity is the distribution of motor vehicles; that, during 2009, it imported goods from its related parties for resale in the local market. In this context, the taxpayer was able to support that the prices established in the import with its related parties were at market values through its Transfer Pricing Study of that year, where it concluded that the profitability obtained by the Company during the year 2019 was within the profitability ranges of the companies selected as comparable in a 3-year economic cycle (2007 to 2009).
Based on this, during the audit, the Tax Administration questioned the Company’s profitability calculation due to the fact that the taxpayer excluded expenses for commissions and incentives. For this reason, the Tax Administration proceeded to consider the expenses to determine the profitability of the Company, as well as considering only the year 2009 of the financial information of the selected companies as comparable. The results showed that the Company was in loss, which is why it applied an adjustment of around S/. 44 MM.
On the other hand, the Company defended its position by indicating that the exclusion of such commission expenses did not correspond because they were the product of the efforts that were made due to the international financial crisis that affected the automotive sector at the end of 2008. Therefore, they were considered as “extraordinary expenses” under the position that in the application of the transactional net margin (NTM) method, those expenses or income that are not related to normal business activity must be excluded.
BEEF. 04508-9-2022
It was determined that the Tax Administration has not proven that it has carried out a new comparability analysis that supports the modification of the periods corresponding to the financial information of the companies selected as comparable. This is due to the fact that an evaluation of the information has not been carried out exclusively for the 2019 financial year if it would qualify as comparable with the Company’s financial information for the same period.
According to the OECD Guidelines, the existence of an economic, trade or product cycle is one of the economic circumstances that may affect comparability, and that analysis of multi-year financial information could reveal facts that may have influenced (or should have influenced) the determination of transfer pricing.
Therefore, the Tax Court urges the Tax Administration to carry out its own analysis, which is fundamental and mandatory, according to the provisions of subsection d) of article 32 A of the Income Tax Law and article 110 of the regulations, which indicates that, in order to identify the set of companies that will be used as comparables to verify the market value of the subject transactions of analysis, it is feasible to assert that the selected companies were sufficiently comparable or if there were other possible companies that could be better or more reliable than those selected by the taxpayer in the Transfer Pricing Study considering elements and/or circumstances such as: (a) their characteristics, (b) functions, assets and risks assumed and (c) market economies.
