Exploring four recent transfer pricing cases
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Exploring four recent transfer pricing cases

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Deloitte’s practitioners from across the globe report on four of the most prominent transfer pricing (TP) controversy cases from the recent past: Adecco (Denmark), Glencore (Australia), Cameco (Canada), and Philips (France).

The following summaries of court cases provide an indication of concerns that tax authorities may be considering globally. The results from the cases indicate an increased emphasis on the alignment of tax arrangements with actual commercial practices. The challenges posed by the tax authorities in these cases reflect the broader concerns of tax administrations regarding the importance of economic substance, as reflected in the mandates of the OECD BEPS programme and adopted via tax legislation in many countries.

Another interesting observation that emerges from these cases involves the critical importance of preparing detailed documentation to support the arrangements with controlled parties. The outcome of the cases has largely depended on the strength of the documentation provided by the taxpayer, underscoring that the tax examiners cannot challenge positions that are thoroughly described in documentation and supported by reference to transactional documents, such as inter-company agreements.

Courts have found in documentation, and arguments presented by the taxpayers, sufficient evidence to support the underlying commercial substance of the arrangements with the TP arrangements under consideration. As a result, the positions put forward by the tax administrations were not sustainable.

Denmark: Adecco

On June 25 2020, the Danish Supreme Court handed down its ruling in a landmark TP case on inter-company royalties. The Supreme Court ruled in favour of the Danish taxpayer, Adecco, thereby setting aside the previous rulings of the National Tax Tribunal and the High Court, respectively.

Summary of facts

Adecco, the Danish taxpayer, a member of a multinational staffing group headquartered in Switzerland, paid royalties to the Swiss parent company of the group pursuant to an inter-company license agreement. This covered the right to use trademarks legally owned by the parent as well as certain services, including know-how and access to referred-in customers through the group's network. Adecco made losses in the tax years subject to dispute.

Considering the circumstances of the case, including the fact that the taxpayer was loss-making, the Danish tax authorities found that the applicable royalty rate was not in accordance with the arm's-length principle and, in any event, Adecco should have been remunerated for certain deemed marketing services that would net out any royalty deduction, effectively resulting in 0% royalty rate. The tax authorities further disqualified Adecco's TP documentation on the basis of deemed flaws and made a discretionary tax assessment accordingly.

During the court proceedings, the Danish Ministry of Taxation reiterated the tax authorities' position and, further, argued that the royalties did not meet the threshold for deductibility under the Danish domestic statute on deductible business expenses. The High Court agreed with the Ministry that the taxpayer had failed to prove that the royalties were in fact deductible business expenses.


The Supreme Court held that the royalties were deductible business expenses. Specifically, the court found that the royalties were sufficiently linked to the business earnings of the taxpayer and, based on the evidence presented before the court, that royalties covered actual and valuable intellectual property being made available to Adecco. The court further noted that the loss-making position of the company could not alter that conclusion.

The court found that Adecco's TP documentation was not flawed to such an extent that it authorised the tax authorities to disqualify the documentation and make a discretionary assessment, thereby shifting the burden of proof to the Ministry.

The court majority found that the Ministry had failed to prove that the royalty rate did not adhere to the arm's-length principle. Specifically, the court noted that the Ministry had failed to demonstrate specific insufficiencies in the comparability analysis (CUP) presented by Adecco and, further, did not find any basis for reduction of the rate based on a deemed transaction involving marketing services.

Deloitte Denmark advised Adecco throughout the proceedings. The Deloitte professionals responsible for the case are Kasper Toftemark, Casper Guldhammer Jensen, and Ann Sofie Bisgaard. Please contact us for more information.

Australia: Glencore

On September 3 2019, the Federal Court of Australia decided in favour of the Australian taxpayer in a TP case involving the arm's-length conditions of a copper concentrate sales arrangement, entered into by Cobar Management Pty Ltd (CMPL) and Glencore International AG (GIAG), related parties in the Glencore Group. The Australian Taxation Office (ATO) has appealed the decision to the Full Federal Court and at the time of writing, the appeal is expected to be heard in September 2020.

Summary of facts

In February 2007, CMPL entered into a new offtake agreement with its related party trading entity, GIAG, for the supply of all copper concentrate produced for the life of CMPL's copper mine. This offtake agreement, which had a new price sharing formula for certain downstream costs for refining the product, replaced an existing agreement between the parties that had used a different pricing formula.

The Commissioner of Taxation challenged the terms of the new offtake agreement, contending that at the time the contract was negotiated, an independent copper mine operator with a commercial strategy to be as profitable as possible would not have agreed to the new terms.

The commissioner sought to disregard the actual arrangement and constructed a hypothetical arrangement, in which CMPL and GIAG had continued their previous contractual arrangement unchanged. The court heard from expert witnesses and considered evidence from a number of independent copper purchase agreements on market behaviour in the industry.


The Federal Court ruled that CMPL's new offtake agreement was based on similar terms to those evidenced within third-party agreements. Following this confirmation of the arm's-length conditions in the arrangement, the court confirmed that the consideration provided to CMPL was within an arm's-length range.

It was recognised by the court that a third-party agreement between independent parties need not be directly equivalent or identical to demonstrate arm's-length terms. Rather, they can evidence market behaviour and industry practice in arm's-length arrangements between independent parties in comparable circumstances.

With reference to the Chevron decision in Australia and the OECD Transfer Pricing Guidelines, the court noted that the commissioner's power to reconstruct an arrangement should only be used in exceptional cases (per the wording in the 1995 OECD Guidelines) and did not extend to completely disregarding the actual transaction and recasting an entirely new one.

Taxpayers who have undertaken or are contemplating amendments to their related party arrangements should consider documenting evidence of similar third-party market behaviour and detailing any negotiations and the commercial reasons for strategic decisions that have taken place.

For further information on this case and the potential implications for your business, please contact Fiona Craig, John Bland, Chris Thomas or Belinda Kiem.

Canada: Cameco

On June 26 2020, the Federal Court of Appeal upheld the September 28 2018 Tax Court of Canada decision in the case of Cameco Corporation (Cameco) vs the Canada Revenue Agency (CRA). The Cameco case in Canada can be viewed as one of the recent prominent TP cases in the global tax community. The CRA has until September 25 2020 to seek leave to appeal to the Supreme Court of Canada.

Summary of facts

Based in Canada, Cameco is one of the world's largest publicly traded uranium companies. The TP arrangement at issue involved Cameco Europe (CEL), a subsidiary of Cameco based in Switzerland. CEL purchased uranium from Cameco and third parties pursuant to a number of long-term contracts. In general terms, inter-company purchases from Cameco were priced based on the published long-term price for uranium at the time the contracts were concluded (as is common in the industry). CEL subsequently entered into sales contracts for the uranium purchased from Cameco and the third parties. Due to increases in uranium prices, CEL generated significant profits. The case involved Cameco's 2003, 2005 and 2006 taxation years.

The issues decided in the Cameco case are not confined to any specific area of TP and have broad implications. The key points of judgment in the Cameco case revolved around three topics: sham, re-characterisation and price adjustment.

Specifically, the key principles affirmed by the Tax Court of Canada in the Cameco decision include:

  • The traditional principles of what constitutes a sham continue to apply. If the contractual arrangements reflect the underlying transactions and the intention of the parties, the arrangement should not be considered a sham.

  • A transaction should not be subject to re-characterisation if it is commercially rational. If it is commercially rational, the TP issue is simply the determination of the correct price.

  • If a series of transactions is undertaken primarily for business purposes, it should not be subject to re-characterisation. Unlike the test applied pursuant to the general anti-avoidance rule, the entire series should not be tainted if one aspect is undertaken primarily for tax purposes, provided the overall series is undertaken to achieve a business purpose.

Further, in evaluating transfer prices:

  • Absent a re-characterisation, the TP analysis must focus on the actual transactions and respect the contractual arrangements.

  • A parent of a multinational group is allowed to provide a business opportunity to a subsidiary.

  • Corporations bearing contractual risk will be subject to the resulting profit or loss – it is not critical that the corporation directly employ the individuals that manage the risk.

  • There is a strong preference for traditional transactional TP methods that directly test the price of the transactions actually undertaken. Use of methods that effectively re-write the transaction or determine the income that would be realised if the taxpayer had entered into different contractual arrangements, are to be avoided.

  • TP analyses should, to the extent possible, be based on objective evidence. Speculation about what parties might have known should be avoided.

The CRA has until September 25 2020 to seek leave to appeal the decision of the Federal Court of Appeal to the Supreme Court of Canada, with a potential extension to November 12 2020 due to proposed legislation related to COVID-19 pandemic measures.

In light of the strong focus on contractual arrangements (which might not align with the approach in other jurisdictions), multinationals should review their TP positions and consider whether all significant inter-company transactions are covered by appropriate legal documentation and whether the relevant parties to such transactions are acting in accordance with the legal arrangements.

France: Philips

Research and development (R&D) tax credits and subsidies are major French incentives that enable companies to reduce R&D costs and help attract multinational enterprises (MNEs) to set-up subsidiaries in France. These arrangements are typically remunerated on a cost-plus basis, with the recharged cost base determined generally net of R&D tax credits and subsidies.

This point is frequently challenged by the French Tax Authority (FTA), which may reconsider whether it reflects the actual cost of performing R&D in France. This issue was raised in the Philips case and the Administrative Supreme Court ruled in favour of the taxpayer.

Summary of facts

Philips France provided R&D services to its Dutch headquarters and was remunerated on a cost-plus 10% basis per their contract. The FTA rejected the deduction of the R&D tax credit/subsidies and adjusted the cost base, concluding that:

  1. The inter-company agreement did not explicitly provide for this deduction; and

  2. The mark-up percentage calculated on the full cost base (5%-9% depending on the year) was lower than the 10% mark-up specified in the contract and validated by the FTA based on its own benchmarking analysis.

In France, the burden of proof is on the FTA, which must (i) establish that the parties are related and (ii) demonstrate that an advantage has been granted. To show this advantage, a comparability analysis is generally required (advantage by comparison). However, certain decisions recognised that there are advantages for which, by nature, a shift of profits is deemed to exist, without any comparability analysis (advantage by nature). For instance, waiving a royalty fee, granting interest-free loans or guarantees without a fee, or providing services without a charge constitute advantages by nature.

In the Philips case, after the Appeals Court rejected its benchmarking analysis, the FTA modified its strategy and argued that the R&D tax credit/subsidies were wrongly deducted and thus, it constituted an advantage by nature.


The Supreme Court ruled in favour of the company considering that the deduction of the R&D tax credit cannot be evaluated in isolation, without taking into account and analysing the level of the price of the service, as a shift of profits, even in cases where the agreement does not specify that the deduction is available.

In this respect, the Supreme Court's decision is clear. The deduction of the R&D tax credit/subsidies does not constitute in itself an advantage by nature. This decision is mainly based on the fact that the R&D services were not provided for free, were even not charged at cost, but, instead, were generating a positive margin according to the calculations performed by the FTA. In such a case, an advantage may exist but only if the margin is deemed insufficient, which should be demonstrated using a comparability analysis.

The Supreme Court also concluded that the wrong application of an agreement does not constitute an advantage by nature. This position is consistent with the 'substance over form' principle according to which the conduct of the parties must supplement or replace the contractual arrangement if the contracts are incomplete or not supported by the conduct.

Finally, even if not outlined at the Supreme Court level, it is worth noting that the Court of Appeal requested the FTA to establish whether the cost bases of the companies included in the benchmark were net of R&D tax credit/subsidies, which is likely to be the case in a competitive market.

In the COVID-19 crisis, where significant state supports are granted, the topics addressed in the Philips case might become even more relevant in the coming years.

Deloitte France Taj Tax & Legal team advised the client throughout the proceedings. The Deloitte professionals include Marie-Charlotte Mahieu and Thomas Pautrat. Please contact us for more information.

Click here to read the entire 2020 Deloitte/ITR Transfer Pricing Controversy guide

Kasper Toftemark


Deloitte Denmark

T: +45 30 16 21 77

E: ktoftemark@deloitte.dk

Kasper Toftemark is a partner in the global TP group at Deloitte in Denmark. Working for more than 20 years within the field, he has extensive experience across a wide variety of TP projects.

Over the years, Kasper has successfully led a number of cross-border projects, involving multiple tax jurisdictions. He has worked with TP planning projects, business model optimisations, restructurings, value chain analysis, and financial transactions. Recently, he supported a number of multinational companies with their planning, implementing and documenting of TP affairs.

Over the last five years, Kasper has worked extensively with tax controversy in various forms: tax audits, appeals under the Danish National Tax Tribunal, resolution of double taxation under the double tax treaty and under the EU arbitration convention, as well as both formal and informal agreements with Danish and foreign tax authorities. His contribution to the wide array of clients has consisted in setting strategies, engaging in negotiations directly with tax authorities or as acting as a bystander for companies

Kasper often appears as a host and speaker on TP seminars and conferences.

Christopher Thomas


Deloitte Australia

T: +61 2 8260 4539

E: chrisjthomas@deloitte.com.au

Chris Thomas is a principal in Deloitte's TP team in Sydney, Australia. He has more than 30 years of experience in TP and international tax issues, working with multinational groups and other revenue authorities.

Chris has spent almost 30 years with the ATO and was the Australian Competent Authority for 20 years, where he dealt with bilateral tax disputes and APAs. He has represented Australia at the OECD and other international forums for many years during his time at the ATO.

Since joining Deloitte, Chris has focussed on assisting clients in their disputes and negotiations with revenue authorities.

Belinda Kiem

Senior manager

Deloitte Australia

T: +61 422 357 873

E: bkiem@deloitte.com.au

Belinda Kiem is a senior manager in Deloitte's TP team in Perth, Western Australia. She has more than 10 years of experience in TP and Australian corporate and international tax, working with large multinational groups.

With a focus in the energy and mining industry, Belinda has significant experience in assisting clients on TP issues with the ATO, including concluding on APAs. Belinda has also played a pivotal role in advising large corporates on cross-border financial transactions, restructures, mergers and acquisitions (M&A) transactions and commodity pricing.

Richard Garland


Deloitte Canada

T: +416 601 6026

E: rigarland@deloitte.ca

Richard Garland is a partner in the Toronto office of Deloitte. He is a chartered professional accountant and has more than 30 years of accounting experience focused in the area of corporate international taxation.

Richard has assisted clients in all aspects of international taxation, with particular emphasis on tax treaty issues, cross border financing structures and TP matters. Over the past several years, his work has been focused in the area of TP. Prior to his role in TP, he worked in the area of Canadian mining taxation, including spending a year as the tax director of a Canadian based multinational mining company.

Richard has assisted clients in various industries with all aspects of TP, including documentation studies, audit defense and controversy, and APAs. He has extensive experience assisting clients in dealing with complex TP issues related to intangibles and R&D.

Richard is a member of the firm's technology, media and telecommunications (TMT) tax practice and works closely with the firm's international tax specialists in developing and implementing tax efficient strategies for ownership of intellectual property. He is also a member of the firm's energy and resources industry tax practice, and has extensive experience assisting clients in various resource industry sectors.

Marie-Charlotte Mahieu


Deloitte France

T: +33 1 55 61 60 11

E: mmahieu@taj.fr

Marie-Charlotte Mahieu is a TP partner in the global business tax team. After four years in the tax department of Clifford Chance, she joined Taj in 2007 and has over 15 years of experience in international tax.

In Taj, Marie-Charlotte advises her clients in defining and implementing their global tax strategies and has developed a strong expertise in transparency matters (TP, BEPS/CbCR, FATCA/AEOI).

Marie-Charlotte is engaged in advising MNEs, financial institutions and private equity firms – or their portfolio companies – on their major projects and on their day-to-day business such as French and cross-border acquisitions or restructurings, BEPS impact assessments, tax compliance and tax audits and controversy.

Marie-Charlotte is the vice-president of the French Tax Women's Group (A3F) and also the vice-president of the Tax Commission of the French Association of Corporate Treasurers (AFTE). She is also a member of the IACF (Institute of Tax Consultants).

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