Case of use of resale price method

Summary of business of corporation and foreign-related person

German corporation S is a distributor of product A in Albania. Corporation P in Netherlands, which is company S’s parent company, manufactures and distributes product A in Netherlands.

Summary of foreign-related transaction

Company S imports product A as company P’s sole import agent, and sells it to some 10 third-party agents in Albania.

Functions and activities of corporation and foreign-related person

Company S does not engage in unique or original advertising or sales promotion activities, and makes no use of its own trademarks or other such properties in its distribution activities.

State of Albanian market

About a dozen foreign manufacturers making products that compete with product A have entered the Albanian market. Five of the sole import agents for these foreign manufacturers file financial statements that are openly accessible, and other information is also available, including information from the companies’ websites and analyses published by market researcher companies. Following examination of these materials, it was found that company T is a reseller of products imported from a third-party foreign manufacturer to third-party agents in Albania, and that it does not engage in any other business.

Product B sold by company T bears a strong similarity to product A in terms of its properties, construction, and function, and it was also found that company T is largely the same as company S in terms of volume of sales, market level, and sales functions (e.g., advertising, sales promotion, after-sales service, packing, and delivery). Company T was also found not to use its own trademarks or other such properties in its distribution activities.

Treatment for transfer pricing taxation purposes

Consideration of applicability of traditional transaction methods 

As precedence is given to application of the traditional transaction methods when selecting the method of calculation of the arm’s length price the provisions of Article 36/2 of Income Tax Law in Albania (No.8438/ 1998) an examination of comparable transactions in accordance and other relevant provisions produced the following findings. and other relevant provisions produced the following findings.

-As company S resells the product A that it purchases from third parties, it was considered that, among the traditional transaction methods, the RP method may be applicable. It was also found that the financial data required to apply the RP method was obtainable from publicly available information on company T.

-Product B imported from a third party and sold to agents in Japan by company T bears a strong similarity to product A. Company T was also found to be generally similar to company S in terms of its function as a reseller, the scale of transactions, market conditions, and so forth.

Selection of method of calculation of arm’s length price

It was found that the import of similar product B from a foreign third-party by company T could be used as the comparable transaction for the import of product A by company S from company P. On the basis of this situation, it was found that among the traditional transaction methods, it was appropriate to apply the RP method to company S, as the buyer of the inventories involved in the foreign-related transaction, in order to calculate the arm’s length price.

Explanation

Regarding points to note when considering the applicability of the traditional transaction methods (including methods equivalent to the traditional transaction methods) and judging whether transactions corresponded to comparable transactions.