{"id":7135,"date":"2017-10-04T20:46:38","date_gmt":"2017-10-04T18:46:38","guid":{"rendered":"https:\/\/altax.al\/case-of-use-of-comparable-uncontrolled-price-method\/"},"modified":"2021-11-19T16:24:14","modified_gmt":"2021-11-19T15:24:14","slug":"case-of-use-of-comparable-uncontrolled-price-method","status":"publish","type":"post","link":"https:\/\/altax.al\/en\/case-of-use-of-comparable-uncontrolled-price-method\/","title":{"rendered":"Case of use of comparable uncontrolled price method"},"content":{"rendered":"

Summary of business of corporation and foreign-related person<\/em><\/p>\n

German\u00a0corporation P is a distributor of products A and B, and 10 years previously it\u00a0established corporation S in Albania\u00a0as a subsidiary to distribute product A.<\/p>\n

<\/p>\n

Summary of foreign-related transaction<\/em><\/p>\n

Company P sells product A to company S, which then sells it to approximately 200 third-party\u00a0retailers in Albania.<\/p>\n

Company P has sold product B to third-party agent T in Albania since company S\u2019s\u00a0establishment, and company T then sells the product to retailers in Albania. At company P,\u00c2\u00a0product B is classified as a different product (i.e. has a different model number) from product A,\u00c2\u00a0but the two are similar in terms of properties, construction, functions, and so forth.<\/p>\n

Functions and activities of corporation and foreign-related person<\/em><\/p>\n

The function performed by company P in the sale of product A to company S and the sale of\u00a0product B to company T (hereinafter referred to as the two transactions) is that of purchase of inventories of product A and product B, and the sale of these inventories to company S and\u00a0company T. Company P engages in no unique activities, and there are no differences between\u00a0the two transactions in function. In neither case is use made of trademarks or other such\u00a0properties.<\/p>\n

Terms of contracts for sale of product A and product B<\/em><\/p>\n

The two transactions are the same in market level (e.g. retail or wholesale), and substantially the\u00a0same in volume. The terms of the contracts for the two transactions (e.g., delivery terms, payment terms, product warranties, and the conditions for returns) are also, with the exception\u00a0of the transaction price, the same.<\/p>\n

Treatment for transfer pricing taxation purposes<\/strong><\/p>\n

Consideration of applicability of traditional transaction methods<\/em><\/p>\n

As precedence is given to application of the traditional transaction methods when selecting the\u00a0method of calculation of the arm\u2019s length price under the provisions of Article 36\/2 of Income Tax Law in Albania (No.8438\/ 1998)\u00a0an examination of comparable transactions in accordance and other relevant provisions produced the following findings.
\n? Product A and product B were found to be the same type of product in terms of\u00a0properties, construction, functions and so forth, despite being classified into different\u00a0product categories at company P.<\/p>\n

– Both company S and company T are wholesale traders selling products to retailers in\u00a0Albania, and there was found to be no difference in market level between the two\u00a0transactions.
\n– The two transactions are substantially the same in volume and also the same as regards\u00a0the terms of contracts, and there were found to be no differences in the volumes and\u00a0contract terms of the transactions.<\/p>\n

– There were found to be no differences in company P\u2019s business strategies toward\u00a0product A and product B.<\/p>\n

– No differences were found in the role and functions of P in the two transactions, and\u00a0no use was made of intangible properties.<\/p>\n

– As both company S and company T are corporations located in Albania, the market\u00a0conditions are the same, and there are no government regulations on either product A\u00c2\u00a0or product B.<\/p>\n

Selection of method of calculation of arm\u2019s length price<\/em><\/p>\n

Of the traditional transaction methods, it was consequently found to be appropriate in this case\u00a0to calculate the arm\u2019s length price by applying the CUP method to the sale of inventories of product A by company P to company S, and treating the\u00a0sale of product B by company P to company T as the comparable transaction.<\/p>\n

Explanation<\/strong><\/p>\n

    \n
  1. In order to calculate the arm\u2019s length price, it is necessary to select a reasonable\u00a0method that is in keeping with the particular facts and in compliance with the requirements laid\u00a0down by law.
    \nWhen selecting the method of calculation of arm\u2019s length price, it is first necessary to\u00a0consider the applicability of the traditional transaction methods. While any judgment as to the applicability of the traditional transaction methods shall\u00a0conform to the particular facts, the presence of internal comparable transactions or external\u00a0comparable transactions is generally considered on the basis of (1) internal information, such as\u00a0materials concerning transactions engaged in by the corporation or foreign-related person,\u00a0together with (2) corporate information, such as financial statements, (3) database information\u00a0such as financial data on corporations, and (4) external information, such as information from\u00a0industry associations (information falling under (2) through (4) is hereinafter referred to as\u00a0publicly available information in this and the following cases).<\/li>\n<\/ol>\n

    In order to be employed as comparable transactions for calculating the arm\u2019s length\u00a0price, each type of foreign-related transaction needs to be examined in accordance with provisions of Chapter V of Income Tax Law. With regard to whether they qualify as comparable transactions, a\u00a0judgment shall be made by thoroughly examining the similarity of the factors listed in instruction of Income Tax Law\u00a0to those of\u00a0uncontrolled transactions.<\/p>\n

    When foreign-related transactions involve intangible properties, the comparability\u00a0shall be considered focusing in particular on the factors listed in instruction of Minister based on\u00a0Income Tax Law.<\/p>\n

      \n
    1. When considering application of the traditional transaction methods, it is often comparatively simple to determine whether internal comparable transactions engaged in by a\u00a0corporation or foreign-related person qualify as comparable transactions as described in 1 above,\u00a0as the corporation or foreign-related person will have information on these transactions.<\/li>\n<\/ol>\n

      In contrast, however, there are also cases where sufficient information to make such a\u00a0judgment cannot be obtained using only publicly available information on external comparable transactions engaged in by a corporation and third parties other than foreign-related persons.
      \nIn the cases of the RP method and the CP method, for instance, which use the profit\u00a0margin calculated from the gross profit on sales of comparable transactions, it is often not\u00a0possible to obtain sufficient information concerning transactions deemed comparable with the\u00a0foreign-related transactions. This is due to differences in the systems for disclosure of corporate\u00a0financial data in different countries in order to apply the RP method when the foreign-related\u00a0person is the buyer of inventories involved in a foreign-related transaction, and in order to apply\u00a0the CP method when the foreign-related person is the seller of inventories in foreign-related\u00a0transactions. Even if the information required to examine comparability is sought from financial\u00a0data at the level of individual enterprises on the basis of publicly available information,\u00a0moreover, this information may not be available in cases where an enterprise does business in a\u00a0number of segments unless financial data on a specific segment is extracted from the overall\u00a0data.<\/p>\n

      Methods of application consistent with the traditional transaction methods prescribed in Income Tax Law\u00a0and other methods prescribed in the Instruction of Minister.<\/p>\n

      Even where comparable transactions for application of the traditional transaction\u00a0methods cannot be selected given the scope of the publicly available information, and arm\u2019s\u00a0length price is calculated by a method other than the traditional transaction methods, it is\u00a0advisable, when it is possible to identify transactions that can be confirmed as having a certain\u00a0degree of comparability according to the publicly available information, to verify the validity of\u00a0the results of these calculations using these transactions as necessary.<\/p>\n

        \n
      1. Legal provision is made for methods consistent with each of the traditional transaction\u00a0methods in the case where the traditional transaction methods cannot be applied. These methods\u00a0are considered to leave the way open to employing reasonable methods suited to the content of\u00a0transactions provided that they do not diverge from the concept behind the traditional\u00a0transaction methods.<\/li>\n<\/ol>\n

        In the cases of foreign-related transactions for which comparable transactions cannot\u00a0easily be found when applying the traditional transaction methods as prescribed by law, there\u00a0are instances in which it is possible to select comparable transactions by using reasonable\u00a0similar methods of calculation focusing on the various forms of these transactions, or in which\u00a0the arm\u2019s length price can be calculated by adopting reasonable transactions as comparable transactions. As these methods allow a wider choice of comparable transactions than the\u00a0traditional transaction methods, comparability therefore needs to be considered, bearing in mind the possibility of applying the methods consistent with the traditional transaction methods.<\/p>\n","protected":false},"excerpt":{"rendered":"

        Summary of business of corporation and foreign-related person German\u00a0corporation P is a distributor of products A and B, and 10 years previously it\u00a0established corporation S in Albania\u00a0as a subsidiary to […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"footnotes":""},"categories":[10281],"tags":[8389,8145],"class_list":["post-7135","post","type-post","status-publish","format-standard","hentry","category-online-education","tag-cup","tag-taxation"],"featured_image_src":{"landsacpe":false,"list":false,"medium":false,"full":false},"yoast_head":"\nCase of use of comparable uncontrolled price method - ALTAX<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/altax.al\/en\/case-of-use-of-comparable-uncontrolled-price-method\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Case of use of comparable uncontrolled price method - 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