Pilar Barriguete in MNE Tax – Spanish Appeals Court Rules on IKEA

Pilar Barriguete, Director, and Edland Graci, Senior Associate, in Duff & Phelps’ Transfer Pricing practice, provide insights in MNE Tax titled, “Spanish appeals court rules on IKEA subsidiary’s approach to transfer pricing comparability, arm’s length range”.

On March 6, 2019, the Spanish Court of Appeal reached a final ruling on transfer pricing adjustments arising from the Spanish tax authority’s audit of IKEA Distribution Services, a wholesale distribution company that sells products to related party retail companies.

The adjustments related to disagreements that the Spanish tax authority had with the IKEA subsidiary’s implementation of a transactional net margin method (TNMM) analysis for the 2007 fiscal year. The total adjustments at issue were 37 million Euros.

The ruling touched upon two main points, both of which were based on the court’s interpretation of the relevant OECD Transfer Pricing Guidelines. The first finding confirmed the appropriate use of a multiyear analysis for purposes of determining the arm’s length range of profitability in a TNMM analysis while emphasizing the need to make the comparison of the taxpayer’s single-year results relative to the year under review.

Secondly, the Spanish appeals court supported the taxpayer’s position that an adjustment to the median should be made only were comparability defects exist. The court found no comparability defects in IKEA Distribution Services’ TNMM comparable analysis and therefore found that any adjustment should have been made to the lower quartile of the arm’s length range rather than to the median.

The full article is available on the MNE Tax website.

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