Page 8 - VG_Haziran2021

Vergide Gündem
English Translation

Significant Transfer Pricing Disputes - I
Adecco A/S-Decision of Supreme Court of
Denmark

Governments, which are encountering with the pressure to balance public
expenditures, deteriorating after Covid-19 outbreak, are expected to increase the
frequency of tax inspections.

The importance of Transfer Pricing (TP) increases in the gradually globalizing world.
In the last 30 years, efforts made by the Organization for Economic Cooperation
and Development (OECD) has formed a global understanding in terms of TP.
Accordingly, a TP dispute experienced in a jurisdiction is also highly significant for
all jurisdictions, including Turkey, which regulate their legislations in line with the
principles of OECD.

Tax Inspection and Assessment

Adecco A/S, which is a Danish affiliate of a multinational enterprise group, whose
headquarters are located in Switzerland, pays royalties to holding company of the
group in Switzerland according to a license agreement concluded. During tax the
inspection, Danish Tax Authorities claimed that royalty payments did not meet the
requirements determined according to the domestic laws of Denmark regarding
deduction of expenses.
In addition, tax authority claimed that the royalty amount in question is not in line
with arm’s length principle even though it is deductible and thus the case had been
brought to the court by Adecco A/S.

Litigation Process and Judgment of Court of First Instance

Court of First Instance has primarily stated that a payment for royalties can be
made and such royalty payable by Adecco A/S can be deducted from tax base in
theory, however, adjudged that an independent entity would not pay such high level
of royalty even though it made loss for a long period of time.

In summary, court of first instance has judged in favor of Tax Administration
through rejecting bill of review of Adecco A/S with respect to following reasons:

• The entity in question made loss for long period of time
• The competition in the related market is associated with the price instead of the
brand
• The entity is currently incurring high levels of marketing expenses
• The entity could not prove in a reasonable manner the benefit gained from
utilization of such brand and could not respond to requests of information and
document of the Tax Administrations during inspection process as well as their
inquiries
• Insufficient level of transfer pricing documentation.

8 June 2021