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Supreme Court overrules tax authorities in favor of Accenture

What does this mean for multinational companies

On 9 January 2025, the Supreme Court delivered a ruling in favour of Accenture A/S, thus overturning the result of the previous ruling by the Eastern High Court in August 2023.

Background and Issues
Accenture Group is a global consultancy group within the management and technology sector, serving its clients through local operating companies in different countries across the world. The case concerned two different types of transactions:  

Transaction 1 – Secondment of staff 
The group's operating companies may provide services to customers by exploiting internal resources from other group entities through an International Assignment Agreement (“IAA”). Under the IAA, a cross-border resource can be sourced by a “Host-entity” (e.g. Accenture A/S) to perform temporary assignments whereafter the resource returns to its “Home-entity” where the member of staff is employed. According to the IAA, amounts payable by Host-entity to the Home-entity are to be determined based on the reimbursement of payroll costs and payroll, adding a markup of 30% (i.e., gross-margin) based on a consultancy services benchmarking study.

Transaction 2 – Royalty
In 2006, Accenture A/S entered into a licensing agreement with the Swiss group company Accenture Global Services GmbH (AGS). According to the licensing agreement, AGS owns a number of intangible assets, and Accenture A/S pays a royalty of 7% of its revenue from external customers for the use of these assets.

The High Court previously ruled in favour of the Danish tax authorities (DTA), finding Accenture's documentation insufficient due to inaccurate delineation of transactions and inadequate financial data segmentation. Consequently, with the burden of proof shifted and Accenture failing to demonstrate errors in the discretionary assessment, the DTA's assessment was upheld.  

The Supreme Court Ruling
The Supreme Court ruled that the DTA did not demonstrate that Accenture's transfer pricing documentation for the income years 2005-2011 regarding the 30% markup, and the royalty rate of 7% was insufficient thus ruling the opposite of the Eastern High Court. The Supreme Court stressed that the transfer pricing documentation adhered to the principles of the OECD Transfer Pricing Guidelines, and further emphasized that due consideration had been carried out concerning the choice of transfer pricing methods concerning each transaction (the cost-plus method and the residual profit split respectively), a functional and risk analysis, and a comparability analysis supported by sufficient underlying data. 

Important takeaways:

  1. It is crucial to always maintain updated transfer pricing documentation. Ensuring that your transfer pricing documentation is updated not only demonstrates compliance with regulatory requirements but also provides a robust defence in the event of tax audits or disputes. 
  2. To be compliant, the transfer pricing documentation must observe the OECD Transfer Pricing Guidelines by considering the choice of transfer pricing method concerning each transaction, delineate the covered transactions by a functional and risk analysis, and further provide a comparability analysis supported by sufficient underlying data (e.g. benchmarking studies). 
  3. The Supreme Court has ruled that an analysis can be conducted at a gross level rather than at the net level (EBIT). Often, analyses using third party data at gross level have in practice not been applied due to uncertainty regarding the accounting treatment of costs. 
  4. The Supreme Court has not challenged the analysis being based on three years of comparable transactions, nor that the analysis has been limited to 70-80% of the secondment of staff.
  5. The Supreme Court has not included comments on whether and how consideration should be given to the fact that the Danish entity had the option to utilise resources from other “Home-entities” under the same terms – providing flexibility in capacity for the Danish entity.

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