Transfer pricing, while a core pillar of international taxation, remains a relatively nascent field in Greece, with no well-established administrative practice or consistent interpretive approaches on critical methodological issues. While the OECD Transfer Pricing Guidelines have long served as the primary reference framework for both taxpayers and tax authorities, the flexible nature of several provisions does not always provide a clearly defined or unambiguous approach for certain issues at domestic level.
Divergent approaches on key methodological questions - such as transactional aggregation and tested party selection—have intensified legal uncertainty. In recent years, however, a growing number of transfer pricing cases have been brought before the Greek administrative courts, signaling a new and important phase in domestic jurisprudence. Two recent decisions of the Athens Administrative Court of First Instance illustrate that tax authority assessments are now subject to rigorous judicial scrutiny as to their methodological soundness and alignment with the OECD Transfer Pricing Guidelines.
Transactional Aggregation and Method Selection
The first case concerns a tax audit of a Greek subsidiary acting as a wholesale distributor within a multinational group. The taxpayer applied a transaction-by-transaction approach, delineating each controlled transaction separately and selecting the most appropriate method for each category based on its functions, assets and risks (OECD Transfer Pricing Guidelines 2022, paras. 2.2 and 3.9): the Resale Price Method (RPM) for purchases and resales of goods, the Comparable Uncontrolled Price (CUP) method for royalty payments, the Transactional Net Margin Method (TNMM) for intra-group services, and direct cost allocation with no mark-up for cost recharges. Each category was supported by a dedicated functional analysis, separate intercompany agreements, and pricing policies.
The tax authority rejected the taxpayer's position on two grounds. First, it considered the proposed internal comparables insufficiently reliable, pointing to material differences in comparability factors—including characteristics of goods and sales volumes - and the absence of reasonably accurate adjustments (paras. 3.27–3.28 on internal comparables and 3.47–3.48 on comparability adjustments). Second, it departed from the transaction-by-transaction framework and proceeded with aggregation, assessing the purchase and resale of goods together with intra-group royalties and management fees as so closely linked, or continuous, that they could not be evaluated adequately on a separate basis (paras. 3.9–3.12).
The Court held that aggregating fundamentally different transactions is not permissible absent specific, substantiated evidence of such linkage. It noted that the OECD Guidelines explicitly caution that it would be unusual to aggregate transactions in goods with royalties or service fees (para. 3.11), reaffirming separate evaluation as the default and aggregation as a narrowly construed exception, with the burden of justification resting on the party seeking to depart from the transaction-by-transaction approach.
Tested Party Selection under the TNMM
The second case arose from a transfer pricing audit of a Greek parent company engaged in the production and distribution of equipment. The taxpayer chose its foreign subsidiaries—characterised as limited-risk distributors and contract manufacturers— as the tested parties under the TNMM, given that the latter were the least complex parties, consistent with the guidance on tested party selection (OECD Transfer Pricing Guidelines 2022, para. 3.18).
However, the local tax authorities selected the Greek parent as the tested party, arguing that it acted as the principal seller and its profitability could be reliably assessed using available financial information. Equally important, the local authorities also argued that the financial data of the foreign subsidiaries cannot be reliably verified and thus, the latter cannot be chosen as the tested parties.
The Court articulated a clear set of criteria for tested party selection - functional analysis, reliable profitability measurement, availability and verifiability of financial data, and nature of controlled transactions - and found the parent entity unsuitable as the tested party given its complex, strategically significant functions (production planning, procurement, R&D and overall value chain control). Conversely, the subsidiaries had simpler and more routine functional profiles and published audited financial statements which could be independently verified by the tax authorities. The Court annulled the tax authority’s assessment in full.
It is important to note that both decisions were rendered at first instance and remain subject to appeal and thus, not yet final and binding. Nevertheless, they signal a clear and emerging jurisprudential trend and offer valuable practical guidance on how Greek courts are likely to approach such transfer pricing disputes going forward.
Key Takeaways and Broader Implications
Taken together, the said court decisions yield three principal takeaways that should be taken into account going forward. In particular:
1) The OECD Transfer Pricing Guidelines are treated by Greek courts not merely as a general reference framework but as a substantive benchmark against which the soundness of the tax authority’s methodology is assessed;
2) The portfolio approach (i.e., aggregation of intercompany transactions) only works when such transactions are truly interlinked and can be priced as a package; a robust argumentation and support for such an approach is needed by either taxpayer and/ or tax authorities; and
3) Arguing that that the financial data of foreign subsidiaries cannot be reliably verified (especially those that are being audited and published) is not strong enough; tested party selection must always be anchored in the functional analysis and methodological suitability.
Beyond the specific methodological issues addressed, such decisions always carry broader significance for the Greek legal order. A clear jurisprudential direction is emerging: the tax authority’s determinations are subject to substantive judicial review and do not constitute an incontrovertible or presumptively correct interpretation of the law, especially in cases in which taxpayers have well-established and coherent approaches.
These developments underscore that recourse to judicial review can actively contribute to the establishment of authoritative interpretive standards in this evolving field, thereby promoting legal certainty and supporting the ongoing maturation of the institutional and regulatory framework governing transfer pricing in Greece.
by Athanasia Iliopoulou, Manager, Tax, PwC Greece and Konstantina Giannakaina, Associate, Tax, PwC Greece
