“Health & Beauty AG” acted as a holding company within a larger international group. It had acquired 51% of the shares in I-GmbH in 2003 and the remaining 49% in 2009 from two Irish investment companies. The acquisition of the remaining shares was financed by a €12.4 million loan from A-BV at an interest rate of 7.855%. The loan was repaid early in 2013-2014 and interest expenses were claimed for the years 2009 to 2011. It had also deducted interest expences related to financing of subsidiaries in Spain and Italy. The tax authorities disallowed the deduction of these interest payments and an appeal was lodged, which ended up at the Austrian Federal Finance Court. Decision The court found that the loan agreement regarding the Acquisition of I-Gmbh was properly documented and at arm’s length and therefore the interest was deductible. It also concluded that “Health ... Continue to full case

In 2014, Sté Foncière Vélizy Rose paid an advance dividend to its sole shareholder, the Luxembourg company Vélizy Rose Investment SARL. Foncière Vélizy Rose claimed exemption from withholding tax under Article 119 of the General Tax Code. However, following an audit, the tax authorities concluded that Vélizy Rose Investment SARL was not the beneficial owner of the dividends and therefore the exemption from withholding tax did not apply. A tax assessment was issued for the resulting withholding taxes. Sté Foncière Vélizy Rose lodged an appeal, which was rejected by the Administrative Court and subsequently by the Administrative Court of Appeal in December 2022. A final appeal was then lodged with the Conseil d’État. Judgment The Court upheld the judgment of the Administrative Court of Appeal and the assessment of the tax authorities. In its decision, the Court referred to the fact that Vélizy Rose Investment ... Continue to full case

Vernay Europa B.V. had received dividends from its Italian subsidiary in the years 2013 to 2016 and requested a refund of withholding taxes in Italy based on the EU Parent-Subsidiary Directive. The claim was rejected by the Italian tax authorities. An appeal was made to the Supreme Court. Judgment The Supreme Court ruled in favour of Vernay Europa B.V. Beneficial ownership requires the satisfaction of three tests: 1. the substantive business test, 2. the control test and 3. the business purpose test. The Court found that Vernay Europa B.V. had been established in the Netherlands prior to the adoption of the Parent-Subsidiary Directive and that it had a real business activity. Furthermore, Vernay Europa B.V. retained a substantial part of the dividends received. Based on these facts, the Supreme Court upheld the appeal of Vernay Europa B.V. and referred the case back to the Court ... Continue to full case

Hargreaves Property Holdings Ltd paid interest on certain loans between 2010 and 2015. HMRC formed the view that Hargreaves should have deducted and accounted for withholding tax on the interest. Hargreaves disagreed and appealed to the First-tier Tribunal on four grounds. All four grounds were rejected ([2021] UKFTT 390 (TC). Hargreaves then appealed on similar grounds to the Upper Tribunal. Hargreaves’ appeal was dismissed ([2023] UKUT 120 (TCC)). An appeal was filed with the Court of Appeal where two of the four grounds were pursued: whether interest payments made from 2012 onwards to a UK tax resident company, Houmet Trading Limited (“Houmet”), fell within the exception from withholding tax in s.933 Income Tax Act 2007 (“ITA 2007”); and whether interest paid on loans the duration of which was less than a year, but which were routinely replaced by further loans from the same lenders, was ... Continue to full case

In the course of a customs and tax inspection conducted against C. sp. z o.o., it was established that, despite its obligation, it had failed to calculate, collect and pay withholding tax on the interest paid on loans granted in 2017 – 2018 to C. B.V. in the Netherlands. Due to the Company’s failure to submit a correction to the tax return, the completed customs and tax audit was transformed into tax proceedings. The tax authorities determined the amount due for uncollected withholding tax on interest paid to the Dutch Company for the individual months from January to December 2017 and from February to August and for October 2018. (a total of PLN 3,787,862.00) as well as ruled on the tax liability of the Company, as payer of the withholding tax, for the aforementioned amount of uncollected tax. In the decision in question, it was ... Continue to full case

Avon Cosmetics s.r.o. paid 6% of its net sales in royalties/licences for the use of intangible assets to a Group company in Ireland. The Irish company in turn was contractually obliged to pay 5.68% of Avon Cosmetics s.r.o.’s net sales as royalties to its US parent company. In the opinion of the tax authorities, the beneficial owner of the royalties was not the Irish company but the US parent and therefore the royalty payments were not exempt from withholding tax. An assessment of additional withholding tax was therefore issued. Decision of the Supreme Administrative Court The Supreme Administrative Court upheld the decision of the tax authorities and found that the US parent company was the beneficial owner of the royalties. Excerpt in English “[32] The interpretation of the concept of beneficial owner, including in the context of the OECD Model Tax Treaty relied on by ... Continue to full case

A Polish real estate company, “N. sp. z o.o.”, had asked the tax office for an opinion on the tax treatment of interest paid on a loan received from a related party ‘M’ in Romania. The tax office refused the request. In its view, “M” had received the funds needed to make the loans to N from other group companies and therefore almost all of the interest income earned by “M” was ultimately transferred to “M.C.”, which was based in Malta. On this basis, the ultimate beneficiary of the interest paid by N was not “M” in Romania, but “M.C.” in Malta. “N. sp. z o.o.” disagreed and appealed to the Administrative Court. Decision of the Administrative Court The Court dismissed the appeal. Excerpts “The company has not provided any argumentation to exclude the authority’s finding that the coincidence of dates, juxtaposed with the fact ... Continue to full case

Prior to the payment of dividends by Husky Energy Inc. to its shareholders in 2003, two of its shareholders (companies resident in Barbados) transferred their shares to companies in Luxembourg under securities lending arrangements, and therefore Husky Energy Inc. only withheld dividend tax at a reduced rate of 5% under the Canada-Luxembourg Income Tax Treaty. Judgment of the Court The Court found Husky Energy liable for failing to withhold dividend tax at the non-Convention rate of 25%. As the dividends were not paid to the Barbados companies, the 15% rate under the Canada – Barbados Income Tax Convention was not available. The Canada-Luxembourg Income Tax Convention rate was also not available as the Luxembourg companies were not the beneficial owners of the dividends as they were required to pay compensation to the Barbados companies equal to the dividends received. Excerpts “Under the securities lending arrangements, ... Continue to full case

The taxpayer paid interest on five loans concluded with its Dutch subsidiary (“BV2”) on 31 December 2017, claiming exemption from withholding tax on the basis of the double taxation treaty between Belgium and the Netherlands (Article 11, §3, (a)). The dispute concerns whether the Dutch subsidiary “BV2” can be considered the beneficial owner of these interests. The concept of “beneficial owner” is not defined in the Belgium-Netherlands double tax treaty. However, this concept is also used in the European Directive on interest and royalties. In the Court’s view, this concept must be interpreted in the same way for the application of the Belgian-Dutch double taxation treaty. Indeed, as members of the EU, Belgium and the Netherlands are also obliged to ensure compliance with EU law. The Court noted that, of the five loans on which the taxpayer paid interest to its subsidiary “BV2”, four loans were linked to four other loans granted by a Dutch company higher up in the group’s organisation chart and having the legal form of a “CV” (now an LLC), to the taxpayer’s Dutch parent company, “BV1”. The ... Continue to full case

“BO LDA” filed an appeal to annul an additional corporate tax assessment and associated compensatory interest imposed by the Portuguese Tax and Customs Authority. The case revolved around whether “BO LDA” was entitled to an exemption from withholding tax on interest payments under the Interest and Royalties Directive or, alternatively, under Double Taxation Conventions (DTCs) between Portugal and the UK or Hong Kong. Decision The arbitral tribunal ruled against “BO LDA” and upheld the assessment issued by the tax authorities. The tribunal found that the exemption under the Interest and Royalties Directive required proof that the recipient of the interest was its beneficial owner. The recipient, UK3, along with UK2 and UK1, was part of a complex financial structure involving companies in Hong Kong and other offshore jurisdictions. These UK-based companies had no real economic activity, no employees, and no premises of their own. Their ... Continue to full case

In 2009 and 2010 Global Nory, S.L. distributed a dividend of 7,000,000 euros to its parent company resident in Luxembourg, without declaring withholding taxes, as it considered that the dividend was exempt. In 2013, Global Nory, S.L. was notified of the commencement of general inspection proceedings, referring, among other items, to the dividend payments, and in 2014 the final assessment was issued, resulting in additional withholding taxes of 700,000 euros and 138,753.43 euros to late payment interest. The assessment was based on the following facts: The only relevant asset of Global Noray SL is a 5% stake in the listed company Corporación Logística de Hidrocarburos. This shareholding was acquired for a sum of 176,500,000 euros. Global Noray, S.L.’s income consists mainly of dividends received on these shares. Global Noray, S.L., is wholly owned by PSP Eur SARL, which in turn is wholly owned by PSP ... Continue to full case

The cases concerned in particular whether Takeda A/S under voluntary liquidation and NTC Parent S.à.r.l. were obliged to withhold tax on interest on intra-group loans granted by foreign group companies. The cases were to be assessed under Danish tax law, the EU Interest/Royalty Directive and double taxation treaties with the Nordic countries and Luxembourg. In a judgment of 9 January 2023, concerning dividends distributed to foreign parent companies, the Supreme Court has ruled on when a foreign parent company is a “beneficial owner” under double taxation treaties with, inter alia, Luxembourg, and when there is abuse of rights under the EU Parent-Subsidiary Directive. In the present cases on the taxation of interest, the Supreme Court referred to the judgment of January 2023 on the general issues and then made a specific assessment of the structure and loan relationships of the two groups. The Supreme Court ... Continue to full case

YOLT Services s.r.o. is active in distribution of TV programmes and paid royalties/license for use of these programmes to its parent company in Romania and subsidiaries in Hungary and Slovakia. These companies were contractually obliged to pay royalties received on to the producers of the programmes. According to the tax authorites, the beneficial owners of the royalties were not the group companies, but rather the producers of the programmes. On that basis the royalty payments were not excempt from withholding taxes. An assessment of additional taxes was issued where withholding taxes had been calculated as 15% of the royalties paid by YOLT services. Judgment of the Regional Court The court upheld the decision of the tax authorities in regards of the producers – and not the group companies – beeing the beneficial owners of the royalties. But the court referred the case back to the ... Continue to full case

A parent company resident in country Y1 was liable to tax on interest and dividends it had received from its Danish subsidiary. There should be no reduction of or exemption from withholding tax under the Parent-Subsidiary Directive or the Interest and Royalties Directive or under the double taxation treaty between Denmark and country Y1, as neither the parent company nor this company’s own Y1-resident parent company could be considered the rightful owner of the dividends and interest within the meaning of the directives and the treaty, and as there was abuse. The High Court thus found that the Y1-domestic companies were flow-through companies for the interest and dividends, which were passed on to underlying companies in the tax havens Y2-ø and Y3-ø. The High Court found that there was no conclusive evidence that the companies in Y2 were also flow-through entities and that the beneficial ... Continue to full case

I. sp. z o.o. is a Polish tax resident. Its sole shareholder is an Italian tax resident company. The Company plans to pay a dividend to the shareholder in the future, and therefore asked the following question to the Polish Tax Chamber: in order to exercise the right to exempt a dividend paid to a shareholder from corporate income tax (withholding tax) under Article 22(4) of the Corporate Income Tax Act of 15 February 1992 (Journal of Laws of 2019, item 865, hereinafter the CIT), is the Company required to verify whether the entity to which the dividend is paid is the actual owner of the dividend? The Tax Chamber answered that verification of the beneficial ownership is part of the due diligence obligation introduced in Article 26(1) of the Corporate Income Tax Act in 2019. The company challenged this interpretation before the Administrative Court ... Continue to full case

RRE and EBL Italia, belonged to the Belgian group ELECTRABEL SA (which later became the French group GDF Suez, now the Engie group); RRE, like the other Italian operating companies, benefited from a financing line from the Luxembourg subsidiary ELECTRABEL INVEST LUXEMBOURG SA (“EIL”). In the course of 2006, as part of a financial restructuring project of the entire group, EBL Italia acquired all the participations in the Italian operating companies, assuming the role of sub-holding company, and EIL acquired 45 per cent of the share capital of EBL Italia. At a later date, EBL Italia and EIL signed an agreement whereby EIL assigned to EBL Italia the rights and obligations deriving from the financing contracts entered into with the operating companies; at the same time, in order to proceed with the acquisition of EIL’s receivables from the operating companies, the two companies concluded a ... Continue to full case

The issue in the Danish beneficial ownership cases of NetApp Denmark ApS and TDC A/S was whether the companies were obliged to withhold dividend tax on distributions to foreign parent companies. The first case – NetApp Denmark ApS – concerned two dividend distributions of approximately DKK 566 million and DKK 92 million made in 2005 and 2006 to an intermediate parent company in Cyprus – and then on to NETAPP Bermuda. The second case – TDC A/S – concerned the distribution of dividends of approximately DKK 1.05 billion in 2011 to an intermediate parent company in Luxembourg – and then on to owner companies in the Cayman Islands. In both cases, the tax authorities took the view that the intermediate parent companies were so-called “flow-through companies” which were not the real recipients of the dividends, and that the real recipients (beneficial owners) were resident in ... Continue to full case

This case concerns the application of the beneficial ownership rule to dividends paid by a French corporation Foncière Vélizy Rose to its Luxembourg parent Vélizy Rose Investment. The Luxembourg parent company Vélizy Rose Investment was not considered to be the beneficial owner of the dividends. it did not carry out any activity other than the receipt and further distribution of dividends, and it distributed the full amount of the dividend to its Luxembourg parent one day after receipt; all entities in the chain of ownership were wholly owned; and the two Luxembourg entities had common directors. Click here for English translation Click here for other translation ... Continue to full case

In view of its purpose and the comments made on Article 12 of the OECD Model Convention, the Conseil d’État found that Article 12(2) of the Franco-New Zealand tax treaty was applicable to French source royalties whose beneficial owner resided in New Zealand, even if the royalties had been paid to an intermediary company established in a third country. The Supreme Court thus set aside the previous 2020 Judgment of the Administrative Court of Appeal. The question of whether the company in New Zealand actually qualified as the beneficial owner of the royalties for the years in question was referred to the Court of Appeal. Excerpt “1. It is clear from the documents in the file submitted to the judges of the court of first instance that the company Planet, which carries on the business of distributing sports programmes to fitness clubs, was subject to ... Continue to full case

“Dividend B.V.” is the legal successor of a BV that has made (dividend) distributions. With respect to the distributions to a Luxembourg company (LuxCo), no Dutch dividend tax was withheld on the basis of the withholding tax exemption. Prior to the first distribution, the relevant shares in the BV were held by a limited partnership established in the Cayman Islands. This limited partnership transferred the shares in the BV to LuxCo in view of the first distribution. In the light of the T-Danmark judgment, the Court found that the tax authorities had proved that there had been an abuse of EU law, on the basis that without the use of LuxCo, a 15% withholding tax would have been due in the Netherlands, and after the use of LuxCo, this was not the case – based only on the formal conditions. The use of letter shares ... Continue to full case