Category: Business Restructuring

In the context of transfer pricing, business restructuring is defined as the cross-border redeployment by a multinational enterprise of functions, assets and/or risks. A business restructuring may involve cross-border transfers of valuable intangibles. It may also or alternatively involve the termination or substantial renegotiation of existing arrangements. Business restructurings can also consist of the rationalisation, specialisation or de-specialisation of operations including the downsizing or closing of operations.

  • Conversion of full-fledged distributors into limited-risk distributors or commissionnaires for a foreign associated enterprise that may operate as a principal,
  • Conversion of full-fledged manufacturers into contract-manufacturers or toll-manufacturers for a foreign associated enterprise that may operate as a principal,
  • Transfers of intangible property rights to a central entity (e.g. a so-called “IP company”) within the group.
Poland vs A S.A., June 2021, Provincial Administrative Court, Case No I SA/Gl 1649/20

Poland vs A S.A., June 2021, Provincial Administrative Court, Case No I SA/Gl 1649/20

The business activity of A S.A. was wholesale of pharmaceutical products to external pharmacies, hospitals, wholesalers (including: to affiliated wholesalers). The tax authority had noted that the company’s name had been changed in FY 2013, and a loss in the amount of PLN […] had been reported in the company’s tax return. An audit revealed that the Company had transferred significant assets (real estate) to a related entity on non-arm’s length terms. The same real estate was then going forward made available to the company on a fee basis under lease and tenancy agreements. The tax authority issued an assessment where a “restructuring fee” in the amount of PLN […] was added to the taxable income, reflecting the amount which would have been achieved if the transaction had been agreed between independent parties. According to the company the tax authority was not entitled at all ... Continue to full case
Norway vs "Distributor A AS", March 2021, Tax Board, Case No 01-NS 131/2017

Norway vs “Distributor A AS”, March 2021, Tax Board, Case No 01-NS 131/2017

A fully fledged Norwegian distributor in the H group was restructured and converted into a Limited risk distributor. The tax authorities issued an assessment where the income of the Norwegian distributor was adjusted to the median in a benchmark study prepared by the tax authorities, based on the “Transactional Net Margin Method” (TNMM method). Decision of the Tax Board In a majority decision, the Tax Board determined that the case should be send back to the tax administration for further processing. Excerpt “…The majority agrees with the tax office that deficits over time may give reason to investigate whether the intra-group prices are set on market terms. However, the case is not sufficiently informed for the tribunal to take a final position on this. In order to determine whether the income has been reduced as a result of incorrect pricing of intra-group transactions and debits, ... Continue to full case
India vs. M/s Redington (India) Limited, December 2020, High Court of Madras, Case No. T.C.A.Nos.590 & 591 of 2019

India vs. M/s Redington (India) Limited, December 2020, High Court of Madras, Case No. T.C.A.Nos.590 & 591 of 2019

Redington India Limited (RIL) established a wholly-owned subsidiary Redington Gulf (RG) in the Jebel Ali Free Zone of the UAE in 2004. The subsidiary was responsible for the Redington group’s business in the Middle East and Africa. Four years later in July 2008, RIL set up a wholly-owned subsidiary company in Mauritius, RM. In turn, this company set up its wholly-owned subsidiary in the Cayman Islands (RC) – a step-down subsidiary of RIL. On 13 November 2008, RIL transferred its entire shareholding in RG to RC without consideration, and within a week after the transfer, a 27% shareholding in RC was sold by RG to a private equity fund Investcorp, headquartered in Cayman Islands for a price of Rs.325.78 Crores. RIL claimed that the transfer of its shares in RG to RC was a gift and therefore, exempt from capital gains taxation in India. It ... Continue to full case
Ireland vs Perrigo, November 2020, High Court, Case No[2020] IEHC 552 (Juridical Review)

Ireland vs Perrigo, November 2020, High Court, Case No[2020] IEHC 552 (Juridical Review)

Perrigo has lost is request for overturning a €1.64 billion tax assessment in a judicial review by the Irish High Court. The contention of the Irish Revenue is that a transaction (involving the disposal of intellectual property rights) which has been treated as part of the trade of Perrigo in its corporation tax returns should properly have been treated as a capital transaction. When treated as a capital transaction an effective tax rate of 33% is applied rather than the usual 12.5% rate. The Irish Revenue’s qualification of the transfer in question as an capital transaction results in additional taxes in the amount of €1,636,047,645. The transaction involved the sale to Biogen, in 2013, of Perrigo’s remaining 50% interest in the intellectual property relating to a pharmaceutical product sold under the brand name Tysabri which is used to treat multiple sclerosis and Crohn’s disease. “Perrigo explains ... Continue to full case
Denmark vs. Software A/S, September 2020, Tax Court, Case no SKM2020.387.LSR

Denmark vs. Software A/S, September 2020, Tax Court, Case no SKM2020.387.LSR

Software A/S was a fully fledged Danish distributor of software an related services up until 2010 where the company was converted into a commissionaire dealing on behalf of a newly established sales and marketing hub in Switzerland. Following an audit, the Danish tax authorities issued a assessment where additional taxable income from the transfer of intangibles to Switzerland in 2010 had been determined by application of the DCF valuation model. As no transfer pricing documentation had been prepared on the transfer, the assessment was issued on a discretionary basis. Software A/S filed a complaint to the Danish Tax Court. The Tax Court found that the tax authorities did not have the authority to make a discretionary assessment. It was emphasized that the company in its transfer pricing documentation had described the relevant circumstances for the restructuring. Furthermore, the company had analyzed functions and risks and ... Continue to full case
France vs. Piaggio, July 2020, Administrative Court of Appeal, Case No. 19VE03376-19VE03377

France vs. Piaggio, July 2020, Administrative Court of Appeal, Case No. 19VE03376-19VE03377

Following a restructuring of the Italien Piaggio group, SAS Piaggio France by a contract dated January 2 2007, was changed from an exclusive distributor of vehicles of the “Piaggio” brand in France to a commercial agent for its Italian parent company. The tax authorities held that this change resulted in a transfer without payment for the customers and applied the provisions of article 57 of the general tax code (the arm’s length principle). A tax assessment was issued whereby the taxable income of SAS Piaggio France was added a profit of 7.969.529 euros on the grounds that the change in the contractual relations between the parties had resultet in a transfer of customers for which an independent party would have been paid. In a judgement of October 2019, Conseil dÉtat, helt in favor of the tax authorities and added an additional profit of 7.969.529 to ... Continue to full case
Netherlands vs Zinc Smelter B.V., March 2020, Court of Appeal, Case No ECLI:NL:GHSHE:2020:968

Netherlands vs Zinc Smelter B.V., March 2020, Court of Appeal, Case No ECLI:NL:GHSHE:2020:968

A Dutch company, Zinc Smelter B.V., transferred part of it’s business to a Swiss group company in 2010. In dispute was whether the payment for the transferred activities had been set at arm’s length, and whether the cost-plus remuneration applied to the Dutch company after the business restructuring constituted an arm’s length remuneration for the remaining activities in the company. The case had previously been presented before the lower court where a decision had been issued in October 2017. After hearings in the Court of Appeal, Zinc Smelter B.V. and the Dutch tax authorities reached a settlement which was laid down in the decision. According to the agreement the profit split method was the correct method for determining the arm’s length remuneration of the Dutch company after the restructuring. Click here for English translation ECLI_NL_GHSHE_2020_968 ... Continue to full case
Finland vs A Group, April 2020, Supreme Administrative Court, Case No. KHO:2020:35

Finland vs A Group, April 2020, Supreme Administrative Court, Case No. KHO:2020:35

In 2008, the A Group had reorganized its internal financing function so that the Group’s parent company, A Oyj, had established A Finance NV in Belgium. Thereafter, A Oyj had transferred to intra-group long-term loan receivables of approximately EUR 223,500,000 to A Finance NV. In return, A Oyj had received shares in A Finance NV. The intra-group loan receivables transferred in kind had been unsecured and the interest income on the loan receivables had been transferred to A Finance NV on the same day. A Finance NV had entered the receivables in its balance sheet as assets. In addition, A Oyj and A Finance NV had agreed that target limits would be set for the return on investment achieved by A Finance NV through its operations. A Finance NV has reimbursed A Oyj for income that has exceeded the target limit or, alternatively, invoiced A ... Continue to full case
Denmark vs Engine branch, January 2020, Tax Tribunal, Case No SKM2020.30.LSR

Denmark vs Engine branch, January 2020, Tax Tribunal, Case No SKM2020.30.LSR

The main activity in a Danish branch of a German group was development, licensing and services related to engines that were being produced by external licensees. Under a restructuring of the group, it was decided that royalty income for a particular engine type previously received by the Danish branch should be transferred to the German company. The Danish branch received a compensation corresponding to the net earnings for a two-year notice period. The tax administration increased the taxable income of the branch claiming that the branch had made valuable contributions to the development of the type of engine in question and thereby obtained co-ownership. The Tax Tribunal found that valuable intangible assets had been transferred, The decision was based on prior contractual arrangements and conduct of the parties.  Click here for English translation Click here for other translation SKM 2020-30 ... Continue to full case
Israel vs Broadcom, December 2019, Lod District Court, Case No 26342-01-16

Israel vs Broadcom, December 2019, Lod District Court, Case No 26342-01-16

Broadcom Semiconductors Ltd is an Israeli company established in 2001 under the name Dune Semiconductors Ltd. The Company is engaged in development, production, and sale of components to routers, switches etc. The shares in Dune Semiconductors were acquired by the Broadcom Corporation (a US group) in 2009 and following the acquisition intellectual property was transferred to the new Parent for a sum of USD 17 million. The company also entered into tree agreements to provide marketing and support services to a related Broadcom affiliate under a cost+10%, to provide development services to a related Broadcom affiliate for cost+8%, and a license agreement to use Broadcom Israel’s intellectual property for royalties of approximately 14% of the affiliate’s turnover. The tax authorities argued that functions, assets, and risks had been transferred leaving only an empty shell in Israel and a tax assessment was issued based on the purchase ... Continue to full case
France vs. Piaggio, October 2019, Conseil dÉtat, Case No. 418817

France vs. Piaggio, October 2019, Conseil dÉtat, Case No. 418817

Following a restructuring of the Italien Piaggio group, SAS Piaggio France by a contract dated January 2 2007, was changed from an exclusive distributor of vehicles of the “Piaggio” brand in France to a commercial agent for its Italian parent company. The tax authorities held that this change had resulted in a transfer without payment for the customers and applied the provisions of article 57 of the general tax code (the arm’s length principle). A tax assessment was issued whereby the taxable income of SAS Piaggio France was added a profit of 7.969.529 euros on the grounds that the change in the contractual relations between the parties had resultet in a transfer of customers for which an independent party would have been paid. The Judgement of the Court The court helt in favor of the tax authorities and added an additional profit of 7.969.529 to ... Continue to full case
Uruguay vs Philips Uruguay S.A., July 2019, Tribunal de lo Contencioso Administrativo, Case No 456/2019

Uruguay vs Philips Uruguay S.A., July 2019, Tribunal de lo Contencioso Administrativo, Case No 456/2019

In 2013, Philips Uruguay S.A. agreed to sell of its business division related to the marketing of audio and video products to another entity within the group, Woox Innovations Sucursal Uruguay. The related parties had agreed on a price of USD 2,546,409. Philips Uruguay, had not include the transaction in its transfer pricing documentation as – according to the company – the transfer pricing regime in Uruguay was only applicable to transactions involving different jurisdictions (transactions with foreign entities) – unless the domestic transactions were between local entities taxed under different local tax regimes. The tax administration disagreed that purely domestic transactions were not subject for to transfer pricing rules in Uruguay. They also disagreed with the arm’s length nature of the agreed price of USD 2.546.409 and instead estimated an arm’s length value of USD 5,063,294. Consequently, an assessment was issued resulting in an ... Continue to full case
Denmark vs H Group, April 2019, Tax Tribunal, Case No. SKM2019.207.LSR

Denmark vs H Group, April 2019, Tax Tribunal, Case No. SKM2019.207.LSR

Intangibles had been transferred from a Danish subsidiary to a US parent under a written agreement. According to the agreement the Danish subsidiary – which had developed and used it’s own intangibles – would now have to pay royalties for the use of trademarks, know-how and patents owned by the US parent. The tax authorities had issued an assesment on the grounds that the majority of the Danish company’s intangibles had been transferred to the US parent. In the assesment the value of the intangibles had been calculated based on the price paid when the US group acquired the shares in the Danish company. H Group argued that the transferred intangibles no longer carried any value and that the Danish company now used intangibles owned by the US group. The Tax Tribunal found that tax authorities had been entitled to make an assessment as the transaction ... Continue to full case
Norway vs Normet Norway AS, March 2019, Borgarting Lagmannsrett, Case No 2017-202539

Norway vs Normet Norway AS, March 2019, Borgarting Lagmannsrett, Case No 2017-202539

In January 2013 the Swiss company Normet International Ltd acquired all the shares in the Norwegian company Dynamic Rock Support AS (now Normet Norway AS) for a price of NOK 78 million. In February 2013 all intangibles in Dynamic Rock Support AS was transfered to Normet International Ltd for a total sum of NOK 3.666.140. The Norwegian tax authorities issued an assessment where the arm’s length value of the intangibles was set at NOK 58.2 million. The Court of Appeal upheld the tax assessment issued by the tax authorities and rejected the appeal. Click here for translation Norway vs Normet 190319 ... Continue to full case
Norway vs Cytec, March 2019, Borgarting Lagmannsrett, Case No 2017-90184

Norway vs Cytec, March 2019, Borgarting Lagmannsrett, Case No 2017-90184

The question in the case was whether Cytec Norway KS (now Allnex Norway A/S) had paid an arm’s length price for an intra-group transfer of intangible assets in 2010. Cytec Norway KS had set the price for the accquired intangibles at NOK 210 million and calculated tax depreciations on that basis. The Norwegian tax authorities found that no intangibles had actually been transferred. The tax Appeals Committee determined that intangibles had been transferred but only at a total value of NOK 45 million. The Court of appeal upheld the dicision of the Tax Appeals Committee, where the price for tax purposes was estimated at NOK 44.9 million. Click here for translation Norway vs Cytec 19 March 2019, Borgarting Lagmannsrett Case No 2017-90184 ... Continue to full case
Spain vs. Zeraim Iberica SA, June 2018, Audiencia Nacional, Case No. ES:AN:2018:2856

Spain vs. Zeraim Iberica SA, June 2018, Audiencia Nacional, Case No. ES:AN:2018:2856

ZERAIM IBERICA SA, a Spanish subsidiary in the Swiss Syngenta Group (that produces seeds and agrochemicals), had first been issued a tax assessment relating to fiscal years 2006 and 2007 and later another assessment for FY 2008 and 2009 related to the arm’s length price of seeds acquired from Zeraim Gedera (Israel) and thus the profitability of the distribution activities in Spain. The company held that new evidence – an advance pricing agreement (APA) between France and Switzerland – demonstrated that the comparability analysis carried out by the Spanish tax authorities suffered from significant deficiencies and resulted in at totally irrational result, intending to allocate a net operating result or net margin of 32.79% in fiscal year 2008 and 30.81% in 2009 to ZERAIM IBERICA SA when the profitability of distribution companies in the sector had average net margins of 1.59%. The tax authorities on ... Continue to full case
Spain vs COLGATE PALMOLIVE HOLDING SCPA, February 2018, High Court, Case No 568/2014

Spain vs COLGATE PALMOLIVE HOLDING SCPA, February 2018, High Court, Case No 568/2014

According to Colgate Palmolive, following a restructuring, the local group company in Spain was changed from being a “fully fledged distributor” responsible for all areas of the distribution process to being a “limited risk distributor” (it only performs certain functions). A newly established Swiss company, Colgate Palmolive Europe, instead became the principal entrepreneur in Europe. The changed TP setup had a significant impact on the earnings in the Spanish group company. Net margins was reduced from around 16% before the restructuring, to 3.5% after the restructuring. Following a thorough examination of the functions, assets and risks before and after application of the new setup, the Tax administration held that Colgate Palmolive Europe could not be qualified as the “principal entrepreneur” in Europe. The swiss company was in substance a service provider for which the remuneration should be determined based on the cost plus method. Judgement ... Continue to full case
Netherland vs. A BV, October 2017, Lower Court, case no 2017: 5965

Netherland vs. A BV, October 2017, Lower Court, case no 2017: 5965

A Dutch parent company was providing support services to its foreign subsidiary on a cost-plus basis and received a compensation fee following a business restructuring where headquarter and strategic functions was transferred from the Dutch parent company to Switzerland. The Dutch tax authorities took the view that the compensation paid was insufficient, and that the Dutch parent company was still performing strategic functions for the group. The Court ruled that the taxpayer had fulfilled its legal obligations by preparing thorough transfer pricing documentation and that the burden of proof was on the Dutch tax authorities. The Court ruled that the tax authorities did not provide sufficient arguments to support the adjustment. The original assessment of € 188.342.906 was reduced to a calculated taxable profit of € 42,641,089 and a taxable amount of € 32,067,270. Click here for translation Netherland vs X BV 19 november 2017 ... Continue to full case
Netherlands vs Restructuring BV, September 2017, Rechtbank ZWB, No BRE 15/5683

Netherlands vs Restructuring BV, September 2017, Rechtbank ZWB, No BRE 15/5683

A Dutch company was engaged in smelting of zinc. The business was then restructured, for which the company received a small compensation payment. Dutch tax authorities disagreed with both the amount of compensation payment and the arm’s-length remuneration of the post restructuring manufacturing activities. Until 2003 the Dutch Company was a fully fledged business. The company owned the assets and controlled the risks relating to the activities. In the years after 2003, the company was involved in several business restructurings: Activities other than the actual production activities were gradually transferred to other group companies, among others the global marketing and services team (GMS), took over purchasing, sales and deployment of personnel. After becoming part of another group in 2007, the company entered a consultancy agreement with another group company under witch strategic and business development, marketing, sales, finance, legal support, IT, staffing and environmental services was now provided on a cost plus 7.5% basis. Under ‘Project X’, a Belgian company was established in April 2009, ... Continue to full case
Israel vs. Gteko Ltd (Microsoft), June 2017, District Court

Israel vs. Gteko Ltd (Microsoft), June 2017, District Court

In November 2006 Microsoft Corp. purchased 100% of the shares of Gteko Ltd. (IT Support technology), for USD 90 million. The purchase was made with the intention of integrating Gteko’s technology into Microsoft’s own products. Following this purchase of Gteko Ltd., the employees were transferred to the local Microsoft subsidiary and a few months later another agreement was entered transferring Gteko’s intellectual property/intangibles to Microsoft. This transfer was priced at USD 26 million based on the purchase price allocation (PPA). The tax authorities of Israel found that the price of 26 mio USD used in the transaction was not at arm’s length. It was further argued, that the transaction was not only a transfer of some intangibles but rather a transfer of all assets owned by Gteko as a going concern to Microsoft Corp. The arm’s length price for the transfer was set at USD 80 million. The District Court agreed with the assessment and ... Continue to full case