Category: Digital Economy

Taxation and allocation of income generated from cross-border activities in the digital economy – Google, Apple, Microsoft, Netflix, Ebay, Amazon, Facebook, Alibaba, Baidu, Tencent, Uber, Airbnb, Expedia, PayPal etc.

India vs Google India Private Limited, Oct. 2022, Income Tax Appellate Tribunal, 1513/Bang/2013, 1514/Bang/2013, 1515/Bang/2013, 1516/Bang/2013

India vs Google India Private Limited, Oct. 2022, Income Tax Appellate Tribunal, 1513/Bang/2013, 1514/Bang/2013, 1515/Bang/2013, 1516/Bang/2013

Google Ireland licenses Google AdWords technology to its subsidiary in India and several other countries across the world. The Tax Tribunal in India found that despite the duty of Google India to withhold tax at the time of payment to Google Ireland, no tax was withheld. This was considered tax evasion, and Google was ordered to pay USD 224 million. The case was appealed by Google to the High Court, where the case was remanded to the Income Tax Appellate Authority for re-examination. Judgement of the ITAT After re-examining the matter on the orders of the Karnataka High Court, the Income Tax Appellate Authority concluded that the payments made by the Google India to Google Ireland between 2007-08 and 2012-13 was not royalties and therefore not subject to withholding tax. Excerpts “30. On a consideration of all the above agreements and the facts on record, ... Continue to full case
European Commission vs. Amazon and Luxembourg, May 2021, State Aid - European General Court, Case No T-816/17 and T-318/18

European Commission vs. Amazon and Luxembourg, May 2021, State Aid – European General Court, Case No T-816/17 and T-318/18

In 2017 the European Commission concluded that Luxembourg granted undue tax benefits to Amazon of around €250 million.  Following an in-depth investigation the Commission concluded that a tax ruling issued by Luxembourg in 2003, and prolonged in 2011, lowered the tax paid by Amazon in Luxembourg without any valid justification. The tax ruling enabled Amazon to shift the vast majority of its profits from an Amazon group company that is subject to tax in Luxembourg (Amazon EU) to a company which is not subject to tax (Amazon Europe Holding Technologies). In particular, the tax ruling endorsed the payment of a royalty from Amazon EU to Amazon Europe Holding Technologies, which significantly reduced Amazon EU’s taxable profits. This decision was brought before the European Court of Justice by Luxembourg and Amazon. Judgement of the EU Court  The European General Court found that Luxembourg’s tax treatment of ... Continue to full case
France vs Valueclick Ltd. Dec 2020, Supreme Administrative Court (CAA), Case No 420174

France vs Valueclick Ltd. Dec 2020, Supreme Administrative Court (CAA), Case No 420174

The issue in the case before the Supreme Administrative Court was whether an Irish company had a PE in France in a situation where employees of a French company in the same group carried out marketing, representation, management, back office and administrative assistance services on behalf of the group. The following facts were used to substantiate the presence of a French PE: French employees negotiated the terms of contracts and were involved in drafting certain contractual clauses with the customers. Contracts were automatically signed by the Irish company – whether this action corresponded to a simple validation of the contracts negotiated and drawn up by the managers and employees in France. Local advertising programs were developed and monitored by employees in France. French employees acted to third parties as employees of the Irish company. Customers did not distinguish between the Irish and the French company. In a 2018 decision ... Continue to full case
European Commission vs. Ireland and Apple, July 2020, General Court of the European Union, Case No. T-778/16 and T-892/16

European Commission vs. Ireland and Apple, July 2020, General Court of the European Union, Case No. T-778/16 and T-892/16

In a decision of 30 August 2016 the European Commission concluded that Ireland’s tax benefits to Apple were illegal under EU State aid rules, because it allowed Apple to pay substantially less tax than other businesses. The decision of the Commission concerned two tax rulings issued by Ireland to Apple, which determined the taxable profit of two Irish Apple subsidiaries, Apple Sales International and Apple Operations Europe, between 1991 and 2015. As a result of the rulings, in 2011, for example, Apple’s Irish subsidiary recorded European profits of US$ 22 billion (c.a. €16 billion) but under the terms of the tax ruling only around €50 million were considered taxable in Ireland. Ireland appealed the Commission’s decision to the European Court of Justice. The Judgement of the European Court of Justice The General Court annuls the Commission’s decision that Ireland granted illegal State aid to Apple ... Continue to full case
France vs Google, September 2019, Court approval of CJIP Agreement - Google agrees to pay EUR 1 billion in fines and taxes to end Supreme Court Case

France vs Google, September 2019, Court approval of CJIP Agreement – Google agrees to pay EUR 1 billion in fines and taxes to end Supreme Court Case

The district court of Paris has approved a  “convention judiciaire d’intérêt public” negotiated between the French state and Google for an amount of € 500 million plus another agreement with the French tax authorities which amounts to 465 million euros. The agreement puts an end to the French lawsuits against Google for aggressive tax evasion, and litigation with the tax administration relating to adjustments for the periods going from 2005 to 2018. The CJIP “convention judiciaire d’intérêt public“, was established by Article 22 of Law No. 2016-1691 of 9 December 2016 in France on transparency and fight against corruption. By Law No. 2018-898 of October 23, 2018 the law was extended to cover cases for tax evasion. According to the CJIP legal actions can be ended in return for the payment of a fine. The dispute concerned the existence of a permanent establishment of Google ... Continue to full case
US vs Amazon, August 2019, US Court of Appeal Ninth Circut, Case No. 17-72922

US vs Amazon, August 2019, US Court of Appeal Ninth Circut, Case No. 17-72922

In the course of restructuring its European businesses in a way that would shift a substantial amount of income from U.S.-based entities to the European subsidiaries, appellee Amazon.com, Inc. entered into a cost sharing arrangement in which a holding company for the European subsidiaries made a “buy-in” payment for Amazon’s assets that met the regulatory definition of an “intangible.” See 26 U.S.C. § 482. Tax regulations required that the buy-in payment reflect the fair market value of Amazon’s pre-existing intangibles. After the Commissioner of Internal Revenue concluded that the buy-in payment had not been determined at arm’s length in accordance with the transfer pricing regulations, the Internal Revenue Service performed its own calculation, and Amazon filed a petition in the Tax Court challenging that valuation. At issue is the correct method for valuing the preexisting intangibles under the then-applicable transfer pricing regulations. The Commissioner sought ... Continue to full case
France vs. Google, April 2019, Administrative Court of Appeal, Case N° 17PA03065

France vs. Google, April 2019, Administrative Court of Appeal, Case N° 17PA03065

The French tax administration argued that Google had a permenent establishment in France because the parent company in the US and its subsidiary in Ireland had been selling a service – online ads – to customers in France. In 2017 the administrative court found that Google France did not have the capability to carry out the advertising activities on its own. Google Ireland Limited therefore did not have a permanent establishment in France. The same conclution was reached i 2019 by the Administrative court of appeal. Click here for translation France vs Google April 2019, No 17PA03065, ... Continue to full case
Denmark vs Microsoft Denmark, January 2019, Danish Supreme Court, Case No SKM2019.136.HR

Denmark vs Microsoft Denmark, January 2019, Danish Supreme Court, Case No SKM2019.136.HR

The Danish tax authorities were of the opinion that Microsoft Denmark had not been properly remunerated for performing marketing activities due to the fact that OEM sales to Danish customers via MNE OEM’s had not been included in the calculation of local commissions. According to the Market Development Agreement (MDA agreement) concluded between Microsoft Denmark and MIOL with effect from 1 July 2003, Microsoft Denmark received the largest amount of either a commission based on sales invoiced in Denmark or a markup on it’s costs. Microsoft Denmark’s commission did not take into account the sale of Microsoft products that occurred through the sale of computers by multinational computer manufacturers with pre-installed Microsoft software to end users in Denmark – (OEM sales). In court, Microsoft required a dismissal. In a narrow 3:2 decision the Danish Supreme Court found in favor of Microsoft. “…Microsoft Denmark’s marketing may ... Continue to full case
US SOUTH DAKOTA v. WAYFAIR, INC., June 2018, US Supreme Court, Case No. 17-494

US SOUTH DAKOTA v. WAYFAIR, INC., June 2018, US Supreme Court, Case No. 17-494

Concerned about the erosion of its sales tax base and corresponding loss of critical funding for state and local services, the South Dakota Legislature in 2016 enacted a law requiring out-of-state sellers to collect and remit sales tax “as if the seller had a physical presence in the State.” The Act covers sellers that, on an annual basis, deliver more than $100,000 of goods or services into the State or engage in 200 or more separate transactions for the delivery of goods or services into the State. Respondents, top online retailers with no employees or real estate in South Dakota, each meet the Act’s minimum sales or transactions requirement, but do not collect the State’s sales tax. South Dakota filed suit in state court, seeking a declaration that the Act’s requirements are valid and applicable to respondents and an injunction requiring respondents to register for ... Continue to full case
India vs Mastercard, June 2018, AAR No 1573 of 2014

India vs Mastercard, June 2018, AAR No 1573 of 2014

The issue was whether Mastercard Asien Pasific Ltd has a permanent establishment in India as regards the use of a global network and infrastructure to process card payment transactions for customers in India and as regards other related activities. India’s Authority for Advance Rulings found that that Mastercard’s activities in India created a permanent establishment under several different theories. The AAR also concluded that processing fees paid to Mastercard’s regional headquarters in Singapore by Indian banks and other financial institutions were royalty income, but would be taxable as business profits in India under Article 7 in the DTT between India and Singapore for being effectively connected with a PE of Mastercard Asia Pacific in India. AAR ruling: India-vs-Mastercard-asia-pacific-ltd-6-June-2018-AAR-No-1573-of-2014 ... Continue to full case
Denmark vs Microsoft Denmark, March 2018, Danish National Court, SKM2018.416.ØLR

Denmark vs Microsoft Denmark, March 2018, Danish National Court, SKM2018.416.ØLR

The Danish Tax Ministry and Microsoft meet in Court in a case where the Danish tax authorities had issued an assessment of DKK 308 million. The Danish tax authorities were of the opinion that Microsoft had not been properly remunerated for performing marketing activities due to the fact that OEM sales to Danish customers via MNE OEM’s had not been included in the calculation of local commissions. In court, Microsoft required a dismissal with reference to the fact that Sweden, Norway and Finland had either lost or resigned similar tax cases against Micorosoft. The National Court ruled in favor of Microsoft. The decision was later confirmed by the Supreme Court. Click here for translation DK vs MS Marketing-and Sales Commissioner ... Continue to full case
France vs Valueclick Ltd. March 2018, Administrative Court, Case no 17PA01538

France vs Valueclick Ltd. March 2018, Administrative Court, Case no 17PA01538

The issue in the case before the Administrative Court of Appeal of Paris was whether an Irish company had a PE in France in a situation where employees of a French company in the same group carried out marketing, representation, management, back office and administrative assistance services on behalf of the group. The following facts were used to substantiate the presence of a French PE: French employees negotiated the terms of contracts and were involved in drafting certain contractual clauses with the customers. Contracts were automatically signed by the Irish company – whether this action corresponded to a simple validation of the contracts negotiated and drawn up by the managers and employees in France. Local advertising programs were developed and monitored by employees in France. French employees acted to third parties as employees of the Irish company. Customers did not distinguish between the Irish and the French company. However, ... Continue to full case
India vs Google, Oct. 2017, Income Tax Appellate Tribunal

India vs Google, Oct. 2017, Income Tax Appellate Tribunal

Google Ireland licenses Google AdWords technology to its subsidiary in India and several other countries across the world. The Tax Tribunal in India found that despite the duty of Google India to withhold tax at the time of payment to Google Ireland, no tax was withheld. This was considered tax evasion, and Google was ordered to pay USD 224 million. The case has now been appealed by Google to the Supreme Court of India. India-vs-Google-28-oct-2017-TAX-APPELLATE-TRIBUNAL ... Continue to full case
European Commission vs. Amazon and Luxembourg, October 2017, State Aid - Comissions decision, SA.38944 

European Commission vs. Amazon and Luxembourg, October 2017, State Aid – Comissions decision, SA.38944 

Luxembourg gave illegal tax benefits to Amazon worth around €250 million The European Commission has concluded that Luxembourg granted undue tax benefits to Amazon of around €250 million.  Following an in-depth investigation launched in October 2014, the Commission has concluded that a tax ruling issued by Luxembourg in 2003, and prolonged in 2011, lowered the tax paid by Amazon in Luxembourg without any valid justification. The tax ruling enabled Amazon to shift the vast majority of its profits from an Amazon group company that is subject to tax in Luxembourg (Amazon EU) to a company which is not subject to tax (Amazon Europe Holding Technologies). In particular, the tax ruling endorsed the payment of a royalty from Amazon EU to Amazon Europe Holding Technologies, which significantly reduced Amazon EU’s taxable profits. The Commission’s investigation showed that the level of the royalty payments, endorsed by the ... Continue to full case
France vs. Google, July 2017, Administrative Court

France vs. Google, July 2017, Administrative Court

The French tax administration argued that Google had a permenent establishment in France because the parent company in the US and its subsidiary in Ireland had been selling a service – online ads – to customers in France. The administrative court found that Google France did not have the capability to carry out the advertising activities on its own. Google Ireland Limited therefore did not have a permanent establishment in France. Click here for translation France-vs-Google-July-2017 ... 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
US vs Microsoft, May 2017, US District Court

US vs Microsoft, May 2017, US District Court

In an ongoing transfer pricing battle between Microsoft and the IRS related to Microsofts’ use of a IP subsidiary in Puerto Rico to shift income and reduce taxes, the District Court of Washington has now ordered Microsoft to provide a number of documents as requested by the IRS. US vs Microsoft May 2017 US District Court In a prior decision from November 2015 the District Court ruled, that the IRS’ use of an external representative was not in conflict with US regulations. Microsoft argued that the IRS’ use of an outside law firm, Quinn Emanuel Urquhart & Sullivan, to assist in the audit was an improper delegation of its authority to examine taxpayer books. The Court ruled that the government had a legitimate purpose in continuing to pursue the audit, and that the use of Quinn Emanuel was not a breach of IRS authority that ... Continue to full case
US vs. Amazon, March 2017, US Tax Court, Case No. 148 T.C. No 8

US vs. Amazon, March 2017, US Tax Court, Case No. 148 T.C. No 8

Amazon is an online retailer that sells products through Amazon.com and related websites. Amazon also sells third-party products for which it receives a commissions. In a series of transactions  in 2005 and 2006, Amazon US transferred intangibles to Amazon Europe, a newly established European HQ placed in Luxembourg. A Cost Sharing Arrangement (“CSA”), whereby Amazon US and Amazon Europe agreed to share costs of further research, development, and marketing in proportion to the benefits A License Agreement, whereby Amazon US granted Amazon Europe the right to Amazon US’s Technology IP An Assignment Agreement, whereby Amazon US granted Amazon Europe the right to Amazon US’s Marketing IP and Customer Lists. For these transfers Amazon Europe was required to make an upfront buy-in payment and annual payments according to the cost sharing arrangement for ongoing developments of the intangibles. In the valuation, Amazon had considered the intangibles to have ... Continue to full case
European Commission vs. Ireland and Apple, August 2016, State Aid Decision

European Commission vs. Ireland and Apple, August 2016, State Aid Decision

According to the European Commission Ireland gave illegal tax benefits to Apple worth up to €13 billion The European Commission has concluded that Ireland granted undue tax benefits of up to €13 billion to Apple. This is illegal under EU state aid rules, because it allowed Apple to pay substantially less tax than other businesses. Ireland must now recover the illegal aid. EU-Commission-Apple ... Continue to full case
Spain vs Dell, June 2016, Supreme Court, Case No. 1475/2016

Spain vs Dell, June 2016, Supreme Court, Case No. 1475/2016

Dell Spain is part of a multinational group (Dell) that manufactures and sells computers. Dell Ireland, operates as distribution hub for most of Europe. Dell Ireland has appointed related entities to operate as its commissionaires in several countries; Dell Spain and Dell France are part of this commissionaire network. The group operates through a direct sales model and sales to private customers in Spain are conducted by Dell France, through a call centre and a web page. Dell Spain use to operate as a full-fledged distributor, but after entering into a commissionaire agreement Dell Spain now served large customers on behalf of Dell Ireland. A tax assessment was issued by the tax authorities. According to the assessment the activities in Spain constituted a Permanent Establishment of Dell Ireland to which profits had to allocated for FY 2001-2003. Judgement of the Supreme Court The Supreme Court ... Continue to full case