Category: Disallowed Deduction

Italy vs NEOPOST ITALIA s.r.l. (QUADIENT ITALY s.r.l.), September 2021, Supreme Court, Case No 25025/2021

Italy vs NEOPOST ITALIA s.r.l. (QUADIENT ITALY s.r.l.), September 2021, Supreme Court, Case No 25025/2021

Neopost Italia s.r.l. had paid service fees and royalties to its French parent. Following an audit, deductions for these intra-group transactions was adjusted by the tax authorities due to non compliance with the arm’s length principle and lack of documentation. However, for the purpose of determining an arm’s length remuneration a benchmark study had been performed by the tax authorities in which one of the comparables was not independent. The Court of Appeal upheld the decision of the tax authorities. Judgement of the Supreme Court The Supreme Court set aside the decision of the Court of Appeal and remanded the case to the court of first instance. In regards to the comparable company in the benchmark that was not independent, the Supreme Court found that: “it is entirely arbitrary, in comparing the two companies, to assert that the price charged by one of the two ... Continue to full case
Colombia vs Interoil Colombia Exploration and Production S.A., September 2021, The Administrative Court, Case No. 24282

Colombia vs Interoil Colombia Exploration and Production S.A., September 2021, The Administrative Court, Case No. 24282

Interoil Colombia Exploration and Production S.A. paid it foreign parent for cost related to exploration and administrative services, and for tax purposes these costs had been deducted in the taxable income. In total $3,571,353,600 had been declared as operating expenses for geological and geophysical studies carried out in the exploratory phase of an oil project and $5.548.680.347 had been declared for administrative services rendered from its parent company abroad Following an audit the tax authorities issued an assessment where these deductions was denied. In regards of cost related to exploration, these should have been recorded as a deferred charge amortisable over up to five years, according to articles 142 and 143 of the Tax Statute. In accordance with Article 142, these investments are recorded as deferred assets and are also declared for tax purposes. (…) According to the general accounting regulations – Decree 2649 of ... Continue to full case
El Salvador vs Corp, June 2021, Tax Court, Case No 096-2021

El Salvador vs Corp, June 2021, Tax Court, Case No 096-2021

Following an audit the tax authorities issued an assessment regarding interest payments on intra group loans and tax deductions for the costs for various services. An appeal was filed by the company. Judgement of the Tax Court The court upheld the assessment and decided in favour of the tax authorities. Click here for English translation TAIIA-R1704012TM ... Continue to full case
Czech Republic vs. LCN GROUP s.r.o., July 2021, Supreme Administrative Court, Case No 2 Afs 148/2020 - 37

Czech Republic vs. LCN GROUP s.r.o., July 2021, Supreme Administrative Court, Case No 2 Afs 148/2020 – 37

LCN Group had deducted costs in its taxable income for marketing services provided by related parties – PRESSTEX MEDIA SE and TARDEM Media s.r.o. and PAPILIO. The claimed advertising costs from PRESSTEX in FY 2012 was produced and implemented by PAPILIO and subsequently invoiced to LCN Group, virtually unchanged, at a price 23 times higher than the price of the advertising, without the corresponding value added being justified. In relation to FY 2013, LCN Group claimed advertising costs from TARDEM in a similar pattern where the price was increased by up to 56 times. In both tax periods, LCN Group’s advertising/promotion costs were related to sporting events (gymnastics world cup, tennis tournament and golf tournaments). The tax authorities concluded that the prices agreed between the parties was not at arm’s length and issued an assessment. The Regional Court annulled the assessment. It argued that the ... Continue to full case
Indonesia vs PT Mondelez Indonesia, July 2021, Supreme Court, Case No. 2031/B/PK/PJK/2021

Indonesia vs PT Mondelez Indonesia, July 2021, Supreme Court, Case No. 2031/B/PK/PJK/2021

Following an audit of PT Mondelez Indonesia, the tax authorities issued an assessment where certain controlled transactions had been adjusted resulting in additional taxable income. A complaint was filed with the Tax Court where, in a decision issued 26 October 2021 the Court partially set aside the assessment. An appeal was then filed with the Supreme Court by the tax authorities. Judgement of the Supreme Court The Supreme Court dismissed the appeal of the tax authorities and ruled in favor of Mondelez. Excerpts: “Considering, that to the reasons for the review, the Supreme Court is of the opinion: – That the subject matter of the dispute is: Positive Correction of Net Income for Tax Year 2015 amounting to Rp112,491,138,518.00 consisting of: correction of Cost of Goods Sold amounting to Rp23,083,520,411.00, and Income from Outside Business amounting to Rp67,781,379.345.00 derived from deemed income on marketing expense ... Continue to full case
Netherlands vs X B.V., July 2021, Supreme Court, Case No ECLI:NL:2021:1102

Netherlands vs X B.V., July 2021, Supreme Court, Case No ECLI:NL:2021:1102

X B.V., a private limited company established in the Netherlands, is part of a globally operating group (hereafter: the Group). In the years under review, the head office, which was also the top holding company, was located in the USA. Until 1 February 2008, the X B.V. was, together with BV 1 and BV 2, included in a fiscal unity for corporate income tax with the Interested Party as the parent company. As of 1 February 2008, a number of companies were added to the fiscal unity, including BV 3 and BV 4. X B.V. is considered transparent for tax purposes according to US standards. Its parent company is a company domiciled in the USA, as further described in 2.1.8 below. In 2006, BV 1 borrowed € 195,000,000 under a Euro Credit Facility (ECF), a head office guaranteed credit facility with a syndicate of sixteen ... Continue to full case
Bulgaria vs Central Hydroelectric de Bulgari EOOD, July 2021, Supreme Administrative Court, Case No 8331

Bulgaria vs Central Hydroelectric de Bulgari EOOD, July 2021, Supreme Administrative Court, Case No 8331

By judgment of 19 January 2021, the Administrative Court upheld an assessment for FY 2012-2017 issued by the tax authorities on the determination of the arm’s length income resulting from related party transactions. The tax assessment resulted from disallowed deductions for Intra group services provided under a general administrative, legal and financial assistance contract of 22 October 2012 Costs invoiced for the preparation of consolidated accounts Expenses related to “Technical services” for which no explanations had been provided An appeal was filed by Central Hydroelectric de Bulgari EOOD with the Supreme Administrative Court in which the company stated that the decision of the Administrative Court was incorrect. Judgement of the Supreme Administrative Court The Supreme Administrative Court partially upheld the decision of the Administrative Court. Excerpts “The present Court of Cassation finds the judgment of the ACGC valid and admissible. The argument of the applicant ... Continue to full case
France vs. SARL SRN Métal, May 2021, CAA, Case No. 19NC03729

France vs. SARL SRN Métal, May 2021, CAA, Case No. 19NC03729

SARL SRN Métal’s business is trading in industrial metal and steel products. Following an audit of the company for FY 2011 to 2012 and assessment was issued related to VAT, Transfer Pricing and Withholding Tax. In regards to transfer pricing, the administration considered that (1) the sales of goods made by SRN Métal to B-Lux Steel, established in Luxembourg, were invoiced at a lower price than that charged to the company’s other customers and (2) that commissions paid to Costa Rica – a privileged tax regime – were not deductible as SRN Metal did not provided proof that the expenses corresponded to real operations and that they are not abnormal or exaggerated. The company requested the administrative court of Strasbourg to discharge the assessments. This request was rejected by the court in a judgement issued 29 October 2019. This decision of the administrative court was ... Continue to full case
St. Vincent & the Grenadines vs Unicomer (St. Vincent) Ltd., April 2021, Supreme Court, Case No SVGHCV2019/0001

St. Vincent & the Grenadines vs Unicomer (St. Vincent) Ltd., April 2021, Supreme Court, Case No SVGHCV2019/0001

Unicomer (St. Vincent) Ltd. is engaged in the business of selling household furniture and appliances. In FY 2013 and 2014 Unicomer entered into an “insurance arrangement” involving an unrelated party, United insurance, and a related party, Canterbury. According to the tax authorities United Insurance had been used as an intermediate/conduit to funnel money from the Unicomer to Canterbury, thereby avoiding taxes in St. Vincent. In 2017 the Inland Revenue Department issued an assessments of additional tax in the sum of $12,666,798.23 inclusive of interest and penalties. The basis of the assessment centered on Unicomer’s treatment of (1) credit protection premiums (hereinafter referred to as “CPI”) under the insurance arrangement, (2) tax deferral of hire-purchase profits and (3) deductions for royalty payments. Unicomer appealed the assessment to the Appeal Commission where a decision was rendered in 2018. The Appeal Commission held that the CPI payments were ... Continue to full case
Romania vs A. Romania S.R.L., April 2021, Supreme Administrative Court, Case No 2644/2021

Romania vs A. Romania S.R.L., April 2021, Supreme Administrative Court, Case No 2644/2021

A. Romania S.R.L. had purchased services from A. Nederland BV and A. CZ Holding sro, and the costs of the services had been deducted for tax purposes. At issue was whether these services had actually been provided to the benefit of A. Romania S.R.L. and if so whether the costs were deductible under Romanian tax provisions. According to the tax authorities it was not possible to identify the services actually provided, as the documentation provided was only general data on the types of services invoiced, such as: group services, taxes and contributions, other group services. No supporting documents had been submitted to show that the services were actually provided. Furthermore, according to Romanian tax provisions – paragraph 41 of H.G. no. 44/2004 – the costs of administration, management, control, consultancy or similar functions are borne by the parent company and no remuneration can be claimed ... Continue to full case
Romania vs S.C. A., March 2021, Supreme Administrative Court, Case No 1955/2021

Romania vs S.C. A., March 2021, Supreme Administrative Court, Case No 1955/2021

S.C. A. had paid for intra group services in FY 2013 and 2014 and deducted the costs for tax purposes. The purchases of services were made on the basis of a management services contract concluded with related party C. S.A. and a production service contract, logistics service contract, product management service contract and service contract concluded with related party B. The tax authorities had issued an assessment where deductions for the costs had been denied. The court of first instance set aside the tax assessment. Judgement of Supreme Administrative Court The Supreme Administrative Court upheld the decision from the court of first instance and decided in favor of S.C. A. Excerpts “As regards the necessity of providing the services The High Court finds that the expert held, with regard to that aspect, that by the contracts concluded, C. S.A. and B. undertook to carry out ... Continue to full case
Spain vs EPSON IBÉRICA S.A.U., March 2021, Supreme Court, Case No 390:2021

Spain vs EPSON IBÉRICA S.A.U., March 2021, Supreme Court, Case No 390:2021

The SEIKO EPSON CORPORATION is a multinational group of Japanese origin active in among others areas, production and sale of computer products. The group is present in Spain, EPSON IBÉRICA, but has its European HQ in the Netherlands, EPSON EUROPE BV. The main shareholder and sole director of EPSON IBÉRICA S.A.U. was initially Mr. Jose Augusto. However, following a capital increase on 24 April 1986, EPSON IBÉRICA SAU became the subsidiary of the EPSON Group in Spain and Mr. Jose Augusto became a member of its Board of Directors. Mr. Jose Augusto held positions in both EPSON IBERICA and the Dutch parent company EPSON EUROPA until he left on 31 August 2007. As part of his emoluments, EPSON IBERICA made contributions to a pension plan since 1999, totalling EUR 2,842,047.55, including an extraordinary contribution of EUR 2,200,000.00, which was agreed by its Board of Directors ... Continue to full case
France vs. SMAP, March 2021, Administrative Court of Appeal, Case No. 19VE01161

France vs. SMAP, March 2021, Administrative Court of Appeal, Case No. 19VE01161

The French company SMAP carries out activities in the area of advertising management and organisation of trade fairs. Following an audit of the company for FY 2008 to 2011 and assessment was issued where deduction of costs for certain intra group “services” had been denied, resulting in additional value added tax, corporate income tax surcharges, apprenticeship tax and business value added tax. The company held that the tax administration had disregarded fiscal procedures, and that the reality of the services – and deductibility of the costs – cannot be disregarded on mere presumptions. Decision of the Court The Appeal of SARL SMAP was rejected by the Court. “Firstly, the administration notes that by virtue of a Lebanese legislative decree n° 46 of 24th June 1983, companies governed by Lebanese law … carrying out their essential activities outside the national territory are considered as offshore companies ... Continue to full case
Spain vs DIGITEX INFORMÁTICA S.L., February 2021, National Court, Case No 2021:629

Spain vs DIGITEX INFORMÁTICA S.L., February 2021, National Court, Case No 2021:629

DIGITEX INFORMATICA S.L. had entered into a substantial service contract with an unrelated party in Latin America, Telefonica, according to which the DIGITEX group would provide certain services for Telefonica. The contract originally entered by DIGITEX INFORMATICA S.L. was later transferred to DIGITEX’s Latin American subsidiaries. But after the transfer, cost and amortizations related to the contract were still paid – and deducted for tax purposes – by DIGITEX in Spain. The tax authorities found that costs (amortizations, interest payments etc.) related to the Telefonica contract – after the contract had been transferred to the subsidiaries – should have been reinvoiced to the subsidiaries, and an assessment was issued to DIGITEX for FY 2010 and 2011 where these deductions had been disallowed. DIGITEX on its side argued that by not re-invoicing the costs to the subsidiaries the income received from the subsidiaries increased. According to ... Continue to full case
Portugal vs "A..., Sociedade Unipessoal LDA", January 2021, Tax Court (CAAD), Case No 827/2019-T

Portugal vs “A…, Sociedade Unipessoal LDA”, January 2021, Tax Court (CAAD), Case No 827/2019-T

“A…, Sociedade Unipessoal LDA” had taken out two intra group loans with the purpose of acquiring 70% of the shares in a holding company within the group. The tax authorities disallowed the resulting interest expenses claiming that the loan transactions lacked a business purpose. A complaint was filed with the Tax Court (CAAD). Decision of the Court The Court decided in favour of the tax authorities and upheld the assessment. Click here for English translation Click here for other translation P827_2019-T - 2021-01-25 - JURISPRUDENCIA ... Continue to full case
Bulgaria vs Montupet, January 2021, Supreme Administrative Court, Case No 630

Bulgaria vs Montupet, January 2021, Supreme Administrative Court, Case No 630

Montupet EOOD is a Bulgarian subsidiary in the French Montupet Group which specializes in the production of aluminum components for the automotive industry. In February 2016, the French Group became part of the Canadian LINAMAR Group, which specializes in the manufacture and assembly of components for the automotive industry. The French group and its production facilities (plants in France, Bulgaria, Northern Ireland, Mexico and Spain) retained their core business as part of one of LINAMAR’s five main business areas – light metal casting. Effective 01.01.2017, Montupet SAS and Montupet EOOD entered into a Services Agreement, which canceled a previous agreement of 21.12.2009 in the part concerning the corporate and management services provided. Pursuant to the new agreement, Montupet SAS undertakes to provide Montupet EOOD with business advisory services in various areas such as business strategy and development advice; financial strategy advice; legal advice; human resources ... Continue to full case
Italy vs "Plastic Pipes s.p.a.", January 2021, Supreme Court, Case 230-2021

Italy vs “Plastic Pipes s.p.a.”, January 2021, Supreme Court, Case 230-2021

Plastic Pipes s.p.a. produces and sells flexible plastic pipes, via foreign subsidiaries, to which it supplies the product to be resold to foreign customers and it operates abroad, selling the product directly to customers, also in foreign countries where it has a subsidiary. The tax authorities had issued a notice of assessment for FY 2006 claiming that Plastic Pipes s.p.a. had incurred (and deducted) marketing costs in the interest of its subsidiaries, without recharging their share of the expenses. The Court of first instance set aside the assessment of the tax authorities. Judgement of the Supreme Court. The supreme Court dismissed the appeal of the tax authorities. Excerps “…the burden of proof on the tax authorities is limited to providing evidence of the existence of the intra-group transaction and of the agreement of a consideration lower than the normal market value; the taxpayer who intends ... Continue to full case
Taiwan vs Weitian Technology Co. Ltd. December 2020, Supreme Administrative Court, Case No 109 Pan Tzu No. 661

Taiwan vs Weitian Technology Co. Ltd. December 2020, Supreme Administrative Court, Case No 109 Pan Tzu No. 661

Weitian Technology Co. Ltd (AKA ProLight Opto Technology Corp), a Taiwanese company active in the global LED industry, claimed that factors affecting market prices had not been fully considered while determining the prices of products sold to its subsidiary in Shanghai, and that this had caused major losses in the subsidiary. To account for these losses, at the end of 2015, a year end adjustment was made, which was reported as a tax deductible sales allowance in the tax returns. The tax authorities denied the deduction. An appeal was filed by the company with the Supreme Administrative Court in 2019. Judgement of the Supreme Administrative Court The court dismissed the appeal. Deductions for the year end adjustment could not be allowed in this case for the following reasons: A year end adjustment is a mechanism provided to MNEs to achieve an arm’s-length result when the ... Continue to full case
El Salvador vs "E-S. Sales Corp", December 2020, Tax Court, Case No R1705038.TM

El Salvador vs “E-S. Sales Corp”, December 2020, Tax Court, Case No R1705038.TM

Following an audit the tax authorities issued an assessment regarding various intra group costs of sales deducted for tax purposes by “E-S. Sales Corp”. An appeal was filed by the company. Judgement of the Tax Court The court partially upheld the assessment, but in regards of application of the OECD Transfer Pricing Guidelines, the assessment was set aside. For the years in question the OECD guidelines had not yet been implemented by El Salvador. Excerpt “In this regard, it should be noted that the seventh paragraph of the aforementioned article provides that “””If, for any reason, the market price cannot be determined, the Tax Administration shall establish it by adopting the price or the amount of the consideration that the taxpayer under audit has received from purchasers of goods or providers of unrelated services other than those to whom it transferred goods or provided services ... Continue to full case
Colombia vs Taxpayer, November 2020, The Constitutional Court, Sentencia No. C-486/20

Colombia vs Taxpayer, November 2020, The Constitutional Court, Sentencia No. C-486/20

A Colombian taxpayer had filed an unconstitutionality complaint against Article 70 (partial) of Law 1819 of 2016, “Whereby a structural tax reform is adopted, mechanisms for the fight against tax evasion and avoidance are strengthened, and other provisions are enacted.” The Constitutional Court ruled that the Colombian GAAR legislation was not unconstitutional. Click here for English translation Click here for other translation (1) Corte Constitucional - Sentencia C-480 del 19 de noviembre de 2020 ... Continue to full case