Category: Financial Transactions

In transfer pricing financing transactions includes inter-company loans, treasury activity (eg. cash pooling), and guarantees within MNEs.

Australia vs Singapore Telecom Australia Investments Pty Ltd, March 2024, Full Federal Court of Australia, Case No [2024] FCAFC 29

Australia vs Singapore Telecom Australia Investments Pty Ltd, March 2024, Full Federal Court of Australia, Case No [2024] FCAFC 29

Singapore Telecom Australia Investments Pty Ltd entered into a loan note issuance agreement (the LNIA) with a company (the subscriber) that was resident in Singapore. Singapore Telecom Australia and the subscriber were ultimately 100% owned by the same company. The total amount of loan notes issued to the Participant was approximately USD 5.2 billion. The terms of the LNIA have been amended on three occasions, the first and second amendments being effective from the date the LNIA was originally entered into. The interest rate under the LNIA as amended by the third amendment was 13.2575%. Following an audit, the tax authorities issued an assessment under the transfer pricing provisions and disallowed interest deductions totalling approximately USD 894 million in respect of four years of income. In the view of the tax authorities, the terms agreed between the parties deviated from the arm’s length principle. Singapore ... Continue to full case
Portugal vs "Caixa... S.A.", February 2024, Tribunal Central Administrativo Sul, Case No 866/12.1 BELRS

Portugal vs “Caixa… S.A.”, February 2024, Tribunal Central Administrativo Sul, Case No 866/12.1 BELRS

“Caixa… S.A.” received an assessment of additional taxable income in which, among other things, the (lack of) interest on a loan granted to a subsidiary had been adjusted by the tax authorities. Caixa S.A. lodged an appeal with the Tribunal Central Administrativo Sul. Judgment of the Tribunal The Tribunal dismissed the appeal as regards the transfer pricing adjustment and upheld that part of the tax authorities’ assessment. Expert “It goes on to say that the discussion of the nature of the operation is innocuous in the context of the specific case. The fact is that “[t]here are various techniques by which practices can be employed to artificially increase interest expenses, so that they benefit from tax treatment that may be more favourable when compared to that of distributed profits. The first consists of checking the “reasonableness” of the amount of interest, refusing to deduct the ... Continue to full case
Poland vs "H. spółka z o.o.", January 2024, Administrative Court, Case No I SA/Lu 665/23

Poland vs “H. spółka z o.o.”, January 2024, Administrative Court, Case No I SA/Lu 665/23

A Polish company, “H. spółka z o.o.”, is a member of a group engaged in investment activities in Europe. H had granted loans to related companies and received loans and contributions from the sole shareholder in Luxembourg. H submitted a request to the tax authorities for an opinion on the tax consequences of these financial arrangements. The tax authority denied the request on the basis that the main purpose of the transaction and the manner in which it was carried out were artificial. Dissatisfied, H appealed to the Administrative Court. Judgement of the Administrative Court The Administrative Court dismissed the appeal. Excerpt “In the Court’s view, the above position of the authority is reasonable and is reflected in the evidence presented by the requesting payer. As can be seen from the evidence presented and the findings of fact based on that evidence, R. S.a.r.l. is a ... Continue to full case
Sweden vs "A Loan AB", January 2024, Supreme Administrative Court, Case No 4068-23

Sweden vs “A Loan AB”, January 2024, Supreme Administrative Court, Case No 4068-23

A AB is part of an international group. The group was planning a reorganisation involving a number of intra-group transactions. As part of this reorganisation, A AB would acquire all the shares in B from the group company C. The acquisition would mainly be financed by A AB taking a loan from group company D, which is domiciled in another EU country. The terms of the loan, including the interest rate, would be at market terms. A AB requested an advance ruling to know whether the deduction of the interest expenses on the debt to D could be denied on the grounds that the debt relationship had been incurred exclusively or almost exclusively for the purpose of obtaining a significant tax advantage or because the acquisition of B was not essentially commercially motivated. If the interest was subject to non-deductibility, A AB wanted to know ... Continue to full case
Poland vs "N. sp. z o.o.", January 2024, Administrative Court, Case No I SA/Lu 584/23

Poland vs “N. sp. z o.o.”, January 2024, Administrative Court, Case No I SA/Lu 584/23

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
Netherlands vs "Tobacco B.V.", December 2023, North Holland District Court, Case No AWB - 20_4350 (ECLI:NL:RBNHO: 2023:12635)

Netherlands vs “Tobacco B.V.”, December 2023, North Holland District Court, Case No AWB – 20_4350 (ECLI:NL:RBNHO: 2023:12635)

A Dutch company “Tobacco B.V.” belonging to an internationally operating tobacco group was subjected to (additional assessment) corporate income tax assessments according to taxable amounts of €2,850,670,712 (2013), €2,849,204,122 (2014), €2,933,077,258 (2015) and €3,067,630,743 (2016), and to penalty fines for the year 2014 of €1,614,709, for the year 2015 of €363,205 and for the year 2016 of €125,175,082. In each case, the dispute focuses on whether the fees charged by various group companies for supplies and services can be regarded as business-related. Also in dispute is whether transfer profit should have been recognised in connection with a cessation of business activities. One of the group companies provided factoring services to “Tobacco B.V.”. The factoring fee charged annually for this includes a risk fee to cover the default risk and an annual fee for other services. The court concluded that the risk was actually significantly lower ... Continue to full case
France vs Electricité de France, November 2023, CAA de Versailles, Case No 22VE02575

France vs Electricité de France, November 2023, CAA de Versailles, Case No 22VE02575

In 2009 the English company EDF Energy UK Ltd (EDFE), a wholly-owned subsidiary of SAS Electricité de France International (SAS EDFI), issued 66,285 bonds convertible into shares (OCAs) for a unit nominal value of EUR 50,000. SAS EDFI subscribed to all of these OCAs for their nominal value, i.e. a total subscription price of EUR 3,314,250,000. The OCAs had a maturity of five years, i.e. until October 16, 2014, and could be converted into new EDFE shares at the instigation of the subscriber at any time after a three-year lock-up period, i.e. from October 16, 2012. Each bond entitled the holder to receive 36,576 EDFE shares after conversion. The annual coupon for the OCAs was set at 1.085%. In this respect, SAS EDFI determined, on the basis of a panel of bond issues of independent comparables, the arm’s length rate that should be applied to ... Continue to full case
Spain vs "Group Rating SA", November 2023, TEAC, Case No RG 8283/2020

Spain vs “Group Rating SA”, November 2023, TEAC, Case No RG 8283/2020

“Group Rating SA” was subject to an assessment in relation to intra-group loans. The tax authorities found that the method used to determine the arm’s length interest rate was reasonable, but that the credit rating was incorrect as it did not take into account that “Group Rating SA” was part of a larger group. According to the tax authorities, group membership may have an impact on the credit rating of the members of the group, see section 7.13 of the 2010 TPG and chapter X, paragraphs 10.81 and 10.82 of the 2022 TPG. In the appeal, “Group Rating SA” argued that the tax authorities’ interpretation was incorrect. Judgment of the court The TEAC dismissed the appeal and ruled in favour of the tax authorities. The court concluded that it was reasonable to assume that “Group Rating SA” would receive financial support from other members of ... Continue to full case
Luxembourg vs "LLC AB", November 2023, Administrative Court of Appeal, Case No 48125C

Luxembourg vs “LLC AB”, November 2023, Administrative Court of Appeal, Case No 48125C

“LLC AB” had received an interest free “credit line” by a related party which it considered a loan and on that basis notional interest was deducted for tax purposes. The tax authorities disagreed with the qualification of the “credit line” and considered the capital similar to equity. On that basis the notional interest deductions was disallowed, which resulted in additional taxable income. An appeal was filed by “LLC AB” which was dismissed by the Administrative Tribunal in September 2022. An appeal was then filed by “LLC AB” with the Administrative Court. Judgment of the Court The Administrative Court ruled in favor of “LLC AB” and overturned the decision of the Administrative Tribunal and set aside the assessment of the tax authorities. Excerpt (in English) “However, as a last important element, the Court must reiterate the finding already made above that the appellant made only very ... Continue to full case
Germany vs OHG, November 2023, Bundesverfassungsgericht, Case No 2 BvR 1079/20

Germany vs OHG, November 2023, Bundesverfassungsgericht, Case No 2 BvR 1079/20

A domestic general partnership (OHG) was the sole shareholder of an Italian corporation (A). OHG had unsecured interest bearing claims against A. During the years of the dispute, the partnership waived part of its claims against A in return for a debtor warrant. Following an audit an adjustment to the taxable income of OHG was issued by the tax authorities. The assessment was later set aside by the administrative court but on appeal by the tax authorities the BFH in 2019 upheld the assessment. A constitutional complaint was lodged against this ruling. Judgment of the Federal Constitutional Court The Court upheld the complaint and overturned the BFH judgment and referred the case back to the BFH. Click here for English translation Click here for other translation Germany Nov 2023 Bundesverfassungsgericht 2 BvR 1079-20 ... Continue to full case
Portugal vs A  S.A., November 2023, Supreme Administrative Court , Case 0134/10.3BEPRT

Portugal vs A S.A., November 2023, Supreme Administrative Court , Case 0134/10.3BEPRT

A S.A. had transferred a dividend receivable to an indirect shareholder for the purpose of acquiring other companies. The tax authorities considered the transfer to be a loan, for which A S.A should have received arm’s length interest and issued an assessment on that basis. A complaint was filed by A S.A. with the tax Court, which ruled in favour of A S.A. and dismissed the assessmemt in 2021 An appeal was then filed by the tax authorities with the Supreme Administrative Court. Judgement of the Court The Supreme Administrative Court upheld the decission of the tax court and dismissed the appeal of the tax authorities. According to the Court the local transfer pricing in article 58 of the CIRC, in the wording in force at the time of the facts did not allow for a recharacterization of a transaction, only for a re-quantification. A ... Continue to full case
Netherlands vs "DPP B.V.", November 2023, Supreme Court, Case No 22/00587, ECLI:NL:HR:2023:1504

Netherlands vs “DPP B.V.”, November 2023, Supreme Court, Case No 22/00587, ECLI:NL:HR:2023:1504

At issue was the point in time where intra-group receivables in the form of dividends denominated in a foreign currency could be said to have been received by the Dutch shareholder “DPP B.V.” for tax purposes. The Dutch participation exemption applies to dividends up to the point at which such a receivable must be capitalized as a separate asset in the balance sheet. Only from that point on would any foreign exchange loss or gain be tax deductible (or taxable). The District Court and the Court of Appeal ruled in favor of the tax authorities. Judgement of the Supreme Court The Dutch Supreme Court declared the appeal unfounded and upheld the judgment of the Court of Appeal. Click here for English translation Click here for other translation Netherlands vs DPP BV 3 Nov 2023 Case No ECLI_NL_HR_2023_1504 ... Continue to full case
Spain vs "TW XZ SA", October 2023, TEAC, Case No 00-03317-2020; 00-03316-2020

Spain vs “TW XZ SA”, October 2023, TEAC, Case No 00-03317-2020; 00-03316-2020

“TW XZ SA” was subject to an assessment in relation to intra-group loans and cash pools for Fiscal Year 2013 – 2016. The tax authorities found that the credit rating used by the company (BBB) in determining the interest rate was incorrect as it did not take into account that “TW XZ SA” was part of a larger group. The credit rating of the company was instead determined to be (A). Furthermore the tax authorities found that the remuneration of a group cash pool leader could be determined as 5% of its cost base by reference to guidance on low value adding intra-group services. A complaint was filed by “TW XZ SA”. Judgment of the court The Court dismissed the complaint and ruled in favour of the tax authorities. Click here for English translation Click here for other translation SP 3317-2020 AND 3316-2020 ... Continue to full case

Belgium vs S.E. bv, October 2023, Court of First Instance, Case No. 21/942/A

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
UK vs JTI Acquisitions Company (2011) Ltd, August 2023, Upper Tribunal, Case No [2023] UKUT 00194 (TCC)

UK vs JTI Acquisitions Company (2011) Ltd, August 2023, Upper Tribunal, Case No [2023] UKUT 00194 (TCC)

JTI Acquisitions Company Ltd was a UK holding company, part of a US group, used as an acquisition vehicle to acquire another US group. The acquisition was partly financed by intercompany borrowings at an arm’s length interest rate. The tax authorities disallowed the interest expense on the basis that the loan was taken out for a unallowable purpose. Judgement of the Upper Tribunal The Court upheld the decision and dismissed JTI Acquisitions Company Ltd’s appeal. According to the Court, a main purpose of the arrangement was to secure a tax advantage for the UK members of the group. The fact that the loans were at arm’s length was relevant but not determinative. UK vs JTI ACQUISITIONS COMPANY (2011) LIMITED ... Continue to full case
Poland vs "D. sp. z o.o.", August 2023, Supreme Administrative Court, Case No II FSK 181/21

Poland vs “D. sp. z o.o.”, August 2023, Supreme Administrative Court, Case No II FSK 181/21

The tax authorities issued an assessment of additional taxable income for “D. sp. z o.o.” resulting in additional corporate income tax liability for 2014 in the amount of PLN 2,494,583. The basis for the assessment was the authority’s findings that the company understated its taxable income for 2014 by a total of PLN 49,732,274.05, as a result of the inclusion of deductible expenses interest in the amount of PLN 39,244,375.62, under an intra-group share purchase loan agreements paid to W. S.a.r.l. (Luxembourg) expenses for intra-group services in the amount of USD 2,957,837 (amount of PLN 10,487,898.43) paid to W. Inc. (USA) “D. sp. z o.o.” filed a complaint with the Administrative Court (WSA) requesting annulment of the assessment. In a judgment of 15 September 2020 the Administrative Court dismissed the complaint. In the opinion of the WSA, it was legitimate to adjust the terms of the ... Continue to full case
Italy vs Otis Servizi s.r.l., August 2023, Supreme Court, Sez. 5 Num. 23587 Anno 2023

Italy vs Otis Servizi s.r.l., August 2023, Supreme Court, Sez. 5 Num. 23587 Anno 2023

Following an audit of Otis Servizi s.r.l. for FY 2007, 2008 and 2009 an assessment of additional taxable income was issued by the Italian tax authorities. The first part of the assessment related to interest received by OTIS in relation to the contract called “Cash management service for Group Treasury” (hereinafter “Cash Pooling Contract”) signed on 20 March 2001 between OTIS and the company United Technologies Intercompany Lending Ireland Limited (hereinafter “UTILI”) based in Ireland (hereinafter “Cash Pooling Relief”). In particular, the tax authorities reclassified the Cash Pooling Agreement as a financing contract and recalculated the rate of the interest income received by OTIS to be between 5.1 and 6.5 per cent (instead of the rate applied by the Company, which ranged between 3.5 and 4.8 per cent); The second part of the assessment related to of the royalty paid by OTIS to the American ... Continue to full case
Netherlands vs "Lux Credit B.V.", July 2023, Court of Hague, Case No AWB - 21_4016  (ECLI:NL:RBDHA:2023:12061)

Netherlands vs “Lux Credit B.V.”, July 2023, Court of Hague, Case No AWB – 21_4016 (ECLI:NL:RBDHA:2023:12061)

“Lux Credit B.V.” took out various credit facilities from related parties [company name 2] s.a.r.l. and [company name 3] s.a.r.l. – both resident in Luxembourg. These were financings whereby “Lux Credit facility B.V.” could draw funds (facilities) up to a pre-agreed maximum amount. In doing so, “Lux Credit B.V.” owed both interest and “commitment fees”. The commitment fees were calculated on the maximum amount of the facility. Interest and commitment fees were owed. The interest payable to [company name 2] and [company name 3], respectively, was calculated by deducting the commitment fees from the interest payable on the amount withdrawn, with interest payable on the amount withdrawn, the commitment fees owed after the due date and the interest owed after the due date. In its returns for the current financial years, “Lux Credit B.V.” charged both interest and commitment fees against taxable profit. Following an ... Continue to full case
Australia vs Mylan Australia Holding Pty Ltd., June 2023, Federal Court, Case No [2023] FCA 672

Australia vs Mylan Australia Holding Pty Ltd., June 2023, Federal Court, Case No [2023] FCA 672

Mylan Australia Holding is a subsidiary of the multinational Mylan Group, which is active in the pharmaceutical industry. Mylan Australia Holding is the head of the Australian tax consolidated group, which includes its subsidiary Mylan Australia Pty. In 2007, Mylan Australia Pty acquired the shares of Alphapharm Pty Ltd. and to finance the acquisition, a substantial loan (A$923,205,336) was provided by a group company in Luxembourg. In the following years interest expenses was deducted from the taxable income of Mylan’s Australian tax group. The tax authorities issued a notice of assessment for the years 2009 to 2020 disallowing the deduction of excessive interest expense incurred as a result of the financing arrangement. Initially the tax authorities relied on both transfer pricing provisions and the general anti-avoidance provision (Pt IVA), but subsequently they relied only on the latter as the basis for the assessment. Mylan Australia ... Continue to full case
Belgium vs R.B. NV, June 2023, Court of First Instance, Case No. 2021/2991/A

Belgium vs R.B. NV, June 2023, Court of First Instance, Case No. 2021/2991/A

R.B. NV had entered into a loan agreement with a group company in Switzerland. The interest rate on the loan had been determined by applying the method used by the credit agency, Standard & Poor’s. Moreover, it had been concluded that R.B. NV was a “moderately strategic entity”, and a one-notch correction was applied to the “stand-alone credit rating”. Following an audit, the tax administration concluded that the company had not applied the S&P method consistently and that the company’s credit rating should have been the same as that of the group as the company was a “core entity” in the group. On that basis, the interest rate were reduced. Judgement of the Court The court ruled predominantly in favour of the tax authorities. The court found several unjustified deviations in the way R.B. NV had applied the S&P method and on that basis several ... Continue to full case