Category: Financial Transactions

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

Finland vs A Oyj, May 2021, Supreme Administrative Court, Case No. KHO:2021:66

Finland vs A Oyj, May 2021, Supreme Administrative Court, Case No. KHO:2021:66

A Oyj was the parent company of the A-group, and responsible for the group’s centralised financial activities. It owned the entire share capital of D Oy and B Oy. D Oy in turn owned the entire share capital of ZAO C, a Russian company. A Oyj had raised funds from outside the group and lent these funds to its Finnish subsidiary B Oy, which in turn had provided a loan to ZAO C. The interest charged by B Oy on the loans to ZAO C was based on the cost of A Oyj’s external financing. The interest rate also included a margin of 0,55 % in tax year 2009, 0,58 % in tax year 2010 and 0,54 % in tax year 2011. The margins had been based on the average margin of A Oyj’s external financing plus 10 %. The Tax Administration had considered that ... Continue to full case
European Commission vs Luxembourg and Engie, May 2021, EU General Court, Case No T-516/18 and T-525/18

European Commission vs Luxembourg and Engie, May 2021, EU General Court, Case No T-516/18 and T-525/18

Engie (former GDF Suez) is a French electric utility company. Engie Treasury Management S.à.r.l., a treasury company, and Engie LNG Supply, S.A, a liquefied natural gas trading company, are both part of the Engie group. In November 2017, Total has signed an agreement with Engie to acquire its LNG business, including Engie LNG Supply. In 2018 the European Commission has found that Luxembourg allowed two Engie group companies to avoid paying taxes on almost all their profits for about a decade. This is illegal under EU State aid rules because it gives Engie an undue advantage. Luxembourg must now recover about €120 million in unpaid tax. The Commission’s State aid investigation concluded that the Luxembourg tax rulings gave Engie a significant competitive advantage in Luxembourg. It does not call into question the general tax regime of Luxembourg. In particular, the Commission found that the tax ... 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
Italy vs GI Group S.p.A., May 2021, Supreme Court, Case No 13850/2021

Italy vs GI Group S.p.A., May 2021, Supreme Court, Case No 13850/2021

A non-interest-bearing loan had been granted by GI Group S.p.A., to a related company – Goldfinger Limited – in Hong Kong, in order to acquire a 56% shareholding in the Chinese company Ningbo Gi Human Resources Co. Limited. The Italien tax authorities had issued an assessment, where an interest rate on the loan had been determined and an amount equal to the interest calculated on that basis had been added to the taxable income of GI Group S.p.A. GI Group brought this assessment to the Regional Tax Commission where a decision was rendered setting aside the assessment. This decision was appealed to the Supreme Court by the tax authorities. Judgement of the Supreme Court The Supreme court upheld the appeal of the tax authorities and referred the case back to the Regional Tax Commission. According to the Supreme Court, the decision of the Tax Commission ... Continue to full case
UK vs GE Capital, April 2021, Court of Appeal, Case No [2020] EWHC 1716

UK vs GE Capital, April 2021, Court of Appeal, Case No [2020] EWHC 1716

In 2005 an agreement was entered between the UK tax authority and GE Capital, whereby GE Capital was able to obtain significant tax benefits by routing billions of dollars through Australia, the UK and the US. HMRC later claimed, that GE Capital had failed to disclose all relevant information to HMRC prior to the agreement and therefore asked the High Court to annul the agreement. The High Court ruled that HMRC could pursue the claim against GE in July 2020. Judgement of the Court of Appeal The Court of Appeal overturned the judgement of the High Court and ruled in favour of GE Capital. UK vs GE 2021 COA 1716 ... Continue to full case
Norway vs Petrolia Noco AS, March 2021, Court of Appeal, Case No LB-2020-5842

Norway vs Petrolia Noco AS, March 2021, Court of Appeal, Case No LB-2020-5842

In 2011, Petrolia SE established a wholly owned subsidiary in Norway – Petrolia Noco AS – to conduct oil exploration activities on the Norwegian shelf. From the outset, Petrolia Noco AS received a loan from the parent company Petrolia SE. The written loan agreement was first signed later on 15 May 2012. The loan limit was originally MNOK 100 with an agreed interest rate of 3 months NIBOR with the addition of a margin of 2.25 percentage points. When the loan agreement was formalized in writing in 2012, the agreed interest rate was changed to 3 months NIBOR with the addition of an interest margin of 10 percentage points. The loan limit was increased to MNOK 150 in September 2012, and then to MNOK 330 in April 2013. In the tax return for 2012 and 2013, Petrolia Noco AS demanded a full deduction for actual ... Continue to full case
Netherlands vs "Share Owner/Lender", February 2021, Supreme Court (Preliminary ruling by the Advocate General), Case No 20/01884

Netherlands vs “Share Owner/Lender”, February 2021, Supreme Court (Preliminary ruling by the Advocate General), Case No 20/01884

The interested party bought AEX-listed shares, sold three-month futures based on those shares through its shareholder/broker [D], and lent the shares to [D] (stock lending). It received cash collateral ($ deposits as collateral) and a stock lending fee for its lending. According to the interested party, the shares always briefly reverted to its ownership around their dividend dates through registration in the interested party’s securities account with the French custodian bank on the basis of legal transactions between its shareholder [D] and it, represented by [D]. In dispute is the question whether the interested party is entitled to a set-off of € 39,249,246 in Dutch dividend tax withheld from the dividends on the shares lent by her. Did she receive the dividends (was she the beneficial owner?) and if so, was she also the ultimate beneficiary of the dividend? Also in dispute is whether the ... Continue to full case
Belgium vs ENGIE CC cv, January 2021, Supreme Court, Case No F.18.0140.N

Belgium vs ENGIE CC cv, January 2021, Supreme Court, Case No F.18.0140.N

ENGIE CC granted a loan to one of its group companies (Electrabel Nederland Holding bv). In 2005 Electrabel Holding bv repaid the loan prematurely and paid – as contractually stipulated – a reinvestment fee of EUR 5,611,906.11 to the plaintiff. Following a tax audit in 2008, the tax authorities established that an incorrect interest rate had been used and that the reinvestment fee should only have been EUR 2,853,070.69, hence EUR 2,758,835.42 was overpaid. The tax authorities issued an assessment to ENGIE, according to which the excess amount would be taxed as an abnormal or gratuitous advantage. ENGIE then took the unilateral initiative to repay the excess amount to Electrabel Nederland Holding bv. On that basis ENGIE contested the qualification of the excessive part of the reinvestment fee as an abnormal or gratuitous advantage, since it would have been an error and therefore an undue payment ... Continue to full case
Denmark vs. "H Borrower and Lender A/S", January 2021, Tax Tribunal, Case no SKM2021.33.LSR

Denmark vs. “H Borrower and Lender A/S”, January 2021, Tax Tribunal, Case no SKM2021.33.LSR

“H Borrower and Lender A/S”, a Danish subsidiary in the H Group, had placed deposits at and received loans from a group treasury company, H4, where the interest rate paid on the loans was substantially higher than the interest rate received on the deposits. Due to insufficient transfer pricing documentation, the tax authorities (SKAT) issued a discretionary assessment of taxable income where the interest rate on the loans had been adjusted based on the rate received on the deposits. Decision of the Tax Tribunal The National Tax Tribunal stated that the documentation was deficient to such an extent that it could be equated with a lack of documentation. The tax authorities had therefore been entitled to make a discretionary assessment. The National Tax Tribunal referred, among other things, to the fact that the company’s transfer pricing documentation lacked a basic functional analysis of the group ... Continue to full case
Poland vs Q. F. sp. z o.o., January 2021, Supreme Administrative Court, Case No II FSK 2514

Poland vs Q. F. sp. z o.o., January 2021, Supreme Administrative Court, Case No II FSK 2514

A request for an interpretation was submitted by a company in regards to financial transactions (loans and guarantees) with related parties. The requested interpretation was relevant in determining the amount of the controlled transactions and on that basis whether the taxpayer was required to prepare TP documentation or not. The company held that in determining the value of a loan transaction, only the value of interest should be taken into account. The tax authorities held that both the amount of interest and the amount of capital were to be included in amount of the transaction. Judgement of the Supreme Administrative Court The Court decided in favour of the tax authorities. Applying a linguistic interpretation, the court found no support for excluding the capital part of a loan transaction from the amount of the transaction. Click here for English Translation Click here for translation II FSK ... Continue to full case
Sweden vs TELE2 AB, January 2021, Administrative Court, Case No 13259-19 and 19892-19

Sweden vs TELE2 AB, January 2021, Administrative Court, Case No 13259-19 and 19892-19

The Swedish group TELE2, one of Europe’s largest telecommunications operators, had invested in an entity in Kazakhstan, MTS, that was owned via a joint venture together with an external party. Tele2 owned 51% of the Joint venture and MTS was financed by Tele2’s financing entity, Tele2 Treasury AB, which, during 2011-2015, had issued multiple loans to MTS. In September 2015, the currency on the existing internal loans to MTS was changed from dollars to KZT. At the same time a ‘Form of Selection Note’ was signed according to which Tele2 Treasury AB could recall the currency denomination within six months. A new loan agreement denominated in KZT, replacing the existing agreements, was then signed between Tele2 Treasury AB and MTS. In the new agreement the interest rate was also changed from LIBOR + 4.6% to a fixed rate of 11.5%. As a result of these ... Continue to full case
Netherlands vs X B.V., December 2020, Supreme Court (Preliminary ruling by the Advocate General), Case No 20/02096 ECLI:NL:PHR:2020:1198

Netherlands vs X B.V., December 2020, Supreme Court (Preliminary ruling by the Advocate General), Case No 20/02096 ECLI:NL:PHR:2020:1198

This case concerns a private equity takeover structure with apparently an intended international mismatch, i.e. a deduction/no inclusion of the remuneration on the provision of funds. The case was (primarily) decided by the Court of Appeal on the basis of non-business loan case law. The facts are as follows: A private equity fund [A] raised LP equity capital from (institutional) investors in its subfund [B] and then channelled it into two (sub)funds configured in the Cayman Islands, Fund [C] and [D] Fund. Participating in those two Funds were LPs in which the limited partners were the external equity investors and the general partners were Jersey-based [A] entities and/or executives. The equity raised in [A] was used for leveraged, debt-financed acquisitions of European targets to be sold at a capital gain after five to seven years, after optimising their EBITDA. One of these European targets was ... Continue to full case
France vs BSA Finances, December 2020, Supreme Administrative Court , Case No 433723

France vs BSA Finances, December 2020, Supreme Administrative Court , Case No 433723

In 2009, 2010 and 2011 BSA Finances received a total of five loans granted by the Luxembourg company Nethuns, which belongs to the same group (the “Lactalis group”). Depending on the date on which the loans were granted, they carried interest rates of respectively 6.196%, 3.98% and 4.52%. Following an audit covering the FY 2009 to 2011, the tax authorities considered that BSA Finances did not justify that the interest rates thus charged should exceed the average effective rates charged by credit institutions for variable-rate loans to companies with an initial term of more than two years. Hence, the portion of interest exceeding these rates was considered non-deductible pursuant to the provisions of Article 212(I) of the General Tax Code. In 2017, the  Administrative Court ruled in favor of BSA Finances and discharged the additional corporate tax. But this decision was appealed by the authorities ... Continue to full case
France vs Sté Paule Ka Holding, December 2020, Paris Administrative Court of Appeal, Case No 18PA02715

France vs Sté Paule Ka Holding, December 2020, Paris Administrative Court of Appeal, Case No 18PA02715

Sté Paule Ka Holding, was set up as part of a leveraged buy-out (LBO) operation to finance the acquisition of the Paule Ka group, and in 2011 it acquired the entire capital of the group a price of 42 million euros. The acquisition was financed by issuing convertible bonds carrying an interest rate of 8%. The French tax authorities issued an assessment where deductions for certain payments related to the acquisition and part of the interest payments on the bonds were disallowed. Decision from the Administrative court of appeal The Court found in favor of the company in regards to the payment related to the acquisition and in favor of the tax administration in regards to the partially disallowed deduction of interest payments. “It follows from the foregoing that the elements invoked by the administration do not provide proof that the expenditure of EUR 390,227 correctly entered in ... Continue to full case
France vs WB Ambassador, December 2020, Supreme Administrative Court, Case No 428522

France vs WB Ambassador, December 2020, Supreme Administrative Court, Case No 428522

WB Ambassador, took out two loans with its Luxembourg parent company and another group company, each bearing an annual interest rate of 7%. Following an audit, the tax authorities, considering that the company did not justify that the 7% interest rate of the above-mentioned intra-group loans corresponded to the rate it could have obtained from independent financial institutions or organisations under similar conditions and partially disallowed deductions of the interest incurred. Supreme Administrative Court The Supreme Administrative Court overturned the decision of the Administrative court of Appeal and ruled in favor of the WB Ambassador. It stated that the Lower Court had erred in law in ruling out the possibility that a company, in order to justify the rate it could have obtained from independent financial institutions for a loan granted under similar conditions, could rely, in order to assess that rate, on the yield ... Continue to full case
UK vs Blackrock, November 2020, First-tier Tribunal, Case No TC07920

UK vs Blackrock, November 2020, First-tier Tribunal, Case No TC07920

In 2009 the BlackRock Group acquired Barclays Global Investors for a total sum of $13,5bn . The price was paid in part by shares ($6.9bn) and in part by cash ($6.6bn). The cash payment was paid by BlackRock Holdco 5 LLC – a US Delaware Company tax resident in the UK – but funded by the parent company by issuing $4bn loan notes to the LLC. In the years following the acquisition Blackrock Holdco 5 LLC claimed tax deductions in the UK for interest payments on the intra-group loans. Following an audit in the UK the tax authorities disallowed the interest deductions. The tax authorities held that the transaction would not have happened between independent parties. They also found that the loans were entered into for an unallowable tax avoidance purpose. A UK taxpayer can be denied a deduction for interest where a loan has ... Continue to full case
UK vs Total E&P North Sea UK Ltd, October 2020, Court of Appeal, Case No A3/2019/1656

UK vs Total E&P North Sea UK Ltd, October 2020, Court of Appeal, Case No A3/2019/1656

Companies carrying on “oil-related activities” are subject to both corporation tax and a “supplementary charge”. “Oil-related activities” are treated as a separate trade and the income from them represents “ring fence profits” on which corporation tax is charged. The “supplementary charge” is levied on “adjusted” ring fence profits, in calculating which financing costs are left out of account. Between 2006 and 2011, the supplementary charge amounted to 20% of adjusted ring fence profits. On 23 March 2011, however, it was announced that the supplementary charge would be increased to 32% from midnight. The change in rate was subsequently carried into effect by section 7 of the Finance Act 2011, which received the royal assent on 19 July 2011. Total E&P, previously Maersk Oil North Sea UK Limited and Maersk Oil UK Limited, carried on “oil-related activities” and so were subject to the supplementary charge. The ... Continue to full case
France vs Studialis, October 2020, Administrative Court of Appeal, Case No 18PA01026

France vs Studialis, October 2020, Administrative Court of Appeal, Case No 18PA01026

Between the end of 2008 and the end of 2012 Studialis had issued bonds subscribed by British funds, partners of a Luxembourg company, itself a majority partner of Studialis, carrying an interest rate of 10%. The Tax authorities considered that the interest rate on the bonds was higher than the limit provided for by Article 212, I of the CGI (at the time between 2.8% and 4.1%). According to the authorities only an effective loan offer contemporaneous with the transactions and taking into account the specific characteristics of the borrowing company could establish with certainty the rate it would have received from a independent credit institution, and rejected all the evidence in support of the pricing presented by the company. Decision of the Administrative Court of Appeal The Court ruled in favor of Studialis. It considered that the evidence provided by Studialis – loan offers ... Continue to full case
Israel vs The Barzani Brothers (1974) Ltd., Oktober 2020, Jerusalem Court of Appeal, Case No 54727-02-17

Israel vs The Barzani Brothers (1974) Ltd., Oktober 2020, Jerusalem Court of Appeal, Case No 54727-02-17

The Barzani Brothers (1974) Ltd had provided interest-free financing to affiliated Romanian group companies in the form of “capital notes”. In Israel, financing qualifying as a “capital note” releases the lender from having to report interest income in its annual tax return in relation to the funding. Certain high risk long term funding arrangements may qualify as a “capital notes”. In regards to the intra-group funding provided by the Barzani Brothers Ltd, the Israel tax authorities did not recognize the qualification thereof as “capital notes”. Instead they found the funding provided to be ordinary loans. Labeling a loan agreement “capital note” does not turn the loan agreement into a capital note. On that basis an assessment of taxable interest income was issued to the company. The Court ruled in favor of the tax authorities and rejected the explanations of Barzani Brothers Ltd that the “loan-like ... Continue to full case
Romania vs Impresa Pizzarotti & C SPA Italia, October 2020, ECJ Case C-558/19

Romania vs Impresa Pizzarotti & C SPA Italia, October 2020, ECJ Case C-558/19

A Regional Court of Romania requested a preliminary ruling from the European Court of Justice in the Case of Impresa Pizzarotti. Impresa Pizzarotti is the Romanian branch of SC Impresa Pizzarotti & C SPA Italia (‘Pizzarotti Italia’), established in Italy. In 2017, the Romanian tax authorities conducted an audit of an branch of Impresa Pizzarotti. The audit revealed that the branch had concluded, as lender, two loan agreements with its parent company, Pizzarotti Italia: one dated 6 February 2012 for EUR 11 400 000 and another dated 9 March 2012 for EUR 2 300 000. Those sums had been borrowed for an initial period of one year, which could be extended by way of addendum, that the loan agreements did not contain any clause concerning the charging of interest by Impresa Pizzarotti, and that although the outstanding amount as of 1 January 2013 was EUR 11 250 000, both ... Continue to full case