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

Netherlands vs “Fertilizer BV”, April 2022, Court of Appeal, Case No. ECLI:NL:GHSHE:2022:1198
/ Allocation of capital/equity, Arm's length principle, Article 7, Comparability defects, Comparable Uncontrolled Price (CUP) Method, Court of Appeal, Credit risk analysis, Decision predominantly in favor of tax authority, Financial Transactions, forward exchange contract, fully fledged producer, Internal CUP, Interquartile range and median, Netherlands, Permanent establishment, Permanent Establishments, Supply Agreement, Tax treaty interpretation
In 2016 Fertilizer BV had been issued a tax assessment for FY 2012 in which the tax authorities had imposed additional taxable income of €162,506,660. Various issues related to the assessment was disputed before the Court of Appeal. Dispute 1: Allocation of debt and equity capital to a permanent establishment in Libya in connection with the application of the object exemption. More specifically, the dispute is whether the creditworthiness of the head office was correctly taken as a starting point and a sufficient adjustment was made for the increased risk profile of the permanent establishment. The Court of Appeal answered this question in the affirmative, referring to the capital allocation approach that is regarded as the preferred method for the application of Article 7 of the OECD Model Convention. Dispute 2: Should all claims and liabilities denominated in dollars be valued in conjunction? The mere ... Continue to full case

Denmark vs Maersk Oil and Gas A/S, March 2022, Regional Court, Case No BS-41574/2018 and BS-41577/2018
/ Arm's length principle, Continuous losses, Decision predominantly in favor of taxpayer, Denmark, dividend vs income, Estimate taxable income, Financial Transactions, Government licences, High Court, Licences for oil extraction, Losses that continue indefinitely, Losses , MAERSK, Non-Recognition and Recharacterisation, Oil and gas, Performance guarantees, Royalty and License Payments, Services and Fees, Timewriting
A Danish parent in the Maersk group’s oil and gas segment, Maersk Oil and Gas A/S (Mogas), had operating losses for FY 1986 to 2010, although the combined segment was highly profitable. The reoccurring losses was explained by the tax authorities as being a result of the group’s transfer pricing setup. “Mogas and its subsidiaries and branches are covered by the definition of persons in Article 2(1) of the Tax Act, which concerns group companies and permanent establishments abroad, it being irrelevant whether the subsidiaries and branches form part of local joint ventures. Mogas bears the costs of exploration and studies into the possibility of obtaining mining licences. The expenditure is incurred in the course of the company’s business of exploring for oil and gas deposits. The company is entitled to deduct the costs in accordance with Section 8B(2) of the Danish Income Tax Act ... Continue to full case

Norway vs Fortis Petroleum Norway AS, March 2022, Court of Appeal, Case No LB-2021-26379
/ Administrative services, Arm's length principle, Business Restructuring, Court of Appeal, Decision in favor of tax authority, Delineation – Substance over Form, Disallowed Deduction, Disallowed deduction, Disallowed deduction, Equity or Debt/Loan, Exploration costs, Exploration reimbursement scheme, Financial capacity to assume risk, Financial Transactions, Local anti avoidance, No control over risk, Norway, Oil and gas, Penalty/Fine, Pro forma-debt, Seismic data, Services and Fees, Tax Avoidance Schemes, Tax carousel, Tax Planning (Aggressive), Termination fee, Written agreement
In 2009-2011 Fortis Petroleum Norway AS (FPN) bought seismic data related to oil exploration in the North Sea from a related party, Petroleum GeoServices AS (PGS), for NKR 95.000.000. FBN paid the amount by way of a convertible intra-group loan from PGS in the same amount. FPN also purchased administrative services from another related party, Consema, and later paid a substantial termination fee when the service contract was terminated. The acquisition costs, interest on the loan, costs for services and termination fees had all been deducted in the taxable income of the company for the years in question. Central to this case is the exploration refund scheme on the Norwegian shelf. This essentially means that exploration companies can demand cash payment of the tax value of exploration costs, cf. the Petroleum Tax Act § 3 letter c) fifth paragraph. If the taxpayer does not have ... Continue to full case

Spain vs “XZ SA”, March 2022, TEAC, Case No Rec. 4377-2018
/ Administrative Tribunal, Arm's length principle, asymmetry in the treatment, Cash pool, Cash pool leder, Control over risk, credit and debit transactions, Decision in favor of tax authority, Delineation of cash pooling arrangements, FAR analysis, Financial transactions, Financial Transactions, Functional analysis, Group rating, Interest rate, Pricing cash pool transactions, Service provider, Spain, Stand alone rating, Tax treaty interpretation
“XZ SA” is a Spanish parent of a tax consolidation group which is part of a multinational group. The Spanish group participates in the group’s cash pooling system, both as a borrower and as a provider of funds. The objective of cash pooling agreements is to manage the cash positions of the participating entities, optimising the group’s financial results by channelling the excess liquidity of the group companies that generate it to the group companies that need financing, resorting to third-party financing when the group itself is not able to finance itself. This achieves greater efficiency in the use of the group’s funds, as well as improving their profitability and reducing the administrative and general financial costs of the entities participating in the agreement. The tax authorities issued an assessment in which the interest rates on deposits and withdraws had been aligned and determined based ... Continue to full case

Norway vs ConocoPhillips Skandinavia AS, March 2022, Court of Appeal, Case No LG-2021-38180
/ Arm's length principle, Comparability factors, Comparable Uncontrolled Price (CUP) Method, Court of Appeal, Decision in favor of tax authority, Financial Transactions, Inter-company loan, Norway, Oil and gas, Transfer Pricing Methods
ConocoPhillips Skandinavia AS (COPSAS) is a wholly owned subsidiary of the Norwegian branch of ConocoPhillips Norway, which is registered in Delaware, USA. ConocoPhillips Norway, which does not conduct special taxable business, is a wholly owned company in the ConocoPhillips Group. The group’s headquarters are in Houston, Texas, USA. The question at issue was whether the interest rate on a loan had been set too high, thus resulting in a reduction of the taxable income of COPSAS. In May 2013, COPSAS entered into a loan agreement with the related company ConocoPhillips Norway Funding Ltd (COPN Funding). The loan had a limit of NOK 20 billion and a term of 5 years. The agreed interest rate was NIBOR 6M + 1.25%. NIBOR 6M is a current interest rate (benchmark interest rate), while 1.25% is a fixed interest rate – the so-called «interest margin». The interest margin of ... Continue to full case

Austria vs C-Group, March 2022, Bundesfinanzgericht, Case No RV/7102553/2021
/ Advance Ruling , Arm's length principle, Austria, Binding ruling, Decision in favor of taxpayer, Delineation - Substance over Form, Equity or Debt/Loan, Federal Administrative Court, Financial Transactions, Interest free loan, interest-free shareholder loans, Shareholder loan
C is the parent company of the C-group which is involved in the construction business. C is part of a joint venture and for the expansion of these activities a framework agreement on shareholder loans was concluded. Under the agreement two shareholder loans were granted: ***loan*** II totalling 212,935,716.33 euros and ***loan*** III totalling 446,000,000 euros. At issue is whether (***loan*** II and ***loan*** III) are to be regarded as hidden equity capital or debt capital. In regards of loan II a binding ruling had previously been issued stating that the loan was hidden equity. C took the position that both loan II and loan III were to be treated for tax purposes as equity capital. Following an audit the tax authorities assessed both shareholder loans as debt capital and added interest income to the taxable income of C. In regards of the binding ruling ... Continue to full case

Austria vs “ACQ-Group”, February 2022, Bundesfinanzgericht, Case No RV/7104702/2018
/ Acquisition of shares, Arm's length principle, Austria, Cross-border financing arrangements, Debt-financed group acquisitions, Decision predominantly in favor of taxpayer, Federal Administrative Court, Financial Transactions, Goodwill amortization, Intangibles - Goodwill Know-how Patents, Interest deduction, intra-group loans, Local tax regulations
“ACQ-Group” had acquired the shares in foreign subsidiaries and financed the acquisition partially by intra group loans. Furthermore, in the years following the acquisition, goodwill amortisations were deducted for tax purposes. The tax authorities issued an assessment where the interest rate on the loans had been reduced, and where costs related to external financing and amortisations of acquired goodwill had been denied. An appeal was filed by “ACQ”. Decision of the Federal Tax Court Before the judgment was delivered the appeal filed by “ACQ” in regards of the interest rate on the intra group loans was withdrawn. “***Firma*** Services GmbH pays interest of a non-variable 9% p.a. to the affiliated (grandparent) company ***6*** for an intercompany loan (“Intercompany Loan”). As stated in the statement of facts in the enclosure, the high difference between the intercompany loan interest rate and the arm’s length interest rate is ... Continue to full case

Italy vs Arnoldo Mondadori Editore SpA , February 2022, Supreme Court, Cases No 3380/2022
/ Beneficial Owner, Beneficial owner, Conduit company, Conduit jurisdictions, Decision in favor of taxpayer, EU Parent Subsidiary Directive, Financial Transactions, General Anti-Avoidance Rules (GAAR), Inter-company loan, Interest, Interest and royalty directive, Italy, Local anti avoidance, Luxembourg, Supreme Court, Tax Treaty Interpretation, Tax treaty interpretation, Treaty shopping, Withholding tax
Since Arnoldo Mondadori Editore SpA’s articles of association prevented it from issuing bonds, financing of the company had instead been archived via an arrangement with its subsidiary in Luxembourg, Mondadori International S.A. To that end, the subsidiary issued a bond in the amount of EUR 350 million, which was subscribed for by US investors. The funds raised were transferred to Arnoldo Mondadori Editore SpA via an interest-bearing loan. The terms of the loan – duration, interest rate and amount – were the same as those of the bond issued by Mondadori International S.A. to the US investors. The Italian tax authority denied the withholding tax exemption in regards of the interest paid on the loan. According to the tax authorities Mondadori International S.A. had received no benefit from the transaction. The interest paid by Arnoldo Mondadori Editore SpA was immediately and fully transferred to the ... Continue to full case

Poland vs A. Sp. z o. o., February 2022, Supreme Administrative Court, Case No II FSK 1475/19
/ Arm's length principle, Arm's Length Principle, broad understanding of the notion of transaction, Controlled transactions, Decision in favor of tax authority, Decision on interpretation of rule, Definition of transaction, Financial Transactions, Legal formality, Loan guarantee, Poland, Supreme Administrative Court, Transfer pricing documentation, Transfer Pricing Documentation
A. Sp. z o.o. was established to carry out an investment project consisting in construction of a shopping center. In order to raise funds, the company concluded a loan agreement. The loan agreement was guaranteed by shareholders and other related parties. By virtue of the guarantees, the guarantors became solitarily liable for the Applicant’s obligations. The guarantees were granted free of charge. A. Sp. z o.o. was not obliged to pay any remuneration or provide any other mutual benefit to the guarantors. In connection with the above description, the following questions were asked: (1) Will A. Sp. z o.o. be obliged to prepare transfer pricing documentation in connection with the gratuitous service received, and if so, both for the year in which the surety is granted to the Applicant or also for subsequent tax years during the term of the security? (2) Will A. Sp ... Continue to full case

France vs Electricité de France, January 2022, CAA de VERSAILLES, Case No 20VE00792
/ Arm's length principle, Bonds Convertible into Shares (OCA), Convertible bonds, Convertible Note, Court of Appeal, Decision in favor of taxpayer, Financial Transactions, France, Interest rate, Loans, Tsiveriotis and Fernandes model
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

Italy vs BenQ Italy SRL, March 2021, Corte di Cassazione, Sez. 5 Num. 1374 Anno 2022
/ Arm's length principle, BenQ, Burden of proof (Onus), Commercial reason, Disallowed Deduction, Economic rationality, Financial Transactions, Guarantee fee, Insurance of customer solvency risk, Italy, Low tax jurisdiction, Netherlands, Non-Recognition and Recharacterisation, Procurement, Procurement hubs, Remanded to lower court for further considerations, Sales and Marketing Hubs, Supreme Court, Tax Planning (Aggressive), Transfer pricing methods, Transfer Pricing Methods
BenQ Italy SRL is part of a multinational group headed by the Taiwanese company BenQ Corporation that sells and markets technology products, consumer electronics, computing and communications devices. BenQ Italy’s immediate parent company was a Dutch company, BenQ Europe PV. Following an audit the tax authorities issued a notice of assessment for FY 2003 in which the taxpayer was accused of having procured goods from companies operating in countries with privileged taxation through the fictitious interposition of a Dutch company (BenQ Europe BV), the parent company of the taxpayer, whose intervention in the distribution chain was deemed uneconomic. On the basis of these assumptions, the tax authorities found that the recharge of costs made by the interposed company, were non-deductible. The tax authorities also considered that, through the interposition of BenQ BV, the prices charged by the taxpayer were aimed at transferring most of the ... Continue to full case

Peru vs. “Mining Corp”, December 2021, Tax Court, Case No 11557-1-2021
/ Arm's length principle, Disallowed Deduction, Disallowed deduction, Financial Transactions, interest deductibility, Loans, Mining, Peru, Remanded to lower court for further considerations, Syndicated loan, Tax Court
Mining Corp had deducted interest payments on an intra-group syndicated loan of $200.000.000 of which it stated an amount of $94,500,000.00, had been used, that is, a part of the syndicate $200,000,000.00, which was the subject of the loan, had been used to prepay the same loan for $65,000,000.00 and $29,500,000.00. Following an audit the tax authorities issued an assessment where, among other issued, deductions of interest payment on the loan had been adjusted. According to the tax authorities the accounting record of the credit or income from financing or the Cash Flow Statement was not sufficient to support the financial expenditure, especially if this does not demonstrate the movement of the money and its use in acquisitions, payments to third parties and other activities related to the line of business. In order to prove the use of the resources obtained, it was necessary to ... Continue to full case

Australia vs Singapore Telecom Australia Investments Pty Ltd, December 2021, Federal Court of Australia, Case No FCA 1597
/ Arm's length principle, Australia, British Virgin Islands, Credit rating, Credit spread, Decision in favor of tax authority, Disallowed Deduction, Disallowed deduction, Federal Court, Financial Transactions, Financing arrangement, Implicit support/guarantee, Interest deduction, Joint Credit Rating Report, Loans, Moody's, Parent company guarantee, S&P (Standard & Poor), Singapore, SingTel, Stand-alone credit rating, Standard & Poor's credit rating, Tax Avoidance Schemes
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 loan notes issued totalled approximately $5.2 billion to the subscriber. The terms of the LNIA was amendet on three occasions – the first amendment and the second amendment were expressed to have effect as from the date when 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 amended assessment under the transfer pricing provisions and denied interest deductions totalling approximately $894 million in respect of four years of income. According to the tax authorities the conditions agreed between the parties differed from the arm’s length principle ... Continue to full case

France vs SAP France, December 2021, CAA de VERSAILLES, Case No. 20VE01009
/ Abnormal act of management, Arm's length principle, Cash management agreement, Cash pool, Court of Appeal, Decision predominantly in favor of tax authority, Financial Transactions, France, Inter-company loan, Interest, Interest free loan, IT, SAP, Sight deposits
SAP AG (now SAP SE) is a German multinational software corporation that develops enterprise software to manage business operations and customer relations. The company is especially known for its ERP software. SA SAP France, a 98% subsidiary of SA SAP France Holding, itself wholly owned by the German group, had deposited funds under a Cash Management Agreement as sight deposits carrying an interest of 0%. Following an audit for the financial years 2012 and 2013, two assessment proposals were issued in December 2015 and November 2016, relating in particular to the 0% interest rate charged on the cash deposits. The tax authorities had added interest to SA SAP France’s taxable income calculated by reference to the rate of remuneration on sight deposits. SA SAP France contested the adjustments and furthermore requested the benefit of the reduced rate of corporation tax on income from industrial property, ... Continue to full case

The European Commission vs. Fiat Chrysler Finance Europe, December 2021, European Court of Justice Case, AG Opinion, No C-885/19 P (ECLI:EU:C:2021:1028)
/ Arm's length principle, Arm’s Length Principle, Article 107 TFEU, Article 108 TFEU, Decision in favor of taxpayer, Equal Treatment , EU State Aid, European Court of Justice, European Union, Financial Transactions, Ireland, Luxembourg, Principle of legal certainty, Selective advantage, State Aid, Tax ruling, Transactional net margin method (TNMM)
In 2012, the Luxembourg tax authorities issued a tax ruling in favour of Fiat Chrysler Finance Europe (‘FFT’), an undertaking in the Fiat group that provided treasury and financing services to the group companies established in Europe. The tax ruling at issue endorsed a method for determining FFT’s remuneration for these services, which enabled FFT to determine its taxable profit on a yearly basis for corporate income tax in the Grand Duchy of Luxembourg. In 2015, the Commission concluded that the tax ruling constituted State aid under Article 107 TFEU and that it was operating aid that was incompatible with the internal market. The Commission found that the Grand Duchy of Luxembourg was required to recover the unlawful and incompatible aid from FFT. FFT brought an action before the General Court for annulment of the Commission’s decision. In it’s Judgement of September 2019 Union , ... Continue to full case

Finland vs D Oy, December 2021, Supreme Administrative Court, Case No. KHO:2021:179
/ Acquisition of shares, Article 49 TFEU, Decision in favor of taxpayer, Disallowed Deduction, Financial Transactions, Finland, General Anti-Avoidance Rules (GAAR), interest deductibility, intra-group loans, Local anti avoidance, Supreme Administrative Court, Tax Avoidance Schemes, Wholly artificial
At issue was whether interest expenses incurred as a result of intra-group liabilities related to the acquisition of shares were tax deductible. In August 2010, the Swedish companies H AB and B AB had agreed, among other things, to sell E Oy’s shares to B AB and to allow B AB to transfer its rights and obligations to purchase the said shares directly or indirectly to its own subsidiary. B AB’s subsidiary had established D Oy in August 2010. In September 2010, before the completion of the acquisition, B AB had transferred its rights and obligations to purchase E Oy’s shares to D Oy. Ownership of E Oy’s shares had been transferred to D Oy at the end of September 2010. D Oy had financed the acquisition of E Oy’s shares mainly with a debt it had taken from B AB, from which D Oy ... Continue to full case

Finland vs G Oy, December 2021, Supreme Administrative Court, Case No. KHO:2021:178
/ Acquisition of shares, Article 49 TFEU, Decision in favor of tax authority, Disallowed Deduction, Financial Transactions, Finland, General Anti-Avoidance Rules (GAAR), interest deductibility, intra-group loans, Local anti avoidance, Supreme Administrative Court, Tax Avoidance Schemes, Wholly artificial
At issue was whether interest expenses incurred as a result of intra-group liabilities related to the acquisition of shares were tax deductible. In 2005, CA / S, indirectly owned by private equity investors A and B, had purchased a listed share in DA / S. DA / S’s subsidiary EA / S had established H AB in July 2008. On 25 August 2008, EA / S had transferred approximately 83.8 per cent of F Oy’s shares in kind to H AB and sold the remaining approximately 16.2 per cent at the remaining purchase price. On August 26, 2008, EA / S had subscribed for new shares in G Oy and paid the share subscription price in kind, transferring 56 percent of H AB’s shares. On August 27, 2008, G Oy had purchased the remaining 44 percent of H AB’s shares. EA / S had granted ... Continue to full case

Portugal vs “Welding Mesh SA”, December 2021, CAAD Tax Arbitration, Case No 194/2021-T
/ Arm's length principle, Comparability, Currency loss, Decision in favor of taxpayer, Exchanges loss, Financial Transactions, Guarantee, Interest deduction, intra-group loans, Portugal, Tax Court, Transfer Pricing Methods, Transfer pricing methods, Volume discounts
A Portuguese subsidiary – A SA – had received intra group loans in foreign currency and had various other transactions with foreign group companies. The tax authorities claimed that the pricing of the transactions had not been at arm’s length and that the interest payment and exchange losses on the loans were not tax deductible. Decision of CAAD The CAAD set aside the assessment and decided in favour of “Welding Mesh SA” Click here for English translation Portugal - P194_2021-T - 2021-12-07 ... Continue to full case

Canada vs Loblaw Financial Holdings Inc., December 2021, Supreme Court, Case No 2021 SCC 51
/ Barbados, Canada, Controlled foreign affiliates (CFA), Controlled Foreign Companies (CFC), Decision predominantly in favor of taxpayer, Financial Transactions, Foreign accrual property income (FAPI), GAAR, General Anti-Avoidance Rules (GAAR), Local anti avoidance, Low tax jurisdiction, Supreme Court, Tax Avoidance Schemes, Tax Treaty Interpretation, Treaty shopping
In 1992, Loblaw Financial Holdings Inc. (“Loblaw Financial”), a Canadian corporation, incorporated a subsidiary in Barbados. The Central Bank of Barbados issued a licence for the subsidiary to operate as an offshore bank named Glenhuron Bank Ltd. (“Glenhuron”). Between 1992 and 2000, important capital investments in Glenhuron were made by Loblaw Financial and affiliated companies (“Loblaw Group”). In 2013, Glenhuron was dissolved, and its assets were liquidated. For the 2001, 2002, 2003, 2004, 2005, 2008 and 2010 taxation years, Loblaw Financial did not include income earned by Glenhuron in its Canadian tax returns as foreign accrual property income (“FAPI”). Under the FAPI regime in the Income Tax Act (“ITA”), Canadian taxpayers must include income earned by their controlled foreign affiliates (“CFAs”) in their Canadian annual tax returns on an accrual basis if this income qualifies as FAPI. However, financial institutions that meet specific requirements benefit ... Continue to full case

Hungary vs G.K. Ktf, December 2021, Court of Appeals, Case No. Kfv.V.35.306/2021/9
/ Arm's length principle, Court of Appeal, Decision in favor of taxpayer, Delineation - Substance over Form, Delineation – Substance over Form, Double non taxation, Economic Double Taxation , Equity or Debt/Loan, Financial Transactions, Hungary, Hybrid Mismatch, Interest and royalty directive, interest deductibility, Juridical Double Taxation , Legality - Legitimacy - Constitutional, Local tax regulations, Long term loan, Netherlands, Non-Recognition and Recharacterisation, Participation Exemption , Recharacterisation, Retroactive application of Law, Subordination, Unlawful tax advantage
G.K. Ktf was a subsidiary of a company registered in the United Kingdom. On 29 December 2010 G.K. Ktf entered into a loan agreement with a Dutch affiliate, G.B. BV, under which G.B. BV, as lender, granted a subordinated unsecured loan of HUF 3 billion to G.K. Ktf. Interest was set at a fixed annual rate of 11.32%, but interest was only payable when G.K. Ktf earned a ‘net income’ from its activities. The maturity date of the loan was 2060. The loan was used by G.K. Ktf to repay a debt under a loan agreement concluded with a Dutch bank in 2006. The bank loan was repaid in 2017/2018. The interest paid by G.K. Ktf under the contract was deducted as an expense of HUF 347,146,667 in 2011 and HUF 345,260,000 in 2012. But, in accordance with Dutch tax law – the so called ... Continue to full case