Category: Financial Transactions

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

India vs Times Infotainment Media Ltd, August 2021, Income Tax Appellate Tribunal - Mumbai, TIA No 298/Mum/2014

India vs Times Infotainment Media Ltd, August 2021, Income Tax Appellate Tribunal – Mumbai, TIA No 298/Mum/2014

Times Infotainment Media Ltd (TIML India), is in the entertainment business, including running an FM Broadcasting channel in India. It successfully participated in the auction of the radio business of Virgin radio in March 2008 in the United Kingdom. To complete the acquisition, it acquired two SPV companies, namely TML Golden Square Limited and TIML Global Limited. TIML India wholly held TIML Global which in turn wholly held TIML Golden. TIML India received funding from its parent Bennet Coleman & Co. Limited and remitted money primarily as an interest-free loan to TIML Global on 27 June 2008. TIML Global, on behalf of TIL Golden, paid UKP 53.51 million for the acquisition of Virgin Radio Shares. The acquisition of shares in Virgin Radios by TIML Golden was completed on 30 June 2008. TIML India booked the transaction in its accounts as a loan to TIML Global ... Continue to full case
France Genefinance (Interga), July 2021, Conseil d'Etat, Case No. 434268

France Genefinance (Interga), July 2021, Conseil d’Etat, Case No. 434268

Genefinance – previously Interga – carried out a credit risk guarantee activity for the benefit of certain foreign branches and subsidiaries of the Société Générale group to which it belonged. Following an audit, the tax authorities considered the amount of premiums paid by foreign entities in 2008 and 2009 to be insufficient in relation to the guarantees granted and considered that the advantage thus granted characterised a transfer of profits within the meaning of Article 57 of the General Tax Code. The tax authorities noted that Interga, which had previously been profitable, in 2008 and 2009 had recorded significant losses, as the amount of guarantee premiums received was not sufficient to cover the expenses resulting from the guarantee calls. It found that the amount of the guarantees paid to the client entities corresponded to the difference between the cost of the risk for each of ... Continue to full case
Netherlands vs Lender [X] B.V., July 2021, Supreme Court, Case No ECLI:NL:2021:1152

Netherlands vs Lender [X] B.V., July 2021, Supreme Court, Case No ECLI:NL:2021:1152

In 2011 a Dutch group “Lender [X] BV” acquired “Target BV” for EUR 135 million. The acquisition was financed by four French affiliates “FCPRs” in the Dutch Group – EUR 60,345,000 in the form of convertible instruments (intercompany debt) and the remainder in the form of equity. The convertible instruments carried an interest rates of 13 percent. The four French FCPRs were considered transparent for French tax purposes, but non-transparent for Dutch tax purposes. Hence the interest payments were deducted from the taxable income reported by the Group in the Netherlands, but the interest income was not taxed in France – the structure thus resulted in a tax mismatch. The Dutch tax authorities argued that the interest payments should not be deductible as the setup of the financing structure constituted abuse of law; the financing structure was set up in this particular manner to get ... Continue to full case

Luxembourg vs “Lux PPL SARL”, July 2021, Administrative Tribunal, Case No 43264

Lux PPL SARL received a profit participating loan (PPL) from a related company in Jersey to finance its participation in an Irish company.  The participation in the Irish company was set up in the form of debt (85%) and equity (15%). The profit participating loan (PPL) carried a fixed interest of 25bps and a variable interest corresponding to 99% of the profits derived from the participation in the Irish company, net of any expenses, losses and a profit margin. After entering the arrangement, Lux PPL SARL filed a request for an binding ruling with the Luxembourg tax administration to verify that the interest  charge under the PPL would not qualify as a hidden profit distribution subject to the 15% dividend withholding tax. The tax administration issued the requested binding ruling on the condition that the ruling would be terminate if the total amount of the ... 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
Germany vs Lender GmbH, June 2021, Bundesfinanzhof, Case No IR 4/17

Germany vs Lender GmbH, June 2021, Bundesfinanzhof, Case No IR 4/17

Applicable method for determining the arm’s length price in the case of a loan granted by a sister corporation domiciled abroad: (1) Are the three recognised methods for determining arm’s length prices (price comparison method, resale method and cost plus method) equally applicable? (2) Should the price comparison method be used if a comparable price can be determined on the basis of identical service relationships and conditions, and the cost-plus method if there are no comparable service relationships within or outside the group? (3) is an estimate of the appropriate transfer pricing to be made if the domestic borrower which receives a loan from the foreign sister corporation, in breach of its obligations to cooperate under section 90(2) sentence 1 AO, is unable to provide all the evidence necessary to determine a transfer pricing in accordance with arm’s length principles? Background In the specific facts ... Continue to full case
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 Lender B.V., March 2021, Supreme Court, Case No ECLI:NL:GHAMS:2021:724

Netherlands vs Lender B.V., March 2021, Supreme Court, Case No ECLI:NL:GHAMS:2021:724

A Dutch company, Lender B.V., had acquired companies through a private equity structure. The Dutch company that had been set up for the purpose of the acquisition was financed by subordinated loans payable to related parties established on the island of Guernsey. In the tax return for the Dutch company interest in the amount of € 13,157,632 was deducted in the taxable income based on an interest rate of 11,5 – 14 percent. The tax authorities denied the deduction, as the financing arrangement was considered abusive. Decision of the Supreme Court The Court decided in favor of the tax authorities. The interest on the loans was determined to 2.5% (instead of the agreed 11.5 – 14%). This interest was not deductible, because granting of the loans was considered as abusive. Furthermore, an Arrangement Fee of € 8.4 mio. could not be charged at once, but ... Continue to full case
Germany vs A... GmbH, March 2021, BUNDESVERFASSUNGSGERICHT, Case No 2 BvR 1161/19

Germany vs A… GmbH, March 2021, BUNDESVERFASSUNGSGERICHT, Case No 2 BvR 1161/19

A GmbH provided funding in the form of a clearing account to its Belgian subsidiary. The account was unsecured and carried an interest of 6% p.a. In 2005, A GmbH and the Belgian company agreed on a debt write-off which was deducted for tax purposes. The tax authorities issued an assessment where the write-off was denied as a tax deductible expense. According to the tax authorities, independent third parties would have agreed on some kind of security. The lack thereof was a violation of the arm’s length principle. A GmbH brought the assessment to court. The Federal Fiscal Court (I R 73/16) found the assessment of the tax authorities to be lawful. This decision was then appealed to the Constitutional Court by  A GmbH, alleging violation of the general principle of equality as well as a violation of its fundamental procedural right to the lawful ... 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 other translation II ... 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