Category: Financial Transactions

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

Liechtenstein vs "A-Geothermal Finance AG", December 2021, Administrative Court, Case No VGH 2021/085

Liechtenstein vs “A-Geothermal Finance AG”, December 2021, Administrative Court, Case No VGH 2021/085

“A-Geothermal Finance AG” (A AG) financed geothermal projects developed by the E GmbH. The sole shareholder is af A AG. Since 2012, B has also been the sole shareholder of C AG. C AG holds as a subsidiary E GmbH with developed two geothermal projects. These projects were financed by A AG, namely with loans to E GmbH, which forwarded the loan amounts to F S.p.a. In the period from November 2010 to March 2017, A AG granted a large number of loans ranging from EUR 10,000.00 to EUR 270,000.00. At the end of 2017, loans receivable (including interest in arrears on the loan) from E GmbH, amounted to CHF 9,397,427.00. A AG made value adjustments on this amount, namely in 2016 in the amount of CHF 7,676,057.00 and in 2017 in the amount of CHF 1,721,370.00. The tax administration did not recognize these value ... Continue to full case
Kenya vs Dominion Petroleum Dkenya Ltd, November 2021, High Court of Kenya, TAX APPEAL NO. E093 OF 2020

Kenya vs Dominion Petroleum Dkenya Ltd, November 2021, High Court of Kenya, TAX APPEAL NO. E093 OF 2020

Dominion Petroleum Dkenya’s principal activity was exploration of oil and gas. The tax authorities carried out an in-depth audit of Dominion’s operations and tax affairs for the years of income 2011 to 2016, which resulted in the following taxes being raised: Withholding Income Tax (WHT) on imported services – KES 114,993,666.00; WHT on deemed interest – KES 504,643,172.00 and; Reverse Value Added Tax(VAT) on imported services– KES 714,258,472.00 all totaling KES 1,333,895,311.00. An appeal was filed by Dominion with the Tax Appeals Tribunal where, in a judgment dated 24th July 2020, the Tribunal set aside the Commissioner’s Objection decision on Reverse VAT and WHT on Deemed Interest to the extent of the period prior to 1st January 2014. Further, it upheld the Commissioner’s Objection Decision on WHT on local services on condition that the amount of KES 656,892,892.00 paid by Dominion Petroleum to Apache Kenya ... Continue to full case
Portugal vs "A Bank SGPS, S.A.", November 2021, Supremo Tribunal Administrativo, Case No JSTA00071308

Portugal vs “A Bank SGPS, S.A.”, November 2021, Supremo Tribunal Administrativo, Case No JSTA00071308

The Tax Authority had made a transfer pricing adjustment for FY 2007 in the amount of €262,500.00 arising from the provision of a guarantee for payment granted under a credit agreement between a bank and its subsidiary. The adjustment had been determined using a CUP method where the pricing of the controlled transaction had been compared to the pricing of uncontrolled bank guarantees. The Court of first instance held that “it cannot be concluded that the transactions at issue here are comparable on the basis of the criterion adopted by the Tax Authorities referred to above. In fact, although the guarantee and the independent bank guarantee may share common features, the way in which the risk falls on the guarantor and on the guarantor of the independent bank guarantee potentially generates differences that significantly affect their comparability.” An appeal was filed by the tax authorities ... Continue to full case
Korea vs "K-GAS Corp", November 2021, Daegu District Court, Case No  2019구합22561

Korea vs “K-GAS Corp”, November 2021, Daegu District Court, Case No 2019구합22561

K-GAS Corp had issued loans and performance guarantees to overseas subsidiaries but received no remuneration in return. The tax authorities issued an assessment where additional taxable income was determined by application of the arm’s length principle. An appeal was filed by K-GAS with the district court. Decision of the Court The court upheld the decision of the tax authorities and dismissed the appeal of K-GAS Corp. Excerpts related to loans “In light of the following circumstances, which can be known by the above acknowledged facts, in light of the above legal principles, it is not economically reasonable for the Plaintiff to decide not to receive interest on the self-financing portion of the case loan to the subsidiaries in question 1 until the end of the exploration phase, and there is no illegality in the method of calculating the normal price of the Defendant. … …the ... Continue to full case
Denmark vs EAC Invest A/S, October 2021, High Court, Case No SKM2021.705.OLR

Denmark vs EAC Invest A/S, October 2021, High Court, Case No SKM2021.705.OLR

In 2019, the Danish parent company of the group, EAC Invest A/S, had been granted a ruling by the tax tribunal that, in the period 2008-2011, due to, inter alia, quite exceptional circumstances involving currency restrictions in Venezuela, the parent company should not be taxed on interest on a claim for unpaid royalties relating to trademarks covered by licensing agreements between the parent company and its then Venezuelan subsidiary, Plumrose Latinoamericana C.A. The Tax tribunal had also found that neither a payment of extraordinary dividends by the Venezuelan subsidiary to the Danish parent company in 2012 nor a restructuring of the group in 2013 could trigger a deferred taxation of royalties. The tax authorities appealed against the decisions to the High Court. Judgement of the High Court The High Court upheld the decisions of the tax tribunal with amended grounds and dismissed the claims of ... Continue to full case
Italy vs Pompea S.p.A., October 2021, Supreme Court, Case No 27636/2021

Italy vs Pompea S.p.A., October 2021, Supreme Court, Case No 27636/2021

This case deals with a non-interest bearing intragroup loan granted by Pompea S.p.A. to a foreign subsidiary and deductibility of interest expenses incurred by Pompea S.p.A. to obtain the funding needed to grant this loan to the subsidiary. The company was of the opinion that interest free inter-company loans were not covered by the Italien arm’s length provision at the time where the loan in question was established. The Italien tax authorities claimed that the arrangement was covered by the transfer pricing regulations art. 110 paragraph 7, and that an arm’s length interest had to be paid on the loan. They also found that interest on the bank loan was not deductible. Judgement of the Supreme Court The Court found that non-interest-bearing loan, was covered by the rules laid down in Article 110(7) of the TUIR (the Italien arm’s length provisions). Furthermore, the court found that the OECD ... Continue to full case
Greece vs Cypriot company Ltd., September 2021, Tax Court, Case No 2940/2021

Greece vs Cypriot company Ltd., September 2021, Tax Court, Case No 2940/2021

This case deals with arm’s length pricing of various inter-company loans which had been granted – free of interest – by Cypriot company Ltd. to an affiliate group company. Following an audit of Cypriot company Ltd, an upwards adjustment of the taxable income was issued. The adjustment was based on a comparison of the terms of the controlled transaction and the terms prevailing in transactions between independent parties. The lack of interest on the funds provided (deposit of a remittance minus acceptance of a remittance) was not considered in accordance with the arm’s length principle. Cypriot company Ltd disagreed with the assessment and filed an appeal with the tax court. Judgement of the Tax Court The Tax Court dismissed the appeal of Cypriot company Ltd. in regards of the arm’s length pricing of the loans. Excerpt “It is evident from the above that the bond ... Continue to full case
Albania vs Energji Ashta sh.p.k., September 2021, High Court, Case No. 00-2021-1426

Albania vs Energji Ashta sh.p.k., September 2021, High Court, Case No. 00-2021-1426

At issue was whether a payments for an intra group loan guarantee was deductible. In 2008 an agreement was concluded between Verbund AG and the former Albanian Ministry of Economy, Trade and Energy, with the object of construction, operation, maintenance and transfer of the project of a new hydropower plant in Ashta. Based on this agreement, the local company Energji Ashta received a loan in the amount of 140 million euros from two Austrian banks. Having no assets to guarantee the loan, the foreign banks have accepted guarantees for the fulfillment of obligations by Energji Ashta from two group companies EVN AG and Verbund AG. The guarantee for Energji Ashta was made against a commission of 2% of the disbursed amount. Following a tax audit Energji Ashta was informed that the commission paid to EVN AG and Verbund AG would not be allowed as a ... Continue to full case
Spain vs SGL Carbon Holding, September 2021, Tribunal Supremo, Case No 1151/2021  ECLI:EN:TS:2021:3572

Spain vs SGL Carbon Holding, September 2021, Tribunal Supremo, Case No 1151/2021 ECLI:EN:TS:2021:3572

A Spanish subsidiary – SGL Carbon Holding SL – had significant financial expenses derived from an intra-group loan granted by the parent company for the acquisition of shares in companies of the same group. The taxpayer argued that the intra-group acquisition and debt helped to redistribute the funds of the Group and that Spanish subsidiary was less leveraged than the Group as a whole. The Spanish tax authorities found the transactions lacked any business rationale other than tax avoidance and therefor disallowed the interest deductions. The Court of appeal upheld the decision of the tax authorities. The court found that the transaction lacked any business rationale and was “fraud of law” only intended to avoid taxation. The Court also denied the company access to MAP on the grounds that Spanish legislation determines: The decision was appealed by SGL Carbon to the Supreme Court. Judgement of ... Continue to full case
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
El Salvador vs Corp, June 2021, Tax Court, Case No 096-2021

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

Following an audit the tax authorities issued an assessment regarding interest payments on intra group loans and tax deductions for the costs for various services. An appeal was filed by the company. Judgement of the Tax Court The court upheld the assessment and decided in favour of the tax authorities. Click here for English translation TAIIA-R1704012TM ... Continue to full case
Brazil vs Natura Cosmeticos S/A, August 2021, CARF, Case  No. 16327.000738/2004-66

Brazil vs Natura Cosmeticos S/A, August 2021, CARF, Case No. 16327.000738/2004-66

Natura Cosmeticos S/A had been issued a tax assessment for FY 1999 to 2001. In the assessment interest income from loans granted to foreign group entities had been added to the taxable income of the company. NATURA COSMETICOS S/A stated that the transfer pricing rule provided for in paragraph 1 of article 22 of Law 9,430/96 did not apply. The rule determines that “in the case of a loan with a related person, the lending legal entity, domiciled in Brazil, must recognize, as financial income corresponding to the operation, at least the amount calculated in accordance with the provisions of this article”. Article 22 provides that interest paid to a related person, when arising from a contract not registered with the Central Bank, will only be deductible for purposes of determining taxable income “up to the amount that does not exceed the amount calculated based ... Continue to full case
Indonesia vs PT Mondelez Indonesia, July 2021, Supreme Court, Case No. 2031/B/PK/PJK/2021

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

Following an audit of PT Mondelez Indonesia, the tax authorities issued an assessment where certain controlled transactions had been adjusted resulting in additional taxable income. A complaint was filed with the Tax Court where, in a decision issued 26 October 2021 the Court partially set aside the assessment. An appeal was then filed with the Supreme Court by the tax authorities. Judgement of the Supreme Court The Supreme Court dismissed the appeal of the tax authorities and ruled in favor of Mondelez. Excerpts: “Considering, that to the reasons for the review, the Supreme Court is of the opinion: – That the subject matter of the dispute is: Positive Correction of Net Income for Tax Year 2015 amounting to Rp112,491,138,518.00 consisting of: correction of Cost of Goods Sold amounting to Rp23,083,520,411.00, and Income from Outside Business amounting to Rp67,781,379.345.00 derived from deemed income on marketing expense ... Continue to full case
France vs Genefinance (Interga), July 2021, Conseil d'Etat, Case No. 434268

France vs 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 Hunkemöller B.V., July 2021, Supreme Court, Case No ECLI:NL:2021:1152

Netherlands vs Hunkemöller B.V., July 2021, Supreme Court, Case No ECLI:NL:2021:1152

In 2011 a Dutch group “Hunkemöller 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 around ... 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 charged 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 interest charge ... 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
Peru vs. Perupetro, June 2021, Tax Court, Case No 05562-1-2021

Peru vs. Perupetro, June 2021, Tax Court, Case No 05562-1-2021

A foreign group had transferred funds to one of its branches, Perupetro, in Peru and claimed that the transfer was a capital contribution – and not a loan. Following an audit the tax authorities issued an assessment, where the funds transferred were considered a loan and withholding taxes on the interest payments had been lifted. An appeal was filed by Perupetro. Perupetro held that the transfers of funds made by its non-domiciled parent company in its favour in the financial year 2014 constitute assigned capital (capital contributions) and not loans as considered by the Administration. It pointed out that the tax authorities has not followed the procedure established by the Income Tax Law and the OECD Guidelines to delineate the operation observed, a situation that would have allowed it to note that it does not qualify as a loan. Perupetro further claimed that the tax ... 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

At issue in this case was the choice of transfer pricing method for determining the arm’s length price of a intra-group loan. Lender GmbH is held by a Dutch holding company. The holding company is also the sole shareholder of Lender GmbH’s sister company, which is also domiciled in the Netherlands. The Dutch sister company acts as a financing company within the group. It extended various loans to Lender GmbH. The interest rate was determined by application of the CUP method. The tax office disagreed with the transfer price method and the appropriateness of the interest rate determined by the group. The tax office determined the interest rate on the basis of the cost-plus method and qualified the difference as a hidden profit distribution (vGA). In its ruling of 7 December 2016 (13 K 4037/13), the Münster Regional Tax Court held in favour of the ... Continue to full case
Germany vs "G-Corp GmbH", June 2021, Bundesfinanzhof, Case No I R 32/17

Germany vs “G-Corp GmbH”, June 2021, Bundesfinanzhof, Case No I R 32/17

A German corporation,”G Corp” held interests in domestic and foreign companies in the year in dispute (2005). G Corp granted loans to various subordinate companies – resident in France and the USA. These loans were mainly at fixed interest rates; instead of a fixed interest rate, an annual participation of 12.5% in the balance sheet profit of the subordinate company, limited to a maximum amount of 25% of the loan volume, was agreed as consideration for one loan. No collateral was provided. In the year in dispute, G Corp wrote off these loans against taxable profits. G Corp also transferred assets at book value to a Maltese subsidiary company, of which it was the sole shareholder, and contributed the shares in this company, pursuant to section 23(4) of the Reorganisation Tax Act applicable in the year in dispute, also at book value, to another Malta-based ... Continue to full case