Category: Financial Transactions

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

France vs. France Immobilier Group, Nov. 2012, CE no 328670

France vs. France Immobilier Group, Nov. 2012, CE no 328670

In the France Immobilier Group decision, the Court found that the interest rate should be based on the financing conditions the lender could have obtained from a third-party bank. Click here for translation France vs. France Immobilier Group_07_11_2012_CE no 328670 ... Continue to full case
Canada vs. McKesson. October 2012. Tax Court

Canada vs. McKesson. October 2012. Tax Court

McKesson is a multinational group involved in wholesale distribution of pharmaceuticals. Its Canadian subsidiary entered into a receivables sales (factoring) agreement with its direct parent, McKesson International Holdings III Sarl in Luxembourg in 2002. Under the agreement, McKesson International Holdings III Sarl agreed to purchase the receivables for about C$460 million and committed to purchasing all the eligible receivables as they arose for the next five years. The price of the receivables was determined at a discount of 2.206 percent from the face amount. The funding to buy the receivables was borrowed in Canadian dollars from an indirect parent company of McKesson International Holdings III Sarl in Ireland and guaranteed by another indirect parent in Luxembourg. The Court didn’t recharacterize the transactions. The Court emphasized that the Canadian Income Tax Act was the only legally binding clause on appeal before the court and that the practice of the CRA under the OECD ... Continue to full case
Switzerland vs. Finanz AG, Oct. 2012, Federal Supreme Court, Case No 2C_708/2011

Switzerland vs. Finanz AG, Oct. 2012, Federal Supreme Court, Case No 2C_708/2011

A company of a Swiss based group maintained a permanent establishment in the Cayman Islands for financing the domestic group companies. Whereas the group companies were able to deduct the interest payments from the taxable profit to their full extent, the interest income, for Swiss tax purposes, was allocated to the permanent establishment in the Cayman Islands, and therefore led to non-taxation of this interest income. By interpreting the legal term “foreign permanent establishment” the Federal Supreme Court concluded that the finance company in the Cayman Islands had only four employees and that such a lean structures was in contrast to the figures in the annual accounts. Therefore, it denied the allocation of interest income to the Cayman Islands for Swiss tax purposes. Click here for English translation Federal Tax Administration against X. Finanz AG ... Continue to full case
US vs PepsiCo, September 2012, US Tax Court, 155 T.C. Memo 2012-269

US vs PepsiCo, September 2012, US Tax Court, 155 T.C. Memo 2012-269

PepsiCo had devised hybrid securities, which were treated as debt in the Netherlands and equity in the United States. Hence, the payments were treated as tax deductible interest expenses in the Netherlands but as tax free dividend income on equity in the US. The IRS held that the payments received from PepsiCo in the Netherlands should also be characterised as taxable interest payments for federal income tax purposes and issued an assessment for FY 1998 to 2002. PepsiCo brought the assessment before the US Tax Court. Based on a 13 factors-analysis the Court concluded that the payments made to PepsiCo were best characterised as nontaxable returns on capital investment and set aside the assessment. Factors considered were: (1) names or labels given to the instruments; (2) presence or absence of a fixed maturity date; (3) source of payments; (4) right to enforce payments; (5) participation ... Continue to full case
Turkey vs Lender, April 2012, Danıştay Üçüncü Dairesi, E. 2011/5165, K. 2012/1247, UYAP, 12.04.2012

Turkey vs Lender, April 2012, Danıştay Üçüncü Dairesi, E. 2011/5165, K. 2012/1247, UYAP, 12.04.2012

A Turkish company located in a tax free zone had obtained interest income based on the interest rate applied to foreign currency loans, although the company had lent money to its partner in Turkish Lira. Normally interest income is considered taxable, but within the tax free zone, income from listed activities is exempt. Click here for translation Turkey Case e-2011-5165-k-2012-1247-t-12-4-2012 ... Continue to full case
Denmark vs. Swiss Re. February 2012, Supreme Court, SKM2012.92

Denmark vs. Swiss Re. February 2012, Supreme Court, SKM2012.92

This case concerned the Danish company, Swiss Re, Copenhagen Holding ApS, which was wholly owned by the US company, ERC Life Reinsurance Corporation. In 1999 the group considered transferring the German subsidiary, ERC Frankona Reinsurance Holding GmbH, from the US parent company to the Danish company. The value of the German company was determined to be DKK 7.8 billion. The purchase price was to be settled by the Danish Company issuing shares with a market value of DKK 4.2 billion and debt with a market value of DKK 3.6 billion. On 27 May 1999, the parent company and the Danish company considered to structure the debt as a subordinated, zero-coupon note. Compensation for the loan would be structured as a built-in capital gain in order to defer recognition of the compensation for the period 1 July 1999 to 30 June 2000. The Danish company would ... Continue to full case
Netherlands vs Corp, 2011, Dutch Supreme Court, Case nr. 08/05323 (10/05161, 10/04588)

Netherlands vs Corp, 2011, Dutch Supreme Court, Case nr. 08/05323 (10/05161, 10/04588)

In this case, the Dutch Supreme Court further outlined the Dutch perspective on the distinction between debt and equity in its already infamous judgments on the so-called extreme default risk loan (EDR loan) L sold a securities portfolio to B for EUR 5.3 million against B’s acknowledgement of debt to L for the same amount. The debt was then converted into a 10 year loan with  an interest rate of 5% and a pledge on the portfolio. Both L and B were then moved to the Netherlands Antilles. Later on L deducted a EUR 1.2 mill. loss on the loan to B due to a decrease in value of the securities portfolio. The Dutch Tax Authorities disallowed the deduction based on the argument, that the loan was not a business motivated loan. The Dutch Supreme Court ruled that in principle civil law arrangement is decisive in regard to ... Continue to full case
Nederlands vs. Corp, July 2011, Lower Court AWB 08/9105

Nederlands vs. Corp, July 2011, Lower Court AWB 08/9105

X is the holding company of the so-called A-group, which is a recreation company driven. The activities in X was taking out cancellation insurance. Within the group an Irish company was established. Between X and an insurer, that insurer and a reinsurer and the reinsurer and the Irish company several contracts were concluded with regard to the cancellation activities. The court considers that the tax administration has proved that X has let on un-businesslike grounds earnings miss in favor of the Irish company. Click here for translation Nederlands-vs-Corp-July-2011-Lower-Court-Case-nr-AWB-08-9105 ... Continue to full case
France vs. Banca di Roma, Dec. 2010. CAA no 08PA05096

France vs. Banca di Roma, Dec. 2010. CAA no 08PA05096

In the Banca di Roma case, the Court of Appeals reiterated that the FTA is not allowed to decide whether a business is to be financed through debt or equity. The terms of Article 57 of the French Tax Code (FTC) do not have the purpose, nor the effect, of allowing the administration to assess the ‘normal’ nature of the choice made by a foreign company to finance through a loan, rather than equity, the activity of an owned or controlled French company, and to deduce, if the need arises, tax consequences (cf. Article 212 of the FTC – thin capitalisation). Click here for translation France vs Banca di Roma 16_12_2010_CAA 08PA05096 ... Continue to full case
Korea vs Finance Corp, December 2010, Seoul High Court, Case No 2009누39126

Korea vs Finance Corp, December 2010, Seoul High Court, Case No 2009누39126

At issue in this case is the determination of arm’s length interest rates. Click here for translation 2009누39126 ... Continue to full case
Finland vs. Corp. November 2010, Supreme Administrative Court HFD 2010:73

Finland vs. Corp. November 2010, Supreme Administrative Court HFD 2010:73

A company, which belonged to a Nordic group, had until August 2005, two loans with an independent party outside the group. The interest of the loans was 3.135 to 3.25 percent. The company’s long-term loans amounted to over EUR 36 million and the guarantees granted by the Company for its loans amounted to about 41 million. In August 2005 the financing of the entire group was re organised. A Ltd paid off old bank loans and took up a new loan from the Swedish company B AB, which belonged to the group. For loans between the group companies was 9.5 percent interest rate. The interest rate had been affected by interest rate percentages on unrelated loans , risk loans and loans from shareholders. After the change in funding A Ltd’s long-term debt totaled just over EUR 38 million and the guarantees granted by the Company ... Continue to full case
Canada vs. General Electric Capital. November 2010

Canada vs. General Electric Capital. November 2010

In the case of General Electric Capital, Canada, the issue was if a 1% guarantee fee  paid by General Electric Capital Canada Inc. to its AAA-rated US parent company satisfied the arm’s length test. The Canadian tax administration argued  that implicit support resulted in General Electric Canada having a AAA credit rating, so that the guarantee provided by the US parent had no value. Taxpayer argued that the 1% guarantee fee did not exceed arm’s length pricing and that implicit support from the US parent should be ignored since it stemmed from the non-arm’s length relationship. The Tax Court agreed with the tax administration that implicit support should be taken into account and applied a “yield approach,” comparing the interest rate the Canadian company would have paid with and without the guarantee. The Tax Court found that credit rating of the Canadian company – with implicit support but without the guarantee – was at most BBB-/BB+ and the 1% guarantee was arm’s length ... Continue to full case
Sweden vs. Diligentia, June 2010, Regeringsratten case nr 2483-2485-09

Sweden vs. Diligentia, June 2010, Regeringsratten case nr 2483-2485-09

Diligentia was the parent company of a Group active in real estate. After a take-over of Diligentia by another Group, Skandia Liv, external loans in Diligentia were terminated and replaced with intra-group loans from the new parent company, Skandia Liv. The new loans had an interest rate of 9,5 percent compared to the interest rates before the take over where the average rate was 4,5 percent (STIBOR added with 0,4 percent). Skandia Liv was a life insurance company (tax free under Swedish law) The tax authorities stated that the interest rate level exceeded a marked interest rate level and that the excess rate constituted deemed dividends. The Administrative Court established that an arm‟s length rate can be determined by looking at a wide range of interest rate levels since an interest rate is determined by a number of elements such as the borrower‟s credit worthiness, collateral, term to maturity etc. The ... Continue to full case
Norway vs. Telecomputing, June 2010, Supreme Court case nr. HR-2010-1072-A

Norway vs. Telecomputing, June 2010, Supreme Court case nr. HR-2010-1072-A

This case was about the qualification of capital transfers to a US subsidiary – whether the capital should be qualified as a loan (as done by the company) or as a equity contribution (as agrued by the tax administration). The Supreme Court concluded that the capital transfers to the subsidiary as a whole should be classified as loans. The form chosen by the company (loan) had an independent commercial rationale and Section 13-1 of the Tax Code did not allow for reclassification of the capital transfer The Supreme Court ruled in favor of Telecomputing AS. Click here for translation Norway rt-2010-s-790-Telecomputing-rentefritt-lån ... Continue to full case
France vs. SOCIETE D'ACQUISITIONS IMMOBILIERES, Jan 2010, CE, No. 313868

France vs. SOCIETE D’ACQUISITIONS IMMOBILIERES, Jan 2010, CE, No. 313868

In the Société d’acquisitions immobilières case the interest rate charged to a subsidiary was considered comparable with the interest rate the French entity would receive from a third party bank for an investment similar in terms and risk. The Court decided that the cash advance granted by a sub-subsidiary to its ultimate parent with which it had no business relations could constitute an “abnormal act of management” if the amount lent is clearly disproportionate to the creditworthiness of the borrowing company. Click here for translation France vs SOCIETE D'ACQUISITIONS IMMOBILIERES 22 Jan 2010 CE no 313868 ... Continue to full case
New Zealand vs Australian-owned banks – ANZ, ASB, BNZ and Westpac

New Zealand vs Australian-owned banks – ANZ, ASB, BNZ and Westpac

In 2009, New Zealand’s tax authorities made an out of court tax settlement of $2.2 billion. Australian-owned banks – ANZ, ASB, BNZ, and Westpac – agreed to recognise a extra tax bill of $2.2 billion between them, they avoided via deliberately complicated structured financial transactions. The Four banks entered the settlement after two of them had been to court and lost. Westpac Banking Corporation v Commissioner of Inland Revenue, Feb 2009 BNZ Investments Ltd v Commissioner of Inland Revenue, July 2009 ... Continue to full case
New Zealand vs BNZ Investments Ltd,  July 2009, HIGH COURT

New Zealand vs BNZ Investments Ltd, July 2009, HIGH COURT

The case: Is each of six similar structured finance transactions entered into by the plaintiffs (the BNZ) a ‘tax avoidance arrangement’ void under s BG 1 Income Tax Act 1994? That is the primary issue in these five consolidated proceedings brought by the BNZ against the Commissioner, challenging his assessments issued after he voided each of the transactions pursuant to s BG 1. The BNZ claims the transactions are not caught by s BG 1. A second issue, arising only if s BG 1 applies, is the correctness of the way in which the Commissioner has, pursuant to s GB 1, counteracted the tax advantage obtained by the BNZ under the transactions. The Commissioner disallowed the deductions claimed by the BNZ, as its costs of the transactions. The BNZ claims the deductions should be disallowed only to the extent they are excessive or ‘overmarket’. A ... Continue to full case
UK vs. DSG Retail (Dixon case), Tax Tribunal, Case No. UKFT 31

UK vs. DSG Retail (Dixon case), Tax Tribunal, Case No. UKFT 31

This case concerns the sale of extended warranties to third-party customers of Dixons, a large retail chain in the UK selling white goods and home electrical products. The DSG group captive (re)insurer in the Isle of Man (DISL) insured these extended warranties for DSG’s UK customers. Until 1997 this was structured via a third-party insurer (Cornhill) that reinsured 95% on to DISL. From 1997 onwards the warranties were offered as service contracts that were 100% insured by DISL. The dispute concerned the level of sales commissions and profit commissions received by DSG. The Tax Tribunal rejected the taxpayer’s contentions that the transfer pricing legislation did not apply to the particular series of transactions (under ICTA 88 Section 770 and Schedule 28AA) – essentially the phrases ‘facility’ (Section 770) and ‘provision’ (Schedule 28AA) were interpreted broadly so that there was something to price between DSG and ... Continue to full case
New Zealand vs Westpac Banking Corporation, February 2009, High Court, Case no CA624/07

New Zealand vs Westpac Banking Corporation, February 2009, High Court, Case no CA624/07

Westpac Banking Corporation has challenged amended assessments issued by the Commissioner of Inland Revenue to its taxation liability for the years 1999 to 2005. The assessments impugn the bank’s taxation treatment of nine structured finance transactions entered into with overseas counterparties in that period. The funds invested in each transaction ranged between NZD390m and NZD1.5b. By August 2002 Westpac’s total investment in the transactions was NZD4.36b, representing 18% of its assets. The Commissioner says that the purpose or effect of the transactions or parts of them was tax avoidance. He has reassessed Westpac to liability of $586m. With the addition of use of money interest of $375m, the total amount of tax at issue is $961m (including voluntary payments of $443m made by the bank under protest). In brief summary, the transactions were structured in this way: Westpac, acting through subsidiaries, purchased preference shares issued ... Continue to full case
Turkey vs No-Banker Corp, November 2008, Administrative Court, E. 2006/3620 K. 2008/4633 T. 18.11.2008

Turkey vs No-Banker Corp, November 2008, Administrative Court, E. 2006/3620 K. 2008/4633 T. 18.11.2008

No-banker Corp had issued an interest free loan to a related party. The Turkish tax office held that the lack of interest on the loan constituted a hidden distribution of profits and issued an assessment where additional income tax and a tax deficiency penalty was added and also banking and insurance transactions tax (BITT). The company filed a lawsuit based on the assessment. The tax court examined the case and determined that the loan to the partner had been used in the business of the company. Therefore, it was decided that the interest-free loan did not constitute a hidden distribution of profit. Hence, the tax court decided in favor of No-Banker Corp. The tax office then filed an appeal with Administrative Court. In a majority vote decision the Administrative Court rejected the appeal of the tax office and the decision of the tax court was ... Continue to full case