Nutreco España, S.A. had taken on significant debt to finance an acquisition of shares by other foreign group companies. Its role in the acquisition was limited to the channelling of funds. The debt consisted of an intercompany loan of 240 million euros granted by Nutreco Nederland B.V. and an amount of 100 million euros from a centralised treasury system (cash pool) within the Group. Interest payments on these loans totalled more than 30 million euros for the years 2011-2013, which Nutreco España, S.A. deducted from its taxable income. The tax authorities found that the financial arrangement was artificial and put in place only for the purpose of obtaining tax benefits. Deductions of expenses related to the debt was therefore denied and an assessment of additional taxable income issued. An appeal was filed Nutreco España, S.A. that ultimately ended up in the Supreme Court after being ... Continue to full case

“Health & Beauty AG” acted as a holding company within a larger international group. It had acquired 51% of the shares in I-GmbH in 2003 and the remaining 49% in 2009 from two Irish investment companies. The acquisition of the remaining shares was financed by a €12.4 million loan from A-BV at an interest rate of 7.855%. The loan was repaid early in 2013-2014 and interest expenses were claimed for the years 2009 to 2011. It had also deducted interest expences related to financing of subsidiaries in Spain and Italy. The tax authorities disallowed the deduction of these interest payments and an appeal was lodged, which ended up at the Austrian Federal Finance Court. Decision The court found that the loan agreement regarding the Acquisition of I-Gmbh was properly documented and at arm’s length and therefore the interest was deductible. It also concluded that “Health ... Continue to full case

“II Real Estate Loan B.V.” had deducted 10% interest on loans from its shareholder in its taxable income. The tax authorities found that the 10% interest rate was not at arm’s length. Furthermore, according to the tax authorities the loans were “non-businesslike” and the deductibility of the interest was therefore limited. The district court upheld the assessment. Not satisfied, “II Real Estate Loan B.V.” appealed to the Court of Appeal. Judgment The Court of Appeal ruled largely in favour of the tax authorities, concluding that a significant portion of the interest was not deductible and was therefore deemed to be a dividend to the shareholders. The court reduced the interest rate on the loans from 10% to 2.43%. Excerpts in English 5.3.6.13. Since no (non profit-sharing) arm’s length interest rate can be found in the market, and the AHL thus qualifies as a so-called non-business ... Continue to full case

The Supreme Court in the Netherlands requested a preliminary ruling from the European Court of Justice to clarify its case-law on, inter alia, the freedom of establishment laid down in Article 49 TFEU, specifically whether it is compatible with that freedom for the tax authorities of a Member State to refuse to a company belonging to a cross-border group the right to deduct from its taxable profits the interest it pays on such a loan debt. The anti-avoidance rule in question is contained in Article 10a of the Wet op de vennootschapsbelasting 1969. The rule is >specifically designed to tackle tax avoidance practices related to intra-group acquisition loans. Under that legislation, the contracting of a loan debt by a taxable person with a related entity – for the purposes of acquiring or extending an interest in another entity – is, in certain circumstances, presumed to ... Continue to full case

December 31, 2008 “A Mining S.A.” sold a mine wash plant to Company B, with which it was associated until December 23, 2008. The sale of the plant was negotiated in parallel with various share acquisition negotiations, etc. The tax authorities considered the sale of the wash plant to be a controlled transaction because the agreement was negotiated while the parties were still related. On this basis, the agreed price for the washing plant was adjusted based on the CUP method in accordance with Portuguese arm’s length rules. The resulting assessment issued by the tax authorities was later confirmed by the Administrative Court. “A Mining S.A.” then appealed to the Supreme Administrative Court. Judgment The Supreme Administrative Court ruled in favor of “A Mining S.A.”, overturning the decision of the Administrative Court and annulling the assessment issued by the tax authorities. Excerpt in English “We ... Continue to full case

Vernay Europa B.V. had received dividends from its Italian subsidiary in the years 2013 to 2016 and requested a refund of withholding taxes in Italy based on the EU Parent-Subsidiary Directive. The claim was rejected by the Italian tax authorities. An appeal was made to the Supreme Court. Judgment The Supreme Court ruled in favour of Vernay Europa B.V. Beneficial ownership requires the satisfaction of three tests: 1. the substantive business test, 2. the control test and 3. the business purpose test. The Court found that Vernay Europa B.V. had been established in the Netherlands prior to the adoption of the Parent-Subsidiary Directive and that it had a real business activity. Furthermore, Vernay Europa B.V. retained a substantial part of the dividends received. Based on these facts, the Supreme Court upheld the appeal of Vernay Europa B.V. and referred the case back to the Court ... Continue to full case

A request for a preliminary ruling under Article 267 TFEU was made from the Constitutional Court of Belgium concerning the assessment of the validity of Article 8ab(1), (5), (6) and (7) of Council Directive 2011/16 as later amended by Directive 2018/822.  The request from the Belgian Court was made in the context of a number of proceedings between, inter alia, on the one hand, the de facto association, the Belgian Association of Tax Lawyers and others (‘the BATL’), the Ordre des barreaux francophones et germanophone (French- and German-speaking Bar Association; ‘the OBFG’), the Orde van Vlaamse Balies (Association of Flemish Bars) and others (‘the OVB’) and the Instituut van de Accountants en de Belastingconsulenten (Institute of Accountants and Tax Consultants) and others (‘the ITAA’) and, on the other, Premier ministre/Eerste Minister (Prime Minister, Belgium) concerning the validity of certain provisions of the Law of 20 ... Continue to full case

Howmet, a société par actions simplifiée (SAS), is the head of a tax group in which its subsidiary, Alcoa Holding France, now Arconic Holding France (AHF), is integrated. Following an audit of the accounts of these two companies, the tax authorities corrected their taxable profits for the 2011 and 2012 financial years  by disregarding the consequences of a contribution made to the Belgian company Alcoa Wheels Product Belgium (AWPB), now Alcoa Finance and Services Belgium (AFSB), of sums borrowed from the Swiss permanent establishment of a Luxembourg company belonging to the same economic group. It also reinstated the management fees paid by AHF to the group’s American parent company, Alcoa Inc., in AHF’s profits for the 2010 and 2011 financial years. In a ruling handed down on 19 November 2020, the Montreuil Administrative Court upheld Howmet’s claim for discharge of the additional corporate tax resulting ... Continue to full case

At issue was the “royalty-free” use of intangible assets under an agreement whereby PepsiCo’s Singapore affiliate sold concentrate to Schweppes Australia, which then bottled and sold PepsiCo soft drinks for the Australian market. As no royalties were paid under the agreement, no withholding tax was paid in Australia. The Australian Taxation Office (ATO) determined that the payments for “concentrate” from Schweppes to PepsiCo had been misclassified and were in part royalty for the use of PepsiCo’s intangibles (trademarks, branding etc.), and an assessment was issued for FY2018 and FY2019 where withholding tax was determined on that basis. The assessment was issued under the Australian diverted profits tax provisions. The assessment was appealed to the Federal Court, which in November 2023 found in favour of the tax authorities. PepsiCo then appealed to the Full Federal Court. Judgment In a split decision, the Full Federal Court overturned ... Continue to full case

“Real Estate Loan B.V.” had deducted 10% interest on loans from its shareholder in its taxable income. The tax authorities found that the 10% interest rate was not at arm’s length. Furthermore, according to the tax authorities the loans were “non-businesslike” and the deductibility of the interest was therefore limited. The district court upheld the assessment. Not satisfied, “Real Estate Loan B.V.” appealed to the Court of Appeal. Judgment The Court of Appeal ruled largely in favour of the tax authorities, concluding that a significant portion of the interest was not deductible and was therefore deemed to be a dividend to the shareholders. The court found that the tax authorities had been able to prove that the loan was “non-businesslike”, as a third party would not have been willing to make a loan on similar terms to Real Estate Loan B.V. Applying the deemed guarantee ... Continue to full case

At issue was an intra-group loan that arose out of a reorganisation designed to accelerate the utilisation of tax losses and thereby generate tax savings for the Kwik-Fit group. According to the tax authorities the loan had an unallowable purpose under the rule in section 441 CTA 2009 and, on this basis, interest deductions on the loan were disallowed. Kwik-Fit´s appeals to the First-tier Tribunal and the Upper Tribunal were unsuccessful and an appeal was then filed with the Court of Appeal. Judgment The Court found that the unallowable purpose rule in section 441 CTA 2009 applied to the interest deductions and upheld the decisions of the First-tier and Upper Tribunals. Excerpt 35. The FTT then made the following findings: “101. We find, based on the evidence of Mr Ogura,that: (1)   the decision to implement the reorganisation was made as a whole group; the Appellants ... Continue to full case

An intercompany loan was granted within the Apex Tool group at an interest rate of 6%. A tax assessment was issued by the tax authorities contesting the amount of interest deducted. The case ended up at the Conseil d’Etat, where it was referred back to the CAA. Following the referral of the case, Apex Tool Group asked the CAA to refund the amounts of €58,598, €50,099 and €653 corresponding to the excess corporation tax and social security contributions and to increase the balance of the interest deductions carried forward under the French thin cap rules from €1,435,512 to €2,401,651. Judgment of the Court The Court dismissed Apex Tool Group’s application. It found that the company had failed to provide evidence that the 6% interest rate on the loan was at arm’s length. Excerpts (Unofficial English translation) “8. It follows from the foregoing that the applicant ... Continue to full case

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. The tax authorities (HMRC) denied tax deductions for the interest costs on two grounds: (1) HMRC claimed that no loans would have been made between parties acting at arm’s length, so that relief should be denied under the transfer pricing rules in Part 4 of the Taxation (International and Other Provisions) Act 2010. (2) HMRC also maintained ... Continue to full case

The case concerned interest payments of €15,636,270 on loans granted to finance the acquisition of shares in X-Group. In its corporate income tax return for FY2011, “Holding B.V.” had deducted an interest expense of €2,478,638 from its taxable profit, considering that the remaining part of its interest expenses were excluded from tax deductions under the interest limitation rule in Article 10a of the Corporate Income Tax Act. The tax authority disallowed tax deductions for the full amount refering to both local interest limitation rules and general anti-avoidance principles. It found that the main motive of the complex financial arrangement that had been set up to finance the acquisition of shares in the X-Group was to obtain tax benefits. An appeal was filed in which “Holding B.V.” now argued that the full amount of interest on the loans could be deducted from its taxable profits. It ... Continue to full case

Mylan Australia Holding is a subsidiary of the multinational pharmaceutical company Mylan Group. Mylan Australia Holding is the head of the Australian tax consolidated group, which includes its subsidiary Mylan Australia Pty. In 2007, Mylan Australia Pty acquired the shares of Alphapharm Pty Ltd and a substantial loan (A$923,205,336) was provided by a group company in Luxembourg to finance the acquisition. In subsequent years the interest expense was deducted from the taxable income of Mylan’s Australian tax group. The Australian Taxation Office (ATO) issued amended assessments to Mylan Australia Holding disallowing approximately AUD 589 million of interest deductions claimed for the 2007 to 2017 tax years. The ATO had initially pursued the structure as a transfer pricing issue, but ultimately argued that the deductions should be disallowed under the general anti-avoidance rule. Mylan Australia Holding appealed to the Federal Court. Judgment of the Court The ... Continue to full case

The Supreme Court in the Netherlands requested a preliminary ruling from the European Court of Justice to clarify its case-law on, inter alia, the freedom of establishment laid down in Article 49 TFEU, specifically whether it is compatible with that freedom for the tax authorities of a Member State to refuse to a company belonging to a cross-border group the right to deduct from its taxable profits the interest it pays on such a loan debt.  The anti-avoidance rule in question is contained in Article 10a of the Wet op de vennootschapsbelasting 1969. The rule is specifically designed to tackle tax avoidance practices related to intra-group acquisition loans. Under that legislation, the contracting of a loan debt by a taxable person with a related entity – for the purposes of acquiring or extending an interest in another entity – is, in certain circumstances, presumed to ... Continue to full case

In its 2014 and 2015 tax returns, Walmart Chile S.A. (later D&S S.A.) had deducted costs for various inter-group services and interest payments on an inter-group loan. Following an audit, the tax authorities disallowed these deductions. An appeal was made to the Tax Court, which largely ruled in favour of the tax authorities. Walmart – and the tax authorities – then appealed to the Court of Appeal. Judgment The Court of Appeal upheld the decision of the Tax Court. Click here for English translation Click here for other translation ... Continue to full case

The Australian Tax Office (ATO) had determined that Minerva had received a “tax benefit” in connection with a “scheme” to which Part IVA – Australian GAAR – applied. Minerva appealed to the Federal Court, which upheld the assessment of the ATO. Mylan then appealed the decision to the Full Federal Court. Judgment of the Full Federal Court The Full Federal Court found in favour of Minerva. Excerpts “121 The s 177D factors are to be considered in light of the counterfactual or other possibilities and the outcomes resulting from the scheme. Part of the difficulty in the present case is that the same commercial outcome for the parties would not have been achieved by a distribution of income to the special unitholder as was achieved by the distribution of income to the ordinary unitholder, putting aside the Australian income tax consequences. Jupiter was indebted to ... Continue to full case

Heidelberg Italia S.R.L. sold goods at a lower mark-up (4% instead of a more appropriate 10%) to a subsidiary located in an Italian region enjoying certain tax advantages. According to the taxpayer the reduced mark-up served legitimate economic goals and furthermore the Italian transfer pricing rules in Article 110 did not apply to purely domestic transactions. The tax authorities disagreed and issued an assessment where the price of the goods sold to the subsidiary had been adjusted upward to a 10% mark-up. On appeal the court of first instance ruled in favour of Heidelberg and set aside the assessment of the tax authorities. However, this decision was later overturned by the Regional Tax Commission and the case then ended up in the Supreme Court. Judgment The Supreme Court held that the principles embodied in Article 9 TUIR require comparing the transaction to normal market conditions, ... Continue to full case

“S-Sociedade S.A.” had received a tax assessment and later a judgment based on transfer pricing rules (and not anti-avoidance rules), where the outcome of the tax audit would have been different if the transactions had been purely domestic rather than international. “S-Sociedade S.A.” considered that the judgment was flawed and appealed. Judgment of the Court The Court ruled in favour of “S-Sociedade S.A.” and annulled the tax assessment. Experts in English “In this regard, the following elements can be gleaned from European Union law: “The arm’s length principle necessarily forms part of the Commission’s assessment of tax measures granted to undertakings in a group under Article 107(1) of the Treaty, irrespective of whether and in what form a Member State has incorporated this principle into its national legal system. It is used to determine whether a group company’s taxable profits for corporate income tax purposes ... Continue to full case