Category: Legality – Legitimacy – Constitutional

Poland vs "Fish Factory" sp. z o.o., July 2020, Administrative Court, I SA/Gd 184/20 - Wyrok

Poland vs “Fish Factory” sp. z o.o., July 2020, Administrative Court, I SA/Gd 184/20 – Wyrok

The activity of Spółka A sp. z o.o. included salmon breeding, processing, smoking and sale and distribution of the finished products. The company operated within Group A with head quarter in the Netherlands. By decision of 27 May 2019, the tax authorities determined that the operating expenses determined by transactions with related parties were inflated by PLN 29,613,156.00. The authorities did not accept calculations presented by the Company, as there were no reliable accounting records regarding the amount of costs incurred. Furthermore, the authorities held that the cost plus method, which should guarantee profit on the transaction in the Company, had been applied incorrect. The dispute before the administrative Court boils down to assessing whether the court of first instance, in compliance with the provisions in force, reversed the decision of the authorities in its entirety and referred the case back for reconsideration due to ... Continue to full case
Poland vs K. sp. z o.o., January 2020, Supreme Administrative Court, Case No II FSK 191/19 - Wyrok

Poland vs K. sp. z o.o., January 2020, Supreme Administrative Court, Case No II FSK 191/19 – Wyrok

K. sp. z o.o. is a Polish company belonging to an international group. The main activity of K is local sale of goods purchased from a intra group supplier. K is best characterized as a limited risk distributor and as such should achieve an certain predetermined level of profitability as a result of its activities. In order to achieve the determined level of profitability, the group had established that, if the operating margin actually achieved by the distributor during a given period is less or more than the assumed level of profit, it will be adjusted. The year-end adjustment will not be directly related to the prices of goods purchased from the intra-group supplier and will be made after the end of each financial year. The Administrative Court decided that the year-end adjustment is not sufficiently linked to obtaining, maintaining or securing the company’s income. Hence ... Continue to full case
Israel vs Broadcom, December 2019, Lod District Court, Case No 26342-01-16

Israel vs Broadcom, December 2019, Lod District Court, Case No 26342-01-16

Broadcom Semiconductors Ltd is an Israeli company established in 2001 under the name Dune Semiconductors Ltd. The Company is engaged in development, production, and sale of components to routers, switches etc. The shares in Dune Semiconductors were acquired by the Broadcom Corporation (a US group) in 2009 and following the acquisition intellectual property was transferred to the new Parent for a sum of USD 17 million. The company also entered into tree agreements to provide marketing and support services to a related Broadcom affiliate under a cost+10%, to provide development services to a related Broadcom affiliate for cost+8%, and a license agreement to use Broadcom Israel’s intellectual property for royalties of approximately 14% of the affiliate’s turnover. The tax authorities argued that functions, assets, and risks had been transferred leaving only an empty shell in Israel and a tax assessment was issued based on the purchase price ... Continue to full case
Netherlands vs. Swiss Corp, November 2019, Rechtbank Noord-Nederland, Case No. 2019:1492

Netherlands vs. Swiss Corp, November 2019, Rechtbank Noord-Nederland, Case No. 2019:1492

For the purpose of determining whether a Swiss Corporation had effektivly been managed from the Netherlands or had a permanent establishment in the Netherlands, the Dutch tax authorities send a request for information. The Swiss Corp was not willing to answere the request and argued that the request was disproportionate and that the concepts of “documents concerning decision-making with regard to important decisions” and “e-mail files” was and did not fit into the powers that an inspector has under Article 47 of the AWR. The court ruled in favor of the tax authorities. The court did not find the tax authorities’ request for information disproportionate. Article 47 of the Awr requires the provision of factual information and information that may be relevant to taxation with respect to the taxpayer (cf. Supreme Court October 20, 2017, ECLI: NL: HR: 2017: 2654). In the opinion of the ... Continue to full case
Australia vs. Glencore, August 2019, High Court, Case No. [2019] HCA 26 S256/2018

Australia vs. Glencore, August 2019, High Court, Case No. [2019] HCA 26 S256/2018

The Australian Tax Office had obtained information from the Paradise Paper-leak and used the information in a tax assessment of Glencore. Glencore held that such leaked information was confidential (protected by legal professional privilege) and could not be used in a tax assessment. On that basis Glencore filed an appeal to the High Court. High Court Decision The Australien High Court dismissed the appeal and allowed use of the leaked information for tax assessment purposes. “In no way do these cases support the notion that common law courts elsewhere are granting injunctions with respect to privileged material on the basis only of the wrongfulness associated with its taking.  Certainly, it is necessary for an equity to arise that the person to be restrained must have an obligation of conscience, but the basis for an injunction is the need to protect the confidentiality of the privileged ... Continue to full case
Skatteverket vs Holmen AB, June 2019, European Court of Justice, Case no C-608/17

Skatteverket vs Holmen AB, June 2019, European Court of Justice, Case no C-608/17

The Holmen case dealt with tax deduction of losses arising in indirectly held Spanish subsidiaries would be deductible upon liquidations of the Spanish companies. The Court clarified that final losses arising in an indirectly held subsidiary, should not be deductible for the parent company, unless all the intermediate companies between the parent company and the loss-making subsidiary are resident in the same member state as the loss-making subsidiary. In the Holmen case the facts suggest that a loss could be deductible in Sweden, as all intermediate companies were from Spain. The mere fact that the legislation of the subsidiary’s state of establishment does not allow the transfer of losses in the year of liquidation can’t, in itself, be sufficient to deem the losses as “final”. The Court also stated, that losses in foreign subsidiaries can’t be characterized as “final” if there is a possibility of ... Continue to full case
Skatteverket vs Memira Holding AB, June 2019, European Court of Justice, Case no C-607/17

Skatteverket vs Memira Holding AB, June 2019, European Court of Justice, Case no C-607/17

The Memira Holding case was about a crossborder merger between a loss-making German subsidiary and a Swedish parent company. The CJEU was asked to clarify whether the German losses would be deductible in Sweden after the merger had been finalized. In the Court’s view, Memira Holding may deduct the foreign losses in Sweden, but only if the Swedish parent company can demonstrate that it is impossible to use the losses in Germany in future periods. The fact that Germany does not allow losses to be taken over through a merger is thus not decisive in itself. Further possibilities to take over the losses must be assessed. The CJEU states that losses in subsidiaries can’t be characterized as “final” if there is a possibility of deducting those losses economically in the subsidiary’s state of residence, for example by transferring them to a third party. If, on ... Continue to full case
US vs Altera Corp, June 7, 2019, US Court of Appeal, Nos 16-70496 and 16-70497

US vs Altera Corp, June 7, 2019, US Court of Appeal, Nos 16-70496 and 16-70497

The US Court of Appeal had reversed a decision from the Tax Court that 26 C.F.R. § 1.482-7A(d)(2), under which related entities must share the cost of employee stock compensation in order for their cost-sharing arrangements to be classified as qualified cost-sharing arrangements and thus avoid an IRS adjustment, was invalid under the Administrative Procedure Act. The Court of Appeal ruled that the Commissioner of Internal Revenue had not gone beyond the authority delegated under 26 U.S.C. § 482, and that the Commissioner’s rule-making authority complied with the Administrative Procedure Act. The Opinion was shortly after (August 7, 2018) withdrawn by the Court of Appeal. A final Decision was issued June 7, 2019, reaching the conclusion that 26 C.F.R. § 1.482-7A(d)(2), under which related entities must share the cost of employee stock compensation in order for their cost-sharing arrangements to be classified as qualified cost-sharing ... Continue to full case
Germany vs G GmbH, February 2019, Bundesfinanzhof, Case No I R 73/16

Germany vs G GmbH, February 2019, Bundesfinanzhof, Case No I R 73/16

A German GmbH managed an unsecured clearing account for a Belgian subsidiary. After financial difficulties in the Belgian subsidiary, the GmbH waived their claim from the clearing account and booked this in their balance sheet as a loss. However, the tax office neutralized the loss according to § 1 Abs. 1 AStG.  Up until now, the Bundesfinanzhof has assumed for cases that are subject to a double taxation agreement (DTA), that Art. 9 para. 1 OECD was limited to so-called price corrections, while the non-recognition of a loan claim or a partial depreciation was excluded (so-called Blocking effect). The Bundesfinanzhof has now overturned the previous judgment of the FG. It is true that it was no longer possible to clarify in the appeal instance whether it was really a tax credit or the equity of the Belgian subsidiary. However, this could be left out, since the profit-reducing waiver by ... Continue to full case
Canada vs Canadian Imperical Bank of Commerce, December 2018, Tax Court of Canada, Case No. 2018 TCC 248

Canada vs Canadian Imperical Bank of Commerce, December 2018, Tax Court of Canada, Case No. 2018 TCC 248

In the course of an ongoing Canadian triel concerning transfer pricing adjustments in the amounts of $3,000,000,000, the Canadian Imperical Bank of Commerce had brought a motion for leave to call in seven expert witnesses – included four transfer pricing experts. The motion was dismissed by the Court. The Federal Court Rules impose a high threshold on parties seeking to call additional expert witnesses. The fact that the appeals involved lots of money did not make them “significant to public”. Issues surrounding application of transfer pricing rules to settlement payments and relevance of accounting treatment to deductibility of expenditures within corporate group were not of broad application and need to resolve them was not particularly pressing. Expert evidence would be important in complex and technical areas of accounting and transfer pricing issues, but that alone could not support presumption that more than five transfer pricing ... Continue to full case
Malawi vs Eastern Produce Malawi Ltd, July 2018, Malawi High Court, JRN 43 af 2016

Malawi vs Eastern Produce Malawi Ltd, July 2018, Malawi High Court, JRN 43 af 2016

Eastern Produce Ltd is part of Camellia Plc Group, and is is engaged in the growing, production and processing of tea in Malawi. The Malawi tax administration conducted a tax audit and found that transfer prices for intergroup service transactions had not been at arm’s length. However, in the notifications to Eastern Produce Ltd. no reference was made to the local arm’s length regulations – only the OECD Transfer Pricing Guidelines. Eastern Produce Limited complained to the High Court and argued that: “The decision and proceeding by MRA to use OECD (Organisation for Economic Cooperation and Development) guidelines whilst performing transfer pricing analysis and as a basis for effecting amendments to tax assessments was illegal. CONSIDERATIONS OF THE COURT, EXCERPS “With regard to transfer pricing in 2014, the law was contained in Section 127A. Section 127A provides as follows: “where a person who is not resident in Malawi carries ... Continue to full case
US vs Altera Corp, July 2018, US Court of Appeal, Nos 16-704996

US vs Altera Corp, July 2018, US Court of Appeal, Nos 16-704996

The US Court of Appeal reversed a decision from the Tax Court that 26 C.F.R. § 1.482-7A(d)(2), under which related entities must share the cost of employee stock compensation in order for their cost-sharing arrangements to be classified as qualified cost-sharing arrangements and thus avoid an IRS adjustment, was invalid under the Administrative Procedure Act. The Court of Appeal ruled that the Commissioner of Internal Revenue had not gone beyond the authority delegated under 26 U.S.C. § 482, and that the Commissioner’s rule-making authority complied with the Administrative Procedure Act. The Opinion was shortly after (August 7, 2018) withdrawn by the Court of Appeal – see below. A new Decision was issued June 7, 2019 US-vs-Altera-16-70496 The Annulment issued August 7, 2018: US-vs-Altera-16-70496-Withdrawn ... Continue to full case
Poland vs "Blueberry Factory" Sp z.o.o., June 2018, Supreme Administrative Court, II FSK 1665/16

Poland vs “Blueberry Factory” Sp z.o.o., June 2018, Supreme Administrative Court, II FSK 1665/16

In this case there were family, capital and personal ties between the Blueberry Factory and its shareholders, and the terms and conditions of the Company’s transactions with its shareholders (purchase of blueberry fruit) had not been at arm’s length. The higher prices paid by the Blueberry Farm benefited the shareholders (suppliers), who thus generated higher income from their agricultural activities, not subject to income tax. The company generated only losses in the years 2011 – 2013. According to the Polish tax authorities, the Blueberry Farm purchased blueberry fruit at excessive prices and thus overstated its tax-deductible expenses by PLN 347,845.48. The excessive prices (relative to market prices) increased the income of its shareholders (agricultural producers), whose income was not subject to personal income tax as being derived from agricultural activities. The tax authorities applied the provisions of Art. 11.1, Par. 2.2 of the Corporate Income ... Continue to full case
Denmark vs Bevola, June 2018, European Court of Justice, Case No C-650/16

Denmark vs Bevola, June 2018, European Court of Justice, Case No C-650/16

The Danish company Bevola had a PE in Finland. The PE incurred a loss when it was closed in 2009 that could not be utilized in Finland. Instead, Bevola claimed a tax deduction in its Danish tax return for 2009 for the loss suffered in Finland. A deduction of the loss was disallowed by the tax authorities because section 8(2) of the Danish Corporate Tax Act stipulates that the taxable income does not include profits and losses of foreign PEs (territoriality principle). Bevola would only be entitled to claim a tax deduction for the Finnish loss in the Danish tax return by making an election of international joint taxation under section 31 A. However, such an election means that all foreign entities must be included in the Danish tax return and the election is binding for a period of 10 years. The decision of the ... Continue to full case
Germany vs Hornbach-Baumarkt, May 2018, European Court of Justice, C-382/16

Germany vs Hornbach-Baumarkt, May 2018, European Court of Justice, C-382/16

In the Hornbach-Baumarkt case, a German parent company guaranteed loans of two related companies for no remuneration. The German tax authorities made an assessment of the amount of income allocated to the parent company as a result of the guarantee, based on the fact that unrelated third parties, under the same or similar circumstances, would have agreed on a remuneration for the guarantees. Hornbach-Baumarkt argued that German legislation was in conflict with the EU freedom of establishment and lead to an unequal treatment of domestic and foreign transactions since, in a case involving german domestic transactions, no corrections to the income would have been made for guarantees granted to subsidiaries. The company further argued that the legislation is disproportionate to achieving the objectives as it provides no opportunity for the company to present commercial justification for the non-arm’s-length transaction. The German Court requested a preliminary ... Continue to full case
Russia vs Gazprom Chemical Fiber, September 2017, Appeal Court, Case No. А12-39246/2016

Russia vs Gazprom Chemical Fiber, September 2017, Appeal Court, Case No. А12-39246/2016

Gazprom Chemical Fiber had previously sold goods directly to the final buyers, but now an intermediate trading hub had been established – the Trading House – through which sales and purchases were now passed. Following an audit, the tax authorities concluded that the cost of purchasing goods, as well as sales revenues following the establishment of the Trading hub, had been affected by non-arm’s length prices resulting in an understatement of taxable income. The court of first instance found the tax authorities arguments to be legitimate. The court of appeal overturned the decision of the court of first instance and ruled in favor of the taxpayer. The Supreme Court found the appellate court’s decision to be justified. According to the Supreme Court the tax authorities had gone beyond it’s statutory powers. There were no “multiple deviation” from market prices. A12-39246-2016 A12-39246-2016-Gazpromf ... Continue to full case
Canada vs Cameco Corp, Aug 2017, Federal Court, Case No T-856-15

Canada vs Cameco Corp, Aug 2017, Federal Court, Case No T-856-15

In relation to ongoing audits regarding transfer payments, the tax authorities asked the Court to order approximately 25 personnel from Cameco Corporation and its wholly owned subsidiaries to be made available for interview regarding Cameco’s 2010, 2011, and 2012 income tax years. It was confirmed in Court that Cameco has complied with all audit requests related to the relevant years except the refused request for oral interviews. Cameco has agreed to written questioning by the Minister, but not oral interviews. The Court dismissed the application. “A compliance order…can only be issued if the Minister proves that Cameco did not comply with section 231.1 of the ITA. Cameco has provided the Minister with every opportunity to inspect, audit and examine their books, records and documents and to inspect their property. The Minister confirmed that Cameco has allowed such access, save the requested oral interviews. Cameco has ... Continue to full case
Canada vs. Burlington Resources Finance Company, Aug 2017, case NO. TCC 144

Canada vs. Burlington Resources Finance Company, Aug 2017, case NO. TCC 144

This case i about the legal requirement to submit evidence. The revenue service argues that the disputed questions are relevant to the matters in issue and that Burlington Resources Finance Company has either improperly refused to answer, or not fully answered, the questions. Burlington Resources Finance Company argues that all proper questions have been fully answered and that answers to improper questions have been correctly refused. The underlying tax assessment relates to disallowence of tax deductions for guarantee fees paid by Burlington Resources Finance Company Canada (“Burlington”) to it’s US parent, Burlington Resources Inc. (“BRI”), a resident U.S. corporation. Burlington’s business involved obtaining financing to fund the operations of affiliated Canadian companies. Specifically, Burlington was involved in borrowing funds from public markets and “on-loaning” those funds to its affiliated Canadian entities, which were conducting businesses related to crude oil and natural gas assets. BRI unconditionally ... Continue to full case
US vs EATON-CORPORATION, July 2017, US Tax Court, TC memo 2017-147

US vs EATON-CORPORATION, July 2017, US Tax Court, TC memo 2017-147

The IRS decided to cancel two advance pricing agreements (APAs) with Eaton Corporation. The US Tax Court ruled that this decision was an abuse of discretion. US vs EATON CORPORATION AND SUBSIDIARIES, July 26 2017, United States Tax Court, TC memo 2017-147 ... Continue to full case
US vs Microsoft, May 2017, US District Court

US vs Microsoft, May 2017, US District Court

In an ongoing transfer pricing battle between Microsoft and the IRS related to Microsofts’ use of a IP subsidiary in Puerto Rico to shift income and reduce taxes, the District Court of Washington has now ordered Microsoft to provide a number of documents as requested by the IRS. US vs Microsoft May 2017 US District Court In a prior decision from November 2015 the District Court ruled, that the IRS’ use of an external representative was not in conflict with US regulations. Microsoft argued that the IRS’ use of an outside law firm, Quinn Emanuel Urquhart & Sullivan, to assist in the audit was an improper delegation of its authority to examine taxpayer books. The Court ruled that the government had a legitimate purpose in continuing to pursue the audit, and that the use of Quinn Emanuel was not a breach of IRS authority that ... Continue to full case