Category: Sales and Marketing Hubs

Sales and Marketing Hubs in low tax jurisdictions; Singapore, Ireland, Switzerland etc. used for tax avoidance purposes.

A Singapore Sling is a tax avoidance scheme in which a large multinational company sells products to a subsidiary owned by them in a jurisdiction with lower tax rates, which acts as a “marketing hub” and taking a huge bite of the overall profit.

Similarly, a ‘double Irish with Dutch sandwich’ has allowed multinationals to establish a series of companies in both Ireland and the Netherlands to reduce taxes. These structures usually have an Irish sales and marketing HQ, and local sales companies setup as (or converted into) “commissionaires”.

Rio Tinto has agreed to pay AUS$ 1 billion to settle a dispute with Australian Taxation Office over its Singapore Marketing Hub

Rio Tinto has agreed to pay AUS$ 1 billion to settle a dispute with Australian Taxation Office over its Singapore Marketing Hub

On 20 July 2022 Australian mining group Rio Tinto issued a press release announcing that a A$ 1 billion settlement had been reached with the Australian Taxation Office. “The agreement resolves the disagreement relating to interest on an isolated borrowing used to pay an intragroup dividend in 2015. It also separately resolves the pricing of certain transactions between Rio Tinto entities based in Australia and the Group’s commercial centre in Singapore from 2010-2021 and provides certainty for a further five-year period. Rio Tinto has also reached agreement with the Inland Revenue Authority of Singapore (IRAS) in relation to transfer pricing for the same periods. Reaching agreement with both tax authorities ensures Rio Tinto is not subject to double taxation. As part of this agreement, Rio Tinto will pay to the ATO additional tax of A$613m for the twelve historical years (2010 to 2021). This is ... Continue to full case
France vs Ferragamo France, June 2022, Administrative Court of Appeal (CAA), Case No 20PA03601

France vs Ferragamo France, June 2022, Administrative Court of Appeal (CAA), Case No 20PA03601

Ferragamo France, which was set up in 1992 and is wholly owned by the Dutch company Ferragamo International BV, which in turn is owned by the Italian company Salvatore Ferragamo Spa, carries on the business of retailing shoes, leather goods and luxury accessories and distributes, in shops in France, products under the ‘Salvatore Ferragamo’ brand, which is owned by the Italian parent company. An assessment had been issued to Ferragamo France in which the French tax authorities asserted that the French subsidiary had not been sufficiently remunerated for additional expenses and contributions to the value of the Ferragamo trademark. The French subsidiary had been remunerated on a gross margin basis, but had incurred losses in previous years and had indirect cost exceeding those of the selected comparable companies. In 2017 the Administrative Court decided in favour of Ferragamo and dismissed the assessment issued by the ... Continue to full case
India vs Kellogg India Private Limited, February 2022, Income Tax Appellate Tribunal - Mumbai, Case NoITA No. 7342/Mum/2018

India vs Kellogg India Private Limited, February 2022, Income Tax Appellate Tribunal – Mumbai, Case NoITA No. 7342/Mum/2018

Kellogg India Private Limited is engaged in manufacturing and sales of breakfast cereals and convenience foods and it operates as a licensed manufacturer under the Kellogg brand. During the year under consideration, Kellogg India had commenced business of distributing Pringles products in the Indian markets. Kellogg India purchases the pringles product from its AE Pringles International Operations SARL, based in Singapore. Singapore AE does not manufacture pringles, but in turn gets it manufactured from a third party contract manufacturer. Thereafter, the goods are supplied at a cost plus mark up of 5% on third party manufacturer’s cost. These Pringles are later imported by Kellogg India from its AE and distributed in the Indian market. Kellogg India characterised itself as a distributor of Pringles products and is responsible for the strategic and overall management of Pringles business in India. Singapore AE, being the least complex entity, ... Continue to full case
Italy vs BenQ Italy SRL, March 2021, Corte di Cassazione, Sez. 5 Num. 1374 Anno 2022

Italy vs BenQ Italy SRL, March 2021, Corte di Cassazione, Sez. 5 Num. 1374 Anno 2022

BenQ Italy SRL is part of a multinational group headed by the Taiwanese company BenQ Corporation that sells and markets technology products, consumer electronics, computing and communications devices. BenQ Italy’s immediate parent company was a Dutch company, BenQ Europe PV. Following an audit the tax authorities issued a notice of assessment for FY 2003 in which the taxpayer was accused of having procured goods from companies operating in countries with privileged taxation through the fictitious interposition of a Dutch company (BenQ Europe BV), the parent company of the taxpayer, whose intervention in the distribution chain was deemed uneconomic. On the basis of these assumptions, the tax authorities found that the recharge of costs made by the interposed company, were non-deductible. The tax authorities also considered that, through the interposition of BenQ BV, the prices charged by the taxpayer were aimed at transferring most of the ... Continue to full case
Argentina vs Malteria Pampa SA, October 2021, Federal Administrative Court, Case No TF 35123-A

Argentina vs Malteria Pampa SA, October 2021, Federal Administrative Court, Case No TF 35123-A

Malteria Pampa S.A in Argentina exported malt to a related intermediary in Uruguay that in turn sold on the goods to the brewery in Brazil at a higher price. The tax authorities applied the Sixth method and issued an assessment where the export price was determined based on the latter price used in the transaction with the brewery in Brazil. Furthermore a substantial fine was issued to the Malteria Pampa S.A. for non compliance. In February 2019 the Tax Court decided in favour of the tax authorities. “That the factual and legal points considered by the customs verification – corroborated in this pronouncement – complied with the application parameters of the TP rules invoked in the Technical Report, forming a solid conviction that the transactional prices of the sale declared in the field “Merchandise Value” of the PE 07-003-EC01-004994-P and PE N° 07-003- EC01-004995-Z of ... Continue to full case
Argentina vs Nidera S.A., June 2021, Supreme Court, Case No CAF 38801/2013/CA2-CS2

Argentina vs Nidera S.A., June 2021, Supreme Court, Case No CAF 38801/2013/CA2-CS2

Nidera S.A. exported commodities (cereals, oilseeds etc.) via group traders domiciled on the British Virgin Islands. In the absence of evidence to the contrary, in transactions involving entities domiciled in low-tax jurisdictions, it was presumed that prices had not been agreed in accordance with the arm’s length principle. The tax authorities issued an adjustment by applying the “CUP” method (Sixth method), considering the statistical average prices set as a reference value by the National Secretariat of Agriculture, Livestock and Fisheries, corresponding to the date of shipment (and not to the date of agreement as claimed by the claimant). However adjustments were only made to those transactions where the quoted price was higher than the one agreed by Nidera S.A. An appeal was filed with the National Court by Nidera S.A. In 2016 the National Court of Appeals issud ist decision in the case. The decision ... Continue to full case
Finland vs A Oy, June 2021, Supreme Administrative Court, Case No. KHO:2021:73

Finland vs A Oy, June 2021, Supreme Administrative Court, Case No. KHO:2021:73

A Oy was part of the A group, whose parent company was A Corporation, a US corporation. A Oy had acted as the group’s limited risk distribution company in Finland. The transfer prices of the group companies had been determined on a mark-to-market basis using the net transaction margin method and the group companies’ operating profit on a mark-to-market basis had been determined on the basis of US GAAP, the accounting standard commonly applied within the group. The target profit level for the group’s limited risk distribution companies, including A Ltd, was set at 0,5 % in the group’s transfer pricing documentation, based on a comparables analysis. In 2011, the competent authorities of the countries of residence of the A Group’s European manufacturing companies had entered into an Advance Transfer Pricing Agreement (APA) under which transfer pricing is monitored in accordance with the Group’s common ... Continue to full case
France vs. SARL SRN Métal, May 2021, CAA, Case No. 19NC03729

France vs. SARL SRN Métal, May 2021, CAA, Case No. 19NC03729

SARL SRN Métal’s business is trading in industrial metal and steel products. Following an audit of the company for FY 2011 to 2012 and assessment was issued related to VAT, Transfer Pricing and Withholding Tax. In regards to transfer pricing, the administration considered that (1) the sales of goods made by SRN Métal to B-Lux Steel, established in Luxembourg, were invoiced at a lower price than that charged to the company’s other customers and (2) that commissions paid to Costa Rica – a privileged tax regime – were not deductible as SRN Metal did not provided proof that the expenses corresponded to real operations and that they are not abnormal or exaggerated. The company requested the administrative court of Strasbourg to discharge the assessments. This request was rejected by the court in a judgement issued 29 October 2019. This decision of the administrative court was ... Continue to full case
Australia vs Glencore, May 2021, High Court, Case No [2021] HCATrans 098

Australia vs Glencore, May 2021, High Court, Case No [2021] HCATrans 098

Glencore Australia (CMPL) sold copper concentrate produced in Australia to its Swiss parent, Glencore International AG (GIAG). The tax authorities found, that the price paid by Glencore International AG to Glencore Australia for the copper concentrate in the relevant years according to a price sharing agreement was less than the price that might reasonably be expected to have been paid in an arm’s length dealing between independent parties. The tax assessment was brought to court by Glencore. The Federal Court of Australia found in favor of Glencore. The ruling of the Federal Court was appealed by the Australian tax authorities. On 6 November 2020, a Full Federal Court in a 3-0 ruling dismissed the appeal of the tax authorities. The tax authorities then submitted a application for special leave to the High Court. This application was dismissed by the Court in a judgement issued 20 ... Continue to full case
South Africa vs Levi Strauss SA (PTY) LTD, April 2021, Supreme Court of Appeal, Case No (509/2019) [2021] ZASCA 32

South Africa vs Levi Strauss SA (PTY) LTD, April 2021, Supreme Court of Appeal, Case No (509/2019) [2021] ZASCA 32

Levi Strauss South Africa (Pty) Ltd, has been in a dispute with the African Revenue Services, over import duties and value-added tax (VAT) payable by it in respect of clothing imports. The Levi’s Group uses procurement Hubs in Singapore and Hong Kong but channeled goods via Mauritius to South Africa, thus benefiting from a favorable duty protocol between Mauritius and South Africa. Following an audit, the tax authorities issued an assessment in which it determined that the place of origin certificates issued in respect of imports from countries in the South African Development Community (SADC) and used to clear imports emanating from such countries were invalid, and therefore disentitled Levi SA from entering these goods at the favorable rate of zero percent duty under the Protocol on Trade in the Southern African Development Community (SADC) Region (the Protocol). The tax authorities also determined that the ... Continue to full case
France vs. SARL Cosi Immobilier, April 2021, CAA de LYON, Case No. 19LY00527

France vs. SARL Cosi Immobilier, April 2021, CAA de LYON, Case No. 19LY00527

SARL Cosi Immobilier, is a wholly owned subsidiary of the Swiss company Compagnie de Services Immobiliers SA (Cosi SA). The group is engaged in sale of properties and real estate. Following a tax audit covering the FY 2011 and 2012, an assessment of additional corporate income tax was issued, together with penalties. According to the tax authorities service fees paid by SARL Cosi to its Swiss parent (50% of the the sales commission received) for online marketing of properties and real estates located in France had not been at arm’s length. The company requested the administrative court of Lyon to discharge the assessments, but this request was rejected by the court in a judgement issued 11 December 2018. This decision was then appealed by the company to the Supreme Administrative Court. Judgement of the Supreme Administrative Court The Appeal of Cosi Immobilier was rejected by ... Continue to full case
Ukrain vs PJSC "Azot", January 2021, Supreme Administrative Court, Case No 826/17841/17

Ukrain vs PJSC “Azot”, January 2021, Supreme Administrative Court, Case No 826/17841/17

Azot is a producer of mineral fertilizers and one of the largest industrial groups in Ukraine. Following an audit the tax authorities concluded that Azot’s export of mineral fertilizers to a related party in Switzerland, NF Trading AG, had been priced significantly below the arm’s length price, and moreover that Azot’s import of natural gas from Russia via a related party in Cyprus, Ostchem Holding Limited, had been priced significantly above the arm’s length price. On that basis, an assessment of additional corporate income tax in the amount of 43 million UAH and a decrease in the negative value by 195 million UAH was issued. In a decision from 2019 the Administrative Court ruled in favor of the tax authorities. This decision was then appealed by Azot to the Supreme Administrative Court. The Supreme Administrative Court dismissed the appeal and decided in favor of the ... Continue to full case
Switzerland vs "Contractual Seller SA", January 2021, Federal Supreme Court, Case No 2C_498/2020

Switzerland vs “Contractual Seller SA”, January 2021, Federal Supreme Court, Case No 2C_498/2020

C. SA provides “services, in particular in the areas of communication, management, accounting, management and budget control, sales development monitoring and employee training for the group to which it belongs, active in particular in the field of “F”. C. SA is part of an international group of companies, G. group, whose ultimate owner is A. The G group includes H. Ltd, based in the British Virgin Islands, I. Ltd, based in Guernsey and J. Ltd, also based in Guernsey. In 2005, K. was a director of C. SA. On December 21 and December 31, 2004, an exclusive agreement for distribution of “F” was entered into between L. Ltd, on the one hand, and C. SA , H. Ltd and J. Ltd, on the other hand. Under the terms of this distribution agreement, L. Ltd. undertook to supply “F” to the three companies as of January ... Continue to full case
France vs Valueclick Ltd. Dec 2020, Supreme Administrative Court (CAA), Case No 420174

France vs Valueclick Ltd. Dec 2020, Supreme Administrative Court (CAA), Case No 420174

The issue in the case before the Supreme Administrative Court was whether an Irish company had a PE in France in a situation where employees of a French company in the same group carried out marketing, representation, management, back office and administrative assistance services on behalf of the group. The following facts were used to substantiate the presence of a French PE: French employees negotiated the terms of contracts and were involved in drafting certain contractual clauses with the customers. Contracts were automatically signed by the Irish company – whether this action corresponded to a simple validation of the contracts negotiated and drawn up by the managers and employees in France. Local advertising programs were developed and monitored by employees in France. French employees acted to third parties as employees of the Irish company. Customers did not distinguish between the Irish and the French company. In a 2018 decision ... Continue to full case
France vs Ferragamo France, November 2020, Conseil d'Etat, Case No 425577

France vs Ferragamo France, November 2020, Conseil d’Etat, Case No 425577

Ferragamo France, which was set up in 1992 and is wholly owned by the Dutch company Ferragamo International BV, which in turn is owned by the Italian company Salvatore Ferragamo Spa, carries on the business of retailing shoes, leather goods and luxury accessories and distributes, in shops in France, products under the ‘Salvatore Ferragamo’ brand, which is owned by the Italian parent company. An assessment had been issued to Ferragamo France in which the French tax authorities asserted that the French subsidiary had not been sufficiently remunerated for additional expenses and contributions to the value of the Ferragamo trademark. The French subsidiary had been remunerated on a gross margin basis, but had incurred losses in previous years and had indirect cost exceeding those of the selected comparable companies. The Administrative Court decided in favour of Ferragamo and dismissed the assessment. According to the Court the ... Continue to full case
Australia vs Glencore, November 2020, Full Federal Court of Australia, Case No FCAFC 187

Australia vs Glencore, November 2020, Full Federal Court of Australia, Case No FCAFC 187

Glencore Australia (CMPL) sold copper concentrate produced in Australia to its Swiss parent, Glencore International AG (GIAG). The tax administration found, that the price paid by Glencore International AG to Glencore Australia for the copper concentrate in the relevant years according to a price sharing agreement was less than the price that might reasonably be expected to have been paid in an arm’s length dealing between independent parties. ‘The amended assessments included in the taxpayer’s assessable income additional amounts of $49,156,382 (2007), $83,228,784 (2008) and $108,675,756 (2009) referable to the consideration which the Commissioner considered would constitute an arm’s length payment for the copper concentrate sold to Glencore International AG in each of the relevant years. The Federal Court of Australia found in favor of Glencore. “Accordingly I find that the taxpayer has established that the prices that CMPL was paid by GIAG for the ... Continue to full case
Denmark vs. Software A/S, September 2020, Tax Court, Case no SKM2020.387.LSR

Denmark vs. Software A/S, September 2020, Tax Court, Case no SKM2020.387.LSR

Software A/S was a fully fledged Danish distributor of software an related services up until 2010 where the company was converted into a commissionaire dealing on behalf of a newly established sales and marketing hub in Switzerland. Following an audit, the Danish tax authorities issued a assessment where additional taxable income from the transfer of intangibles to Switzerland in 2010 had been determined by application of the DCF valuation model. As no transfer pricing documentation had been prepared on the transfer, the assessment was issued on a discretionary basis. Software A/S filed a complaint to the Danish Tax Court. The Tax Court found that the tax authorities did not have the authority to make a discretionary assessment. It was emphasized that the company in its transfer pricing documentation had described the relevant circumstances for the restructuring. Furthermore, the company had analyzed functions and risks and ... Continue to full case
Switzerland vs "Contractual Seller SA", May 2020, Federal Administrative Court, Case No A-2286/2017

Switzerland vs “Contractual Seller SA”, May 2020, Federal Administrative Court, Case No A-2286/2017

C. SA provides “services, in particular in the areas of communication, management, accounting, management and budget control, sales development monitoring and employee training for the group to which it belongs, active in particular in the field of “F”. C. SA is part of an international group of companies, G. group, whose ultimate owner is A. The G group includes H. Ltd, based in the British Virgin Islands, I. Ltd, based in Guernsey and J. Ltd, also based in Guernsey. In 2005, K. was a director of C. SA. On December 21 and December 31, 2004, an exclusive agreement for distribution of “F” was entered into between L. Ltd, on the one hand, and C. SA , H. Ltd and J. Ltd, on the other hand. Under the terms of this distribution agreement, L. Ltd. undertook to supply “F” to the three companies as of January ... Continue to full case
Russia vs ViciunaiRus LLC, April 2020, Supreme Court, Case No. A21-133/2018

Russia vs ViciunaiRus LLC, April 2020, Supreme Court, Case No. A21-133/2018

ViciunaiRus LLC was engaged in production and wholesale distribution of its products. During the inspection, the inspection concluded that the chain of contractual relations between the Company and its sole official distributor in the Russian Federation artificially had established intermediates that do not have assets and personnel. At the same time, the price of products increased by more than 20% in the course of movement along the chain of counter parties. During the period from 2012 to 2014, the tax authorities considered the inclusion of intermediaries in the sales structure to be of a artificial nature and aimed at understating the sales revenue. The taxpayer was additionally charged profit tax and VAT, and the additional tax was calculated based on the resale price at which the goods were received by the distributor. In 2012 and 2013 the transactions between the taxpayer and distributor were controlled ... Continue to full case
Australia vs BHP Biliton Limited, March 2020, HIGH COURT OF AUSTRALIA, Case No [2020] HCA 5

Australia vs BHP Biliton Limited, March 2020, HIGH COURT OF AUSTRALIA, Case No [2020] HCA 5

BHP Billiton Ltd, an Australian resident taxpayer, is part of a dual-listed company arrangement (“the DLC Arrangement”) with BHP Billiton Plc (“Plc”). BHP Billiton Marketing AG is a Swiss trading hub in the group which, during the relevant years, was a controlled foreign company (CFC) of BHP Billiton Ltd because BHP Billiton Ltd indirectly held 58 per cent of the shares in the Swiss trading hub. BHP Billiton Plc indirectly held the remaning 42 per cent. The Swiss trading hub purchased commodities from both BHP Billiton Ltd’s Australian subsidiaries and BHP Billiton Plc’s Australian entities and derived income from sale of these commodities into the export market. There was no dispute that BHP Billiton Marketing AG’s income from the sale of commodities purchased from BHP Billiton Ltd’s Australian subsidiaries was “tainted sales income” to be included in the assessable income of BHP Billiton Ltd under ... Continue to full case
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