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”.

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
Google - Taxes and Transfer Pricing

Google – Taxes and Transfer Pricing

Google’s tax affairs are back in the spotlight after filings in the Netherlands have showed that billions of dollars were moved to Bermuda in 2016 using the “double Irish Dutch sandwich”. According to the Washington Post, Google’s cash transfers to Bermuda reached $27b in 2016. Google uses the double Irish Dutch sandwich structure to shield the majority of it’s international profits from taxation. The setup involves shifting revenue from one Irish subsidiary to a Dutch company with no employees, and then on to a Bermuda-mailbox owned by another company registered in Ireland. US According to US filings, Google’s global effective tax rate in 2016 was 19.3%. New US tax law will give companies such as Google an incentive to repatriate much of that cash by offering them a “one-time”, 15.5% tax rate on offshore funds. After that, foreign earnings will be taxed at 10.5%, with ... Continue to full case
Microsoft - Taxes and Transfer Pricing

Microsoft – Taxes and Transfer Pricing

Microsoft’s tax affairs have been in the spotlight of tax authorities all over the World during the last decade. Why? The setup used by Microsoft involves shifting profits from sales in the US, Europe and Asia to regional operating centers placed in low tax jurisdictions (Bermuda, Luxembourg, Ireland, Singapore and Puerto Rico). The following text has been provided by Microsoft in a US filing concerning effective tax and global allocation of income: “Our effective tax rate for the three months ended September 30, 2017 and 2016 was 18% and 17%, respectively. Our effective tax rate was lower than the U.S. federal statutory rate primarily due to earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing our products and services through our foreign regional operations centers in Ireland, Singapore, and Puerto Rico.“ “In fiscal year 2017, our U.S. income before income taxes was $6.8 ... Continue to full case
Russia vs PJSC Uralkali, November 2019, Supreme Court Review Panel, Case No. А40-29025/2017

Russia vs PJSC Uralkali, November 2019, Supreme Court Review Panel, Case No. А40-29025/2017

PJSC Uralkali, produced and sold fertilizers (“potassium chloride”) through a related Swiss trader. Uralkali had informed the authorities about the controlled transaction and submitted the required TP documentation. To substantiate the pricing of the transaction they had applied the transactional net margin method (TNMM) with the Swiss trader as the tested party. The Russian tax authorities disapproved of the choice of method and the way the method had been applied. They conducted an analysis, using the CUP method, and determined the the prices used in the controlled transaction deviated from price quotations of an independent pricing agency (Argus). Hence a tax assessment was issued. PJSC Uralkali disapproved of the assessment and brought the case to court. The court of first instance supported Uralkali’s position, and argued that the tax authority should have applied the same TP method as the Taxpayer. Failure of the tax authority ... Continue to full case
France vs Google, September 2019, Court approval of CJIP Agreement - Google agrees to pay EUR 1 billion in fines and taxes to end Supreme Court Case

France vs Google, September 2019, Court approval of CJIP Agreement – Google agrees to pay EUR 1 billion in fines and taxes to end Supreme Court Case

The district court of Paris has approved a  “convention judiciaire d’intérêt public” negotiated between the French state and Google for an amount of € 500 million plus another agreement with the French tax authorities which amounts to 465 million euros. The agreement puts an end to the French lawsuits against Google for aggressive tax evasion, and litigation with the tax administration relating to adjustments for the periods going from 2005 to 2018. The CJIP “convention judiciaire d’intérêt public“, was established by Article 22 of Law No. 2016-1691 of 9 December 2016 in France on transparency and fight against corruption. By Law No. 2018-898 of October 23, 2018 the law was extended to cover cases for tax evasion. According to the CJIP legal actions can be ended in return for the payment of a fine. The dispute concerned the existence of a permanent establishment of Google ... Continue to full case
Australia vs Glencore, September 2019, Federal Court of Australia, Case No FCA 1432

Australia vs Glencore, September 2019, Federal Court of Australia, Case No FCA 1432

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) referrable 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
Russia vs PJSC Uralkali, April 2019, Court of Appeal, Case No. А40-29025/2017

Russia vs PJSC Uralkali, April 2019, Court of Appeal, Case No. А40-29025/2017

PJSC Uralkali, produced and sold fertilizers (“potassium chloride”) through a related Swiss trader. Uralkali had informed the authorities about the controlled transaction and submitted the required TP documentation. To substantiate the pricing of the transaction they had applied the transactional net margin method (TNMM) with the Swiss trader as the tested party. The Russian tax authorities disapproved of the choice of method and the way the method had been applied. They conducted an analysis, using the CUP method, and determined the the prices used in the controlled transaction deviated from price quotations of an independent pricing agency (Argus). Hence a tax assessment was issued. PJSC Uralkali disapproved of the assessment and brought the case to court. The court of first instance supported Uralkali’s position, and argued that the tax authority should have applied the same TP method as the Taxpayer. Failure of the tax authority ... Continue to full case
Russia vs RIF Trading House, April 2019, Moscow City Court, Case No. No. A40-241020/18

Russia vs RIF Trading House, April 2019, Moscow City Court, Case No. No. A40-241020/18

In 2014, RIF Trading House sourced and bought agricultural products in Russia – wheat, barley, corn and peas. These products were then exported to a trader in the UAE, which turned out to be related to RIF Trading House. However, RIF Trading House had not provide information on the relationship, nor the required transfer pricing documentation on the controlled transactions. Following an audit, the Russian Federal Tax Service came to the conclusion that the export prices had been lowered in the supply of products to the trader in UAE. The Russian Federal Tax Service independently conducted a transfer pricing analysis – functional analysis, analyzed the market, commodity exchange prices (Platts, ICAR) etc., and then issued a tax assessment where combinations of pricing methods and adjustments had been applied to determine the pricing of the controlled transactions and thus the income of RIF Trading House. Disagreeing ... Continue to full case
Denmark vs Microsoft Denmark, January 2019, Danish Supreme Court

Denmark vs Microsoft Denmark, January 2019, Danish Supreme Court

The Danish tax authorities were of the opinion that Microsoft Denmark had not been properly remunerated for performing marketing activities due to the fact that OEM sales to Danish customers via MNE OEM’s had not been included in the calculation of local commissions. According to the Market Development Agreement (MDA agreement) concluded between Microsoft Denmark and MIOL with effect from 1 July 2003, Microsoft Denmark received the largest amount of either a commission based on sales invoiced in Denmark or a markup on it’s costs. Microsoft Denmark’s commission did not take into account the sale of Microsoft products that occurred through the sale of computers by multinational computer manufacturers with pre-installed Microsoft software to end users in Denmark – (OEM sales). In court, Microsoft required a dismissal. In a narrow 3:2 decision the Danish Supreme Court found in favor of Microsoft. “…Microsoft Denmark’s marketing may ... Continue to full case
Australia vs BHP Billiton, January 2019, Federal Court of Australia, Case No [2019] FCAFC 4

Australia vs BHP Billiton, January 2019, Federal Court of Australia, Case No [2019] FCAFC 4

Mining group BHP Billiton had not in it’s Australian CfC income included income from associated British group companies from sales of Australian goods through Singapore. The tax authorities held that the British companies in BHP’s dual-listed company structure fell within a definition of “associate”, and part of the income should therfore be taxed in Australia under local CfC legislation. In December 2017 BHP won the case in an administrative court but this decision was appealed to the Federal Court by the authorities. The Federal Court found in favor of the tax authority. The court found that both BHP’s Australian and British arms are associates, and therefore subject to tax in Australia under Australien CfC rules. BHP has now asked the High Court for leave to appeal. Australia v BHP jan 2019 FC AFC 4 ... Continue to full case
Russia vs ViciunaiRus LLC, December 2018, Court of Appeal, Case No. A21-133/2018

Russia vs ViciunaiRus LLC, December 2018, Court of Appeal, 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
Norway vs Stanley Black & Decker Norway AS , December 2018, Borgarting Lagmannsrett, Case No 2016-105694

Norway vs Stanley Black & Decker Norway AS , December 2018, Borgarting Lagmannsrett, Case No 2016-105694

At issue was the transfer pricing method applied on transactions between Black & Deckers Norwegian distribution company and the group trading hub in Luxembourg, Black & Decker Ltd SARL. The Norwegian tax authorities in 2013 issued a tax assessment of Black and Decker Norway AS where the taxable income for years 2005 – 2008 was increased with a total amount of NOK 50 million. The assessment was appealed to the Tax Appeals Committee where the amount was reduced to a total of NOK 26 million in line with recommendations of the tax authorities during the proceedings. The decision of the Tax Appeals Committee was upheld by the District Court and later the Court of Appeal where the appeal of Black & Decker was rejected. Click here for translation Norway vs Black & Decker december 2018 case no LB-2016-105694 ... Continue to full case
Russia vs LLC "Bulatovskiy Basalt", November 2018, Court of Appeal, Case No. A05-5548/2018

Russia vs LLC “Bulatovskiy Basalt”, November 2018, Court of Appeal, Case No. A05-5548/2018

Bulatovskiy Basalt LLC extracted and sold basalt rubble. The rubble was sold to three related intermediaries, whom in turn, resold the rubble to the final buyers. The resale price was on average double the transfer price. The tax authorities considered that the sole purpose of incorporating intermediaries into the sales structure was to obtain an unreasonable tax benefit in the form of underestimation of the profits from the sale of rubble and the tax base. According to the tax authorities, Bulatovskiy Basalt LLC could instead have enter into contracts with the final buyers directly. The tax authorities issued an assessment of income based on the resale of the rubble to the final Consumers. Bulatovskiy Basalt LLC brought the case to Court. The courts of the first and second instance ruled in favor of Bulatovskiy Basalt LLC. The courts took into account the existence of reasonable ... Continue to full case
Marketing and Procurement Hubs - Tax Avoidance

Marketing and Procurement Hubs – Tax Avoidance

The Australian Taxation Office has issued new guidance for multinational groups using offshore marketing- and procurment hubs for tax avoidance purposes. The guidance adresses tax schemes where MNEs uses offshore hubs to shift profits and thereby avoid Australian taxes. Offshore hub arrangements are catagorised by the ATO as white, green, blue, yellow, amber, or red – based on the risk assesment for tax purposes of the transfer pricing setup. The new guidance is a result of recent Australian investigations and hearings into tax avoidance schemes used by Multinational Groups. Tax avoidance in Australia Australian Senate Hearings into Tax Avoidance The overall framework for Australian risk assessment for tax purposes of MNE’s offshore marketing- and procurement hubs is shown below: ... Continue to full case
Canada vs Cameco Corp., October 2018, Tax Court of Canada, Case No 2018 TCC 195

Canada vs Cameco Corp., October 2018, Tax Court of Canada, Case No 2018 TCC 195

Canadian mining company, Cameco Corp., sells uranium to a wholly owned trading hub, Cameco Europe Ltd., registred in low tax jurisdiction, Switzerland, which then re-sells the uranium to independent buyers. The parties had entered into a series of controlled transactions related to this activity and as a result the Swiss trading hub, Cameco Europe Ltd., was highly profitable. Following an audit, the Canadian tax authorities issued a transfer pricing tax assessment covering years 2003, 2005, 2006, and later tax assessments for subsequent tax years, adding up to a total of approximately US 1.5 bn in taxes, interest and penalties. The tax authorities first position was that the controlled purchase and sale agreements should be disregarded as a sham as all important functions and decisions were in fact made by Cameco Corp. in Canada. As a second and third position the tax authorities held that the Canadian transfer ... Continue to full case
Apple - Taxes and Transfer Pricing

Apple – Taxes and Transfer Pricing

Apple’s tax affairs have been in the spotlight of tax authorities for decades – and still are! Settlements have been entered with numerous European Countries, among others – Italy, the UK and France. Apple has also been investigated by the EU and a State Aid ruling was issued in August 2016. According to the ruling “Ireland granted illegal tax benefits to Apple” and the European Commission ordered Apple to pay €13 billion, plus interest, in unpaid Irish taxes from 2004–14 to the Irish state. U.S. Senate scrutiny of Apple Inc.’s tax strategies back in 2009 turned the spotlight on a stateless entity with $30 billion in profit since 2009 that’s incorporated in Ireland, controlled by a board in California, and didn’t pay taxes in either place ... Continue to full case
Denmark vs Microsoft Denmark, March 2018, Danish National Court, SKM2018.416.ØLR

Denmark vs Microsoft Denmark, March 2018, Danish National Court, SKM2018.416.ØLR

The Danish Tax Ministry and Microsoft meet in Court in a case where the Danish tax authorities had issued an assessment of DKK 308 million. The Danish tax authorities were of the opinion that Microsoft had not been properly remunerated for performing marketing activities due to the fact that OEM sales to Danish customers via MNE OEM’s had not been included in the calculation of local commissions. In court, Microsoft required a dismissal with reference to the fact that Sweden, Norway and Finland had either lost or resigned similar tax cases against Micorosoft. The National Court ruled in favor of Microsoft. The decision has now been appealed to the Supreme Court by the Danish tax ministery. Click here for translation DK vs MS Marketing-and Sales Commissioner ... Continue to full case
France vs Valueclick Ltd. March 2018, CAA, Case no 17PA01538

France vs Valueclick Ltd. March 2018, CAA, Case no 17PA01538

The issue in the case before the Administrative Court of Appeal of Paris 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. However, ... Continue to full case
Africa - Mining and Transfer Pricing

Africa – Mining and Transfer Pricing

Most Sub Saharan African jurisdictions see the area of mineral transfers/sales as the main transfer pricing risk, but only few have systems in place to check if prices applied to minerals transferred to related parties comply with the arm’s length principle. Studies highlights a strong need for capacity strengthening in the area of transfer pricing throughout the African continent and for enhancing the knowledge of mining industry within tax authorities. South Africa has, for many years, been the leader in transfer pricing audits among the African countries. But emerging countries such as Nigeria, Ghana, Kenya, Tanzania, Mozambique, are now making a concerted effort to develop transfer pricing capability. In Tanzania, for example, the Acasia Mining Plc. was recently  issued a USD 190 billion tax bill. The assessment demonstrates a strong political will in Africa to address transfer pricing non-compliance. A paper commissioned by the World Bank highlights transfer pricing issues within the ... Continue to full case