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”.

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, Supreme Administrative Court (CAA), Case No 425577

France vs Ferragamo France. November 2020, Supreme Administrative Court (CAA), Case No 425577

An assessment had been issued to Ferragamo France. 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 tax administration has not demonstrated the existence of an advantage granted by Ferragamo France to Salvatore Ferragamo SPA, nor the amount of this advantage. The Supreme Administrative Court (CAA) overturned the decision of the Administrative Court and upheld the decision of the tax authorities. “In ruling that the administration did not establish the existence of an advantage granted to the Italian company on the grounds ... 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
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
Czech Republic vs. Eli Lilly ČR, s.r.o., December 2019, District Court of Praque, No. 6 Afs 90/2016 - 62

Czech Republic vs. Eli Lilly ČR, s.r.o., December 2019, District Court of Praque, No. 6 Afs 90/2016 – 62

Eli Lilly ČR imports pharmaceutical products purchased from Eli Lilly Export S.A. (Swiss sales and marketing hub) into the Czech Republic and Slovakia and distributes them to local distributors. The arrangement between the local company and Eli Lilly Export S.A. is based on a Service Contract in which Eli Lilly ČR is named as the service provider to Eli Lilly Export S.A. (the principal). Eli Lilly ČR was selling the products at a lower price than the price it purchased them for from Eli Lilly Export S.A. According to the company this was due to local price controls of pharmaceuticals. Eli Lilly ČR was also paid for providing marketing services by the Swiss HQ, which ensured that Eli Lilly ČR was profitable, despite selling the products at a loss. Eli Lilly ČR reported the marketing services as a provision of services with the place of ... 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
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