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 takes 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, an IP owner in a low or no tax jurisdiction and local sales companies setup as (or converted into) “commissionaires”.

Spain vs. Refrescos Envasados S.A., November 2009, Supreme Court, Case nr. 3582/2003

Spain vs. Refrescos Envasados S.A., November 2009, Supreme Court, Case nr. 3582/2003

Refrescos Envasados, S.A. – a Coca-Cola subsidiary in Spain – bought soft drink concentrate manufactured by Coca-Cola companies in Ireland and France. According to the tax authorities the prices paid for the concentrate were above market prices. Hence, an assessment was issued where the prices for the concentrate had been lowered resulting in additional taxable profits. In regards to the tax assessment, the tax authorities argued that they were not bound by the valuation carried out for customs purposes. Judgement of the Supreme Court According to the Supreme Court the pricing applied for the purpose of calculating the customs, is linked to the pricing applied for transfer prices purposes. The tax authorities can choose a transfer pricing method, but the method chosen must be used for both CIT and customs purposes. Click here for english translation Click here for other translation Spain Supreme Court 3582-2003 ... Continue to full case
Netherlands vs "Holding B.V.", March 2007, District Court, Case No AWB 06/288, V-N 2007/35.6

Netherlands vs “Holding B.V.”, March 2007, District Court, Case No AWB 06/288, V-N 2007/35.6

“Holding B.V.” is a holding company. The actual activity of the [X] group in the Netherlands – a wholesale trade in garden-related (gift) items – takes place in [X] B.V. The latter is included in a fiscal consolidation for corporate tax purposes with “Holding B.V.”. Customers of [X] B.V. are located in both the Netherlands and abroad (particularly in Western Europe, the United States and Canada). The products are purchased in China in particular and supplied direct by the producer to [X] B.V. or to its other customers. The procurement company – X Limited has an office and a showroom in Hong Kong, and employs a staff of five. The core activities of X Limited consist of quality control, logistics, product development, purchasing and sales. As remuneration for its activities, [X] B.V. pays a mark-up of 10% on the purchase price paid by X Limited ... Continue to full case
Netherlands vs "Metal Packaging Procurement B.V.", April 2004, Hoge Raad, Case No 39542, ECLI:NL:HR:2004:AO9474

Netherlands vs “Metal Packaging Procurement B.V.”, April 2004, Hoge Raad, Case No 39542, ECLI:NL:HR:2004:AO9474

This case concerns allocation of profits resulting from centralizing procurement functions within a group. The tax authorities took the position that the profit claimed by a centralized purchasing office was not aligned with the functions performed and the risks assumed by the office. According to the tax authorities profits derived from the realized discounts should be distributed to the members of the group (including a Dutch member) in proportion to their contribution of purchasing volume. Judgement of the Court The Supreme Court ruled in favor of the tax authorities. Profits in excess of the costs of the centralized purchase office with a markup of 5%, should at arm’s length be distributed to the members of the group in proportion to their contribution of purchasing volume. Excerpts “5.14. Notwithstanding the fact that [A-2 NV]’s profit was not so much caused by its own efforts but by ... Continue to full case
Australia vs San Remo Macaroni Co , August 1980, FEDERAL COURT OF AUSTRALIA, Case No. [1999] FCA 1468

Australia vs San Remo Macaroni Co , August 1980, FEDERAL COURT OF AUSTRALIA, Case No. [1999] FCA 1468

This case is about an Australian distributor of pasta – San Remo Macaroni Co – which imported pasta products from an independent manufacturer in Italy. In 1985 a Swiss company – Bigalle – was established by the Australian distributor which going forward purchased the pasta from the independent manufacturer in Italy and resold it to the Australian distributor at a mark-up which varied from 40% to 50%. Following an audit, an assessment was issued by the tax authorities, where the prices paid by the Australian distributor to the Swiss company was adjusted based on the price paid to the Italian manufacturer. Judgement of the Federal Court The Court upheld the assessment issued by the tax authorities. “ (…) 61 Be that as it may, the real substance of the argument was that Mr Read improperly formed the view that the arrangement with Bigalle was merely ... Continue to full case
France vs Vansthal International, March 1993, CAA, No 92NC00227

France vs Vansthal International, March 1993, CAA, No 92NC00227

In the case of Vansthal France the tax authorities had disallowed a transfer pricing policy under which a 20%-40% mark-up was added to payments to a Swiss entity because in its capacity as a billing centre the Swiss entity assumed no risk. Judgement of the Court The Court ruled in favour of the tax authorities. Excerpt “Considering, on the other hand, that it results from the investigation that the MAD company re-invoiced the goods to the VANSTHAL FRANCE company after having increased the prices by 39% for the kitchen articles and 20% for the porcelain articles and collected the corresponding payments; that, since MAD did not perform any services for the applicant company, the department considered that the latter had performed an abnormal act of management by agreeing to pay for its purchases at an unreasonably high price with full knowledge of the facts and ... Continue to full case
France vs Reynolds Tobacco, Nov 1990, Administrative Court of Appeal, Case N° 89PA01172

France vs Reynolds Tobacco, Nov 1990, Administrative Court of Appeal, Case N° 89PA01172

In Reynolds Tobacco, the 2%-3% commission received was considered arm’s-length, even though competitors received 8% for providing similar services. The services provided by the French company were sufficiently different, and this justified the lower commission rate charged. Excerpt from the Judgement “...by virtue of a contract concluded between the two companies on 14 December 1976, Reynolds Tobacco France covers, on behalf of its parent company, the administrative costs entailed by its representation in France in return for a commission of 2 to 3% of the amount of sales; that by maintaining that companies with a similar or comparable activity are remunerated by a commission of the order of 8% without establishing that this rate remunerates services of the same nature, the administration does not provide proof of the transfer of profits that it alleges; that neither the fact that Reynolds Tobacco France considered renegotiating the ... Continue to full case
Canada vs Indalex Limited, December 1987, Federal Court of Appeals, Case No 83 NR 185 (FCA)

Canada vs Indalex Limited, December 1987, Federal Court of Appeals, Case No 83 NR 185 (FCA)

Indalex Limited, a Canadian company, purchased its aluminum needs from an associated Bermuda company, Pillar International. Both were subsidiaries of a British parent, which had agreed with Alcan for the supply of aluminum to its subsidiaries by Alcan. Purchases were made from Alcan by Pillar International for Indalex. When Indalex paid Pillar International, Pillar International paid the same price to Alcan, which immediately paid a discount to Pillar International. Pillar International then paid Indalex part of the discount and kept the balance. The tax authorities treated the discount as income to Indalex for income tax purposes and claimed that Indalex should have paid withholding tax on the balance retained by Pillar International in Bermuda. The Federal Court of Canada upheld the decision of the tax authorities. Indalex appealed. Judgement of the Federal Court of Appeal The Federal Court of Appeal dismissed the appeal and affirmed ... Continue to full case
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