Category: Tax Avoidance Schemes

Tax avoidance schemes generally refer to complex tax arrangements setup by multinational enterprices to shift profits from high-tax jurisdiction to low-tax jurisdictions.
A difficult destinction has to be made between legal tax planning, abusive tax avoidance schemes which may or may not be legal, and illegal tax evation/sham transactions and arrangements.
It is generally the case that abusive/agressive tax avoidance schemes and arrangements, “colourable devices”, “dubious methods” and “fully artificial arrangements” set up with the primary or sole purpose of avoiding taxes are not permissible – even if the transactions are otherwise individually within the letter of the law.
Illegal tax evasion – fraud or sham transactions and arrangements – are usually considered criminal and prosecuted as such.

European Commission vs. Luxembourg and Fiat Chrysler Finance Europe, September 2019, General Court of the European Union, Case No. T-755/15

European Commission vs. Luxembourg and Fiat Chrysler Finance Europe, September 2019, General Court of the European Union, Case No. T-755/15

On 3 September 2012, the Luxembourg tax authorities issued a tax ruling in favour of Fiat Chrysler Finance Europe (‘FFT’), an undertaking in the Fiat group that provided treasury and financing services to the group companies established in Europe. The tax ruling at issue endorsed a method for determining FFT’s remuneration for these services, which enabled FFT to determine its taxable profit on a yearly basis for corporate income tax in the Grand Duchy of Luxembourg. In 2015, the Commission concluded that the tax ruling constituted State aid under Article 107 TFEU and that it was operating aid that was incompatible with the internal market. It also noted that the Grand Duchy of Luxembourg had not notified it of the proposed tax ruling and had not complied with the standstill obligation. The Commission found that the Grand Duchy of Luxembourg was required to recover the ... Continue to full case
European Commission vs. The Netherlands and Starbucks, September 2019, General Court of the European Union, Case No. T-760/15

European Commission vs. The Netherlands and Starbucks, September 2019, General Court of the European Union, Case No. T-760/15

In 2008, the Netherlands tax authorities concluded an advance pricing arrangement (APA) with Starbucks Manufacturing EMEA BV (Starbucks BV), part of the Starbucks group, which, inter alia, roasts coffees. The objective of that arrangement was to determine Starbucks BV’s remuneration for its production and distribution activities within the group. Thereafter, Starbucks BV’s remuneration served to determine annually its taxable profit on the basis of Netherlands corporate income tax. In addition, the APA endorsed the amount of the royalty paid by Starbucks BV to Alki, another entity of the same group, for the use of Starbucks’ roasting IP. More specifically, the APA provided that the amount of the royalty to be paid to Alki corresponded to Starbucks BV’s residual profit. The amount was determined by deducting Starbucks BV’s remuneration, calculated in accordance with the APA, from Starbucks BV’s operating profit. In 2015, the Commission found that ... 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
France, Public Statement related to deduction of interest payments to a Belgian group company, BOI-RES-000041-20190904

France, Public Statement related to deduction of interest payments to a Belgian group company, BOI-RES-000041-20190904

In a public statement the French General Directorate of Public Finance clarified that tax treatment of interest deductions taken by a French company on interest payments to a related Belgian company that benefits from the Belgian notional interest rate scheme. According to French Law, interest paid to foreign group companies is only deductible if a minimum rate of tax applies to the relevant income abroad. Click here for translation BOI-RES-000041-20190904 ... Continue to full case
Netherlands vs Crop Tax Advisors, June 2019, Court of the Northern Netherlands, Case No 200.192.332/01

Netherlands vs Crop Tax Advisors, June 2019, Court of the Northern Netherlands, Case No 200.192.332/01

The question at issue was whether a tax adviser at Crop BV had acted in accordance with the requirements of a reasonably competent and reasonably acting adviser when advising on the so-called royalty routing and its implementation and when giving advice on trading. Click here for translation NL royalty routing1 ... Continue to full case
Netherlands vs Tax advisor, June 2019, Court of Northern Netherlands, Case No. 200.193.965/01

Netherlands vs Tax advisor, June 2019, Court of Northern Netherlands, Case No. 200.193.965/01

The question at issue was whether a tax adviser had acted in accordance with the requirements of a reasonably competent and reasonably acting adviser when advising on the so-called royalty routing and its implementation and when giving advice on trading. Click here for translation NL Royalty routing2 ... Continue to full case
Perrigo facing billion dollar tax assessments in both Ireland and the US

Perrigo facing billion dollar tax assessments in both Ireland and the US

In July 2013 the Irish pharma company Elan was acquired by the US based Perrigo group for $8.6 billion (£5.6 billion). Ireland’s corporation tax rate was one of the main attractions for Perrigo and the deal was said to give Perrigo substantial tax savings due to a corporate tax inversion. The Irish 12.5 % corporate tax rate compared US rate of 30 % was further augmented by the trading losses built up over a number of years by Elan in its business as a drug development group. That meant that even with a $3.25 billion transaction like Elan’s sale of the rights to the multiple sclerosis drug Tysabri the company would still not have to pay any tax. The low-tax scenario envisioned by Perrigo did not last for long. First Perrigo was issued a $1.9 billion tax bill (excluding interest and penalties) by the Irish tax ... Continue to full case
France vs. Google, April 2019, Administrative Court of Appeal, Case N° 17PA03065

France vs. Google, April 2019, Administrative Court of Appeal, Case N° 17PA03065

The French tax administration argued that Google had a permenent establishment in France because the parent company in the US and its subsidiary in Ireland had been selling a service – online ads – to customers in France. In 2017 the administrative court found that Google France did not have the capability to carry out the advertising activities on its own. Google Ireland Limited therefore did not have a permanent establishment in France. The same conclution was reached i 2019 by the Administrative court of appeal. Click here for translation France vs Google April 2019, No 17PA03065, ... Continue to full case
Spain vs SGL Carbon Holding, April 2019, Audiencia Nacional, Case No ES:AN:2019:1885

Spain vs SGL Carbon Holding, April 2019, Audiencia Nacional, Case No ES:AN:2019:1885

A Spanish subsidiary – SGL Carbon Holding SL – had significant financial expenses derived from an intra-group loan granted by the parent company for the acquisition of shares in companies of the same group. The taxpayer argued that the intra-group acquisition and debt helped to redistribute the funds of the Group and that Spanish subsidiary was less leveraged than the Group as a whole. The Spanish tax authorities found the transactions lacked any business rationale other than tax avoidance and therefor disallowed the interest deductions. The Court held in favor of the authorities. The court found that the transaction lacked any business rationale and was “fraud of law” only intended to avoid taxation. The Court also denied the company access to MAP on the grounds that Spanish legislation determines: Article 8 Reglamento MAP: Mutual agreement procedure may be denied, amongst other, in the following cases: ... Continue to full case
Austria vs. LU Ltd, 27. march 2019, VwGH, Case No Ro 2018713/0004

Austria vs. LU Ltd, 27. march 2019, VwGH, Case No Ro 2018713/0004

A Luxembourg-based limited company (LU) held a 30% stake in an Austrian stock company operating an airport. LU employed no personnel and did not develop any activities. The parent company of LUP was likewise resident in Luxembourg. LUP had business premises in Luxembourg and employed three people. All of the shares in LUP were held by a company in the British Cayman Islands in trust for a non- resident Cayman Islands-based fund. In 2015, the Austrian Company distributed a dividend to LU. LU was not yet involved in the Austrian corporation “for an uninterrupted period of at least one year” thus withholding tax was withheld and deducted. A request for refunding of the withholding tax was denied by the tax office because the dividend was distributed to recipients in a third country and the tax authorities regarded the structure as abusive. LU then appealed the ... Continue to full case

EU report on financial crimes, tax evasion and tax avoidance

In March 2018 a special EU committee on financial crimes, tax evasion and tax avoidance (TAX3) was established. Now, one year later, The EU Parliament has approved a controversial report from the committee. According to the report close to 40 % of MNEs’ profits are shifted to tax havens globally each year with some European Union countries appearing to be the prime losers of profit shifting, as 35 % of shifted profits come from EU countries. About 80 % of the profits shifted from EU Member States are channelled to or through a few other EU Member States. The latest estimates of tax evasion within the EU point to a figure of approximately EUR 825 billion per year. Tax avoidance via six EU Member States results in a loss of EUR 42,8 billion in tax revenue in the other 22 Member States, which means that ... Continue to full case
New Beneficial Ownership Toolkit will help tax administrations tackle tax evasion more effectively

New Beneficial Ownership Toolkit will help tax administrations tackle tax evasion more effectively

A beneficial ownership toolkit was released 20. May 2019 in the context of the OECD’s Global Integrity and Anti-Corruption Forum. The toolkit, prepared by the Secretariat of the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes in partnership with the Inter-American Development Bank, is intended to help governments implement the Global Forum’s standards on ensuring that law enforcement officials have access to reliable information on who the ultimate beneficial owners are behind a company or other legal entity so that criminals can no longer hide their illicit activities behind opaque legal structures. The toolkit was developed to support Global Forum members and in particular developing countries because the current beneficial ownership standard does not provide a specific method for implementing it. The toolkit covers a variety of important issues regarding beneficial ownership, including: the concepts of beneficial owners and ownership, the ... Continue to full case
New Zealand vs Cullen Group Limited, March 2019, New Zealand High Court, Case No [2019] NZHC 404

New Zealand vs Cullen Group Limited, March 2019, New Zealand High Court, Case No [2019] NZHC 404

In moving to the United Kingdom, a New Zealand citizen, Mr. Eric Watson, restructured a significant shareholding into debt owed by a New Zealand company, Cullen Group Ltd, to two Cayman Island conduit companies, all of which he still controlled to a high degree. This allowed Cullen Group Ltd to pay an Approved Issuer Levy (AIL) totalling $8 million, rather than Non-Resident Withholding Tax of $59.5 million. The steps in the arrangement were as follows: (a) Mr Watson sold his shares in Cullen Investments Ltd to Cullen Group, at a (rounded) value of $193 million, being $291 million less his previous $98 million shareholder advances. The sale was conditional on Cullen Investments Ltd selling its shares in Medical Holdings Ltd to Mr Watson and on Cullen Investments Ltd selling its shares in Vonelle Holdings Ltd to Maintenance Ltd which was owned by Mr Watson. (b) Cullen Group’s purchase of the Cullen Investments ... Continue to full case
Denmark vs T and Y Denmark, February 2019, European Court of Justice, Cases C-116/16 and C-117/16

Denmark vs T and Y Denmark, February 2019, European Court of Justice, Cases C-116/16 and C-117/16

The cases of T Danmark (C-116/16) and Y Denmark Aps (C-117/16) adresses questions related to interpretation of the EU-Parent-Subsidary-Directive The issue is withholding taxes levied by the Danish tax authorities in situations where dividend payments are made to conduit companies located in treaty countries but were the beneficial owners of these payments are located in non-treaty countries. During the proceedings in the Danish court system the European Court of Justice was asked a number of questions related to the conditions under which exemption from withholding tax can be denied on dividend payments to related parties. The European Court of Justice has now answered these questions in favor of the Danish Tax Ministry; Benefits granted under the Parent-Subsidiary Directive can be denied where fraudulent or abusive tax avoidance is involved. Quotations from cases C-116/16 and C-117/16: “The general principle of EU law that EU law cannot ... Continue to full case
Denmark vs N, X, C, and Z Denmark, February 2019, European Court of Justice, Cases C-115/16, C-118/16, C-119/16 and C-299/16

Denmark vs N, X, C, and Z Denmark, February 2019, European Court of Justice, Cases C-115/16, C-118/16, C-119/16 and C-299/16

The cases of N Luxembourg 1 (C-115/16), X Denmark A/S (C-118/16), C Danmark I (C-119/16) and Z Denmark ApS (C-299/16), adresses questions related to the interpretation of the EU Interest and Royalty Directive. The issue in these cases is withholding taxes levied by the Danish tax authorities in situations where interest payments are made to conduit companies located in treaty countries but were the beneficial owners of these payments are located in non-treaty countries. During the proceedings in the Danish court system the European Court of Justice was asked a number of questions related to the conditions under which exemption from withholding tax can be denied on interest payments to related parties. The European Court of Justice has now answered these questions in favor of the Danish Tax Ministry; Benefits granted under the Interest and Royalty Directive can be denied where fraudulent or abusive tax ... Continue to full case
Flir Systems Inc in SEK 2.8 billion transfer pricing dispute with Swedish Tax Authorities.

Flir Systems Inc in SEK 2.8 billion transfer pricing dispute with Swedish Tax Authorities.

Flir Systems Inc, a global leader in infrared Cameras, is involved in a SEK 2.8 billion transfer pricing dispute with the Swedish Tax Authorities. In a recent 10Q filings Flir Systems Inc. provides information on the dispute: “…the United States Internal Revenue Service (“IRS”) and other tax authorities regularly examine our income tax returns. Our financial condition and results of operations could be adversely impacted if any assessments resulting from the examination of our income tax returns by the IRS or other taxing authorities are not resolved in our favor. For example, during the quarter ending September 30, 2018, the Swedish Tax Authority (“STA”) issued a proposed tax assessment for the tax year ending December 31, 2012 to one of the Company’s non-operating subsidiaries in Sweden. The proposed assessment concerns the use of tax credits applied against capital gains pursuant to European Union Council Directive ... Continue to full case
Italy vs Dolce & Gabbana, December 2018, Supreme Court, Case no 33234/2018

Italy vs Dolce & Gabbana, December 2018, Supreme Court, Case no 33234/2018

In this case the Italian fashion group, Dolce & Gabbana, had moved ownership of valuable intangibles to a subsidiary established for that purpose in Luxembourg. The Italian Revenue Agency found the arrangement to be wholly artificial and set up only to avoid Italien taxes and to benefit from the privileged tax treatment in Luxembourg. The Revenue Agency argued that all decision related to the intangibles was in fact taken at the Italian headquarters of Dolce & Gabbana in Milan, and not in Luxembourg, where there were no administrative structure and only one employee with mere secretarial duties. Dolce & Gobbana disargeed with these findings and brought the case to court. In the first and second instance the courts ruled in favor of the Italian Revenue Agency, but the Italian Supreme Court ruled in favor of Dolce & Gabbana. According to the Supreme Court, the fact ... Continue to full case
South Africa vs Sasol Oil, November 2018, Supreme Court of Appeal, Case No 923/2017

South Africa vs Sasol Oil, November 2018, Supreme Court of Appeal, Case No 923/2017

The South African Supreme Court of Appeal, by a majority of the court, upheld an appeal against the decision of the Tax Court, in which it was held that contracts between companies in the Sasol Group of companies, for the supply of crude oil by a company in the Isle of Man to a group company in London, and the on sale of the same crude oil to Sasol Oil (Pty) Ltd in South Africa, were simulated transactions. As such, the Tax Court found that the transactions should be disregarded by the Commissioner for the South African Revenue Service, and that the Commissioner was entitled to issue additional assessments for the 2005, 2006 and 2007 tax years. On appeal, the Court considered all the circumstances leading to the conclusion of the impugned contracts, the terms of the contracts, the evidence of officials of Sasol Oil, ... Continue to full case
New Zealand vs Frucor Suntory, November 2018, High Court, Case No NZHC 2860

New Zealand vs Frucor Suntory, November 2018, High Court, Case No NZHC 2860

This case concerns application of the general anti-avoidance rule in s BG 1 of the Income Tax Act 2004. The tax authorities issued an assessment where deductions of $10,827,606 and $11,665,323 were disallowed in the 2006 and 2007 income tax years respectively. In addition, penalties of $1,786,555 and $1,924,779 for those years were imposed. The claimed deductions arose in the context of an arrangement entered into by Frucor Holdings Ltd (FHNZ) involving, among other steps, its issue of a Convertible Note to Deutsche Bank, New Zealand Branch (DBNZ) and a forward purchase of the shares DBNZ could call for under the Note by FHNZ’s Singapore based parent Danone Asia Pte Ltd (DAP). The Note had a face value of $204,421,5654 and carried interest at a rate of 6.5 per cent per annum. Over its five-year life, FHNZ paid DBNZ approximately $66 million which FHNZ characterised ... Continue to full case
Netherlands vs X B.V., November 2018, Supreme Court, Case No 17/03918

Netherlands vs X B.V., November 2018, Supreme Court, Case No 17/03918

Company X B.V. held all the shares in the Irish company A. The Tax Agency in the Netherlands claimed that the Irish company A qualified as a “low-taxed investment participation”. The court agreed, as company A was not subject to a taxation of 10 per cent or more in Ireland. The Tax Agency also claimed that X B.V.’s profit should include a hidden dividend due to company A’s providing an interest-free loan to another associated Irish company E. The court agreed. Irish company E had benefited from the interest-free loan and this benefit should be regarded as a dividend distribution. It was then claimed by company X B.V, that the tax treaty between the Netherlands and Ireland did not permit including hidden dividends in X’s profit. The Supreme Court disagreed and found that the hidden dividend falls within the scope of the term “dividends” in ... Continue to full case
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