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.

Netherlands vs X B.V., December 2020, Supreme Court (Preliminary ruling by the Advocate General), Case No 20/02096 ECLI:NL:PHR:2020:1198

Netherlands vs X B.V., December 2020, Supreme Court (Preliminary ruling by the Advocate General), Case No 20/02096 ECLI:NL:PHR:2020:1198

This case concerns a private equity takeover structure with apparently an intended international mismatch, i.e. a deduction/no inclusion of the remuneration on the provision of funds. The case was (primarily) decided by the Court of Appeal on the basis of your non-business loan case law. The facts are as follows: A private equity fund [A] raised LP equity capital from (institutional) investors in its subfund [B] and then channelled it into two (sub)funds configured in the Cayman Islands, Fund [C] and [D] Fund. Participating in those two Funds were LPs in which the limited partners were the external equity investors and the general partners were Jersey-based [A] entities and/or executives. The equity raised in [A] was used for leveraged, debt-financed acquisitions of European targets to be sold at a capital gain after five to seven years, after optimising their EBITDA. One of these European targets ... Continue to full case
India vs. M/s Redington (India) Limited, December 2020, High Court of Madras, Case No. T.C.A.Nos.590 & 591 of 2019

India vs. M/s Redington (India) Limited, December 2020, High Court of Madras, Case No. T.C.A.Nos.590 & 591 of 2019

Redington India Limited (RIL) established a wholly-owned subsidiary Redington Gulf (RG) in the Jebel Ali Free Zone of the UAE in 2004. The subsidiary was responsible for the Redington group’s business in the Middle East and Africa. Four years later in July 2008, RIL set up a wholly-owned subsidiary company in Mauritius, RM. In turn, this company set up its wholly-owned subsidiary in the Cayman Islands (RC) – a step-down subsidiary of RIL. On 13 November 2008, RIL transferred its entire shareholding in RG to RC without consideration, and within a week after the transfer, a 27% shareholding in RC was sold by RG to a private equity fund Investcorp, headquartered in Cayman Islands for a price of Rs.325.78 Crores. RIL claimed that the transfer of its shares in RG to RC was a gift and therefore, exempt from capital gains taxation in India. It ... Continue to full case
AXA S.A. issued an income assessment of EUR 130 million by the French tax authorities

AXA S.A. issued an income assessment of EUR 130 million by the French tax authorities

Insurance group AXA S.A. is now paying back millions of euros in taxes after French tax authorities found that a Luxembourg-based structure had been used by the group for tax avoidance. According to the French tax authorities AXE S.A. had undeclared taxable profits of at least 130 million in FY 2005 and 2010.    The scheme involved use of a group entity in Luxembourg granting loans to AXA’s foreign subsidiaries. The entity in Luxembourg benefited from a tax ruling issued by Luxembourg’s authorities that allowed it to be tax-exempt. According to AXA the tax laws of France and Luxembourg were fully respected and the group is confident regarding the outcome of this process and will keep collaborating with fiscal authorities to assert its rights ... Continue to full case
UK vs Blackrock, November 2020, First-tier Tribunal, Case No TC07920

UK vs Blackrock, November 2020, First-tier Tribunal, Case No TC07920

In 2009 the BlackRock Group acquired Barclays Global Investors for a total sum of $13,5bn . The price was paid in part by shares ($6.9bn) and in part by cash ($6.6bn). The cash payment was paid by BlackRock Holdco 5 LLC – a US Delaware Company tax resident in the UK – but funded by the parent company by issuing $4bn loan notes to the LLC. In the years following the acquisition Blackrock Holdco 5 LLC claimed tax deductions in the UK for interest payments on the intra-group loans. Following an audit in the UK the tax authorities disallowed the interest deductions. The tax authorities held that the transaction would not have happened between independent parties. They also found that the loans were entered into for an unallowable tax avoidance purpose. A UK taxpayer can be denied a deduction for interest where a loan has ... Continue to full case
UK vs Total E&P North Sea UK Ltd, October 2020, Court of Appeal, Case No A3/2019/1656

UK vs Total E&P North Sea UK Ltd, October 2020, Court of Appeal, Case No A3/2019/1656

Companies carrying on “oil-related activities” are subject to both corporation tax and a “supplementary charge”. “Oil-related activities” are treated as a separate trade and the income from them represents “ring fence profits” on which corporation tax is charged. The “supplementary charge” is levied on “adjusted” ring fence profits, in calculating which financing costs are left out of account. Between 2006 and 2011, the supplementary charge amounted to 20% of adjusted ring fence profits. On 23 March 2011, however, it was announced that the supplementary charge would be increased to 32% from midnight. The change in rate was subsequently carried into effect by section 7 of the Finance Act 2011, which received the royal assent on 19 July 2011. Total E&P, previously Maersk Oil North Sea UK Limited and Maersk Oil UK Limited, carried on “oil-related activities” and so were subject to the supplementary charge. The ... Continue to full case
Allegations of tax avoidance in Dutch Pharma Group Qiagen

Allegations of tax avoidance in Dutch Pharma Group Qiagen

According to investigations by SOMO – an independent center for Research on Multinational Corporations – the annual accounts of Pharma Group Qiagen shows that the group has avoided tax on profits by passing internal loans through an elaborate network of letterbox companies in European tax havens including Ireland, Luxembourg and Malta. It is estimated that, since 2010, the group has avoided at least  €93 million in taxes and has accumulated tax deduction in an amount of €49 million ... Continue to full case
European Commission vs. Ireland and Apple, September 2020, Appeal of the Judgement of the General Court on the Apple tax State aid case in Ireland

European Commission vs. Ireland and Apple, September 2020, Appeal of the Judgement of the General Court on the Apple tax State aid case in Ireland

The European Commission has decided to appeal the decision of the EU General Court in the State Aid case of Apple and Ireland. According to the European Commission Ireland gave illegal tax benefits to Apple worth up to €13 billion, because it allowed Apple to pay substantially less tax than other businesses. In a decision issued july 2020 the General Court held in favor of Apple and Ireland. This decision will now be reviewed by the European Court of Justice. “Statement by Executive Vice-President Margrethe Vestager on the Commission’s decision to appeal the General Court’s judgment on the Apple tax State aid case in Ireland Brussels, 25 September 2020 “The Commission has decided to appeal before the European Court of Justice the General Court’s judgment of July 2020 on the Apple State aid case in Ireland, which annulled the Commission’s decision of August 2016 finding ... Continue to full case
New Zealand vs Frucor Suntory, September 2020, Court of appeal, Case No [2020] NZCA 383

New Zealand vs Frucor Suntory, September 2020, Court of appeal, Case No [2020] NZCA 383

Frucor Suntory (FHNZ) had deducted purported interest expenses that had arisen in the context of a tax scheme 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 Convertible Note had a face value of $204,421,565 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 as interest and deducted for income tax purposes. The tax authorities issued an assessment where deductions of interest expenses in the amount of $10,827,606 and $11,665,323 were disallowed in FY 2006 and 2007 under New Zealand´s general anti-avoidance rule in s BG 1 of the Income Tax Act 2004. In addition, penalties ... Continue to full case
UK vs General Electric, July 2020, High Court, Case No RL-2018-000005

UK vs General Electric, July 2020, High Court, Case No RL-2018-000005

General Electric (GE) have been routing financial transactions (AUS $ 5 billion) related to GE companies in Australia via the UK in order to gain a tax advantage – by “triple dipping” in regards to interest deductions, thus saving billions of dollars in tax in Australia, the UK and the US. Before entering into these transactions, GE obtained clearance from HMRC that UK tax rules were met, in particular new “Anti-Arbitrage Rules” introduced in the UK in 2005, specifically designed to prevent tax avoidance through the exploitation of the tax treatment of ‘hybrid’ entities in different jurisdictions. The clearance was granted by the tax authorities in 2005 based on the understanding that the funds would be used to invest in businesses operating in Australia. In total, GE’s clearance application concerned 107 cross-border loans amounting to debt financing of approximately £21.2 billion. The Australian Transaction was ... Continue to full case
Netherlands vs X B.V., July 2020, Supreme Court (Preliminary ruling by the Advocate General), Case No ECLI:NL:PHR:2020:672

Netherlands vs X B.V., July 2020, Supreme Court (Preliminary ruling by the Advocate General), Case No ECLI:NL:PHR:2020:672

X bv is part of the worldwide X group, a financial service provider listed on the US stock exchange. At issue is deductibility of interest payments by X bv on a € 482 million loan granted by the parent company, US Inc. In 2010 the original loan between X bv and US Inc. was converted into two loans of € 191 million and € 291 million granted by a Luxembourg finance company in the X group, to two jointly taxed subsidiaries of X bv. According to the Dutch Tax Authorities, the interest payments on these loans falls under the provisions in Dutch art. 10a of the VPB Act 1969 whereby interest deductions are restricted. The Court of appeal disagreed and ruled in favor of X bv. This decision was appealed to the Supreme Court by the tax authorities. In a preliminary ruling, the Advocate General ... Continue to full case
UK vs Bluecrest Capital Management, July 2020, First-Tier Tribunal - Tax Chamber, Case No TC07782

UK vs Bluecrest Capital Management, July 2020, First-Tier Tribunal – Tax Chamber, Case No TC07782

In the case of BlueCrest Capital Management Cayman Limited (& others), the key issues involved partnership profit/loss allocations for mixed member partnerships and the associated anti-avoidance legislation – limitation on tax relief for interest on unallowable purpose loans and the sale of occupational income provisions. Judgement The Tribunal found that the sale of occupational income rules could apply to charge Income tax on partnership capital contributions. Although the arrangements  did have a commercial purpose (retention and incentivization of partners), they also had as a main object the avoidance or reduction of liability to pay income tax. The test for application of the occupational income rules was therefore met. UK-vs-Bluecrest-Capital-Management-TC07782-1 ... Continue to full case
European Commission vs. Ireland and Apple, July 2020, General Court of the European Union, Case No. T-778/16 and T-892/16

European Commission vs. Ireland and Apple, July 2020, General Court of the European Union, Case No. T-778/16 and T-892/16

In a decision of 30 August 2016 the European Commission concluded that Ireland’s tax benefits to Apple were illegal under EU State aid rules, because it allowed Apple to pay substantially less tax than other businesses. The decision of the Commission concerned two tax rulings issued by Ireland to Apple, which determined the taxable profit of two Irish Apple subsidiaries, Apple Sales International and Apple Operations Europe, between 1991 and 2015. As a result of the rulings, in 2011, for example, Apple’s Irish subsidiary recorded European profits of US$ 22 billion (c.a. €16 billion) but under the terms of the tax ruling only around €50 million were considered taxable in Ireland. Ireland appealed the Commission’s decision to the European Court of Justice. The Judgement of the European Court of Justice The General Court annuls the Commission’s decision that Ireland granted illegal State aid to Apple ... Continue to full case
Canada vs Cameco Corp., June 2020, Federal Court of Appeal, Case No 2020 FCA 112.

Canada vs Cameco Corp., June 2020, Federal Court of Appeal, Case No 2020 FCA 112.

Cameco, together with its subsidiaries, is a large uranium producer and supplier of the services that convert one form of uranium into another form. Cameco had uranium mines in Saskatchewan and uranium refining and processing (conversion) facilities in Ontario. Cameco also had subsidiaries in the United States that owned uranium mines in the United States. In 1993, the United States and Russian governments executed an agreement that provided the means by which Russia could sell uranium formerly used in its nuclear arsenal. The net result of this agreement was that a certain quantity of uranium would be offered for sale in the market. Cameco initially attempted to secure this source of uranium on its own but later took the lead in negotiating an agreement for the purchase of this uranium by a consortium of companies. When the final agreement was signed in 1999, Cameco designated ... Continue to full case
US vs Whirlpool, May 2020, US tax court, Case No. 13986-17

US vs Whirlpool, May 2020, US tax court, Case No. 13986-17

The US tax authorities had increased Whirlpool US’s taxable because income allocated to Whirlpool Luxembourg for selling appliances was considered taxable foreign base company sales income/CFC income to the parent company in the U.S. under “the manufacturing branch rule” under US tax code Section 951(a). The income from sales of appliances had been allocated to Whirlpool Luxembourg  through a manufacturing and distribution arrangement under which it was the nominal manufacturer of household appliances made in Mexico, that were then sold to Whirlpool US and to Whirlpool Mexico. According to the arrangement the income allocated to Luxembourg was not taxable in Mexico nor in Luxembourg. Whirlpool challenged IRS’s assessment and brought the case to the US Tax Court. The tax court ruled in favor of the IRS. “If Whirlpool Luxembourg had conducted its manufacturing operations in Mexico through a separate entity, its sales income would plainly have ... Continue to full case
Canada vs Loblaw Financial Holdings Inc., April 2020, Federal Court of Appeal, Case No 2020 FCA 79

Canada vs Loblaw Financial Holdings Inc., April 2020, Federal Court of Appeal, Case No 2020 FCA 79

In the case of Canadian grocery chain Loblaw, the Canadian Tax Court in 2018 found that using an offshore banking affiliate in a low tax jurisdiction – Barbados – to manage the groups investments did not constitute tax avoidance. However, the Tax Court’s interpretation of a technical provision in the Canadian legislation had the consequence that Loblaw would nonetheless have to pay $368 million in taxes and penalties. This decision has now been overturned by the Canadian Court of Appeal where a judgement in favor of Loblaw was delivered. Canada vs Loblaw April 2020 SC ... Continue to full case

Sweden vs Flir Commercial Systems AB, March 2020, Stockholm Administrative Court, Case No 28256-18

In 2012, Flir Commercial Systems AB sold intangible assets from a branch in Belgium and subsequently claimed a tax relief of more than SEK 2 billion in fictitious Belgian tax due to the sale. The Swedish Tax Agency decided not to allow relief for the Belgian “tax”, and issued a tax assessment where the relief of approximately SEK 2 billion was denied and a surcharge of approximately SEK 800 million was added. The Administrative Court concluded that the Swedish Tax Agency was correct in not allowing relief for the fictitious Belgian tax. A double taxation agreement applies between Sweden and Belgium. In the opinion of the Administrative Court, the agreement prevents Belgium from taxing the assets. Consequently, any fictitious tax cannot be deducted. The Administrative Court also considers that the Swedish Tax Agency was correct in imposing a tax surcharge and that there is no ... 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
Netherlands vs [X] B.V., legal successor to [Y] U.A., March 2020, Pending before the Supreme Court, Case No ECLI:NL:PHR:2020:102

Netherlands vs [X] B.V., legal successor to [Y] U.A., March 2020, Pending before the Supreme Court, Case No ECLI:NL:PHR:2020:102

To acquire companies and resell them with capital gains a French Investment Fund distributed the capital of its investors (€ 5.4 billion in equity) between a French Fund Commun de Placement à Risques (FCPRs) and British Ltds managed by the French Investment Fund. For the purpose of acquiring the [X] group (the target), the French Investment Fund set up three legal entities in the Netherlands, [Y] UA, [B] BV, and [C] BV (the acquisition holding company). These three joint taxed entities are shown as Fiscal unit [A] below. The capital to be used for the acquisition of [X] group was divided into four FCPRs that held 30%, 30%, 30% and 10% in [Y] respectively. To get the full amount needed for the acquisition, [Y] members provided from their equity to [Y]: (i) member capital (€ 74.69 million by the FCPRs, € 1.96 million by the ... Continue to full case
Taiwan vs Goodland, February 2020, Supreme Administrative Court, Case No 147 of 109

Taiwan vs Goodland, February 2020, Supreme Administrative Court, Case No 147 of 109

Goodland Taiwan had sold 7 machines to a local buyer via a related party in Hongkong thus avoiding taxes on sales profits. The transaction had been audited by the Taiwanese tax administration and an assessment issued. Goodland brought the case to court. The Supreme Administrative court dismissed the appeal and upheld the assessment. “The appeal alleges that the original judgment failed to conduct an investigation, but does not specify what the original judgment found to be wrong or what specific legal norm was violated. In fact, Article 2 of the Regulations Governing the Recognition of Income from Controlled Foreign Enterprises by Profit-making Enterprises, as cited in the appeal, states that Article 3 and Article 4, paragraph 2, of the Regulations Governing the Recognition of Income from Controlled Foreign Enterprises and the Unusual Transfer Pricing Check for Business Enterprises, as cited in the appeal, are all ... Continue to full case
Switzerland vs Swiss Investment AG, February 2020, Administrative Court Zurich, Case No SB.2018.00094 and SB.2018.00095

Switzerland vs Swiss Investment AG, February 2020, Administrative Court Zurich, Case No SB.2018.00094 and SB.2018.00095

Two Swiss investors had established a structure for the management of a private equity fund in the form of a Swiss “Investment Advisor” AG and a Jersey “Investment Mananger” Ltd. They each held 50% of the shares in the Swiss AG and 50% of the shares in the Jersey Ltd. Swiss AG and Jersey Ltd then entered an investment advisory agreement whereby the Swiss AG carried out all advisory activities on behalf of Jersey Ltd and Jersey Ltd assumed all the risk of the investments. Both investors were employed by Swiss AG and Jersey Ltd had no employees execpt two directors who each received a yearly payment of CFH 15,000. According to the investment advisory agreement Jersey Ltd would remunerate the Swiss AG with 66% of the gross fee income. The Swiss AG would carry out all relevant functions related to investment advisory and recommend ... Continue to full case