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.

McDonald’s has agreed to pay €1.25bn to settle a dispute with French authorities over excessive royalty payments to Luxembourg

McDonald’s has agreed to pay €1.25bn to settle a dispute with French authorities over excessive royalty payments to Luxembourg

On 16 June 2022 McDonald’s France entered into an settlement agreement according to which it will pay €1.245 billion in back taxes and fines to the French tax authorities. The settlement agreement resulted from investigations carried out by the French tax authorities in regards to abnormally high royalties transferred from McDonald’s France to McDonald’s Luxembourg following an intra group restructuring in 2009. McDonald’s France doubled its royalty payments from 5% to 10% of restaurant turnover, and instead of paying these royalties to McDonald’s HQ in the United States, going forward they paid them to a Swiss PE of a group company in Luxembourg, which was not taxable of the amounts. During the investigations it was discovered that McDonald’s royalty fees could vary substantially from one McDonald’s branch to the next without any justification other than tax savings for the group. This conclusion was further supported ... Continue to full case
Denmark vs Heavy Transport Holding Denmark ApS, March 2021, High Court, Cases B-721-13

Denmark vs Heavy Transport Holding Denmark ApS, March 2021, High Court, Cases B-721-13

Heavy Transport Holding Denmark ApS, a subsidiary in the Heerema group, paid dividends to a parent company in Luxembourg which in turn paid the dividends to two group companies in Panama. The tax authorities found that the company in Luxembourg was not the beneficial owner of the dividends and thus the dividends were not covered by the tax exemption rules of the EU Parent/Subsidiary Directive or the Double Taxation Convention between Denmark and Luxembourg. On that basis an assessment was issued regarding payment of withholding tax on the dividends. An appeal was filed by Heavy Transport Holding Denmark ApS with the High Court. Judgement of the Eastern High Court The court dismissed the appeal of Heavy Transport Holding Denmark ApS and decided in favor of the tax authorities. The parent company in Luxembourg was a so-called “flow-through” company which was not the beneficial owner of ... Continue to full case
Norway vs Fortis Petroleum Norway AS, March 2022, Court of Appeal, Case No LB-2021-26379

Norway vs Fortis Petroleum Norway AS, March 2022, Court of Appeal, Case No LB-2021-26379

In 2009-2011 Fortis Petroleum Norway AS (FPN) bought seismic data related to oil exploration in the North Sea from a related party, Petroleum GeoServices AS (PGS), for NKR 95.000.000. FBN paid the amount by way of a convertible intra-group loan from PGS in the same amount. FPN also purchased administrative services from another related party, Consema, and later paid a substantial termination fee when the service contract was terminated. The acquisition costs, interest on the loan, costs for services and termination fees had all been deducted in the taxable income of the company for the years in question. Central to this case is the exploration refund scheme on the Norwegian shelf. This essentially means that exploration companies can demand cash payment of the tax value of exploration costs, cf. the Petroleum Tax Act § 3 letter c) fifth paragraph. If the taxpayer does not have ... Continue to full case
France vs IKEA, February 2022, CAA of Versailles, No 19VE03571

France vs IKEA, February 2022, CAA of Versailles, No 19VE03571

Ikea France (SNC MIF) had concluded a franchise agreement with Inter Ikea Systems BV (IIS BV) in the Netherlands by virtue of which it benefited, in particular, as a franchisee, from the right to operate the ‘Ikea Retail System’ (the Ikea concept), the ‘Ikea Food System’ (food sales) and the ‘Ikea Proprietary Rights’ (the Ikea trade mark) in its shops. In return, Ikea France paid Inter Ikea Systems BV a franchise fee equal to 3% of the amount of net sales made in France, which amounted to EUR 68,276,633 and EUR 72,415,329 for FY 2010 and 2011. These royalties were subject to the withholding tax provided for in the provisions of Article 182 B of the French General Tax Code, but under the terms of Article 12 of the Convention between France and the Netherlands: “1. Royalties arising in one of the States and paid ... Continue to full case
Netherlands - Crop Tax Advisers, January 2022, Court of Appeal, Case No. 200.192.332/01, ECLI:NL:GHARL:2022:343

Netherlands – Crop Tax Advisers, January 2022, Court of Appeal, Case No. 200.192.332/01, ECLI:NL:GHARL:2022:343

The question at issue was whether a Crop 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. Judgement of the Court of Appeal “Crop is liable for the damages arising from the shortcoming. For the assessment of that damage, the case must be referred to the Statement of Damages, as the District Court has already decided. To answer the question of whether the likelihood of damage resulting from the shortcomings is plausible, a comparison must be made between the current situation and the situation in which business rates would have been applied. For the hypothetical situation, the rates to be recommended by the expert should be used. For the current situation, the Tax Authorities have agreed to adjusted pricing. The question whether and to what extent [the ... Continue to full case
Portugal vs "GAAR S.A.", January 2022, Supremo Tribunal Administrativo, Case No : JSTA000P28772

Portugal vs “GAAR S.A.”, January 2022, Supremo Tribunal Administrativo, Case No : JSTA000P28772

“GAAR S.A” is a holding company with a share capital of EUR 55,000.00. In 2010, “GAAR S.A” was in a situation of excess equity capital resulting from an accumulation of reserves (EUR 402,539.16 of legal reserves and EUR 16,527,875.72 of other reserves). The Board of Directors, made up of three shareholders – B………… (holder of 21,420 shares, corresponding to 42.84% of the share capital), C………… (holder of a further 21,420 shares, corresponding to 42.84% of the share capital) and D………… (holder of 7. 160 shares, corresponding to the remaining 14.32% of the share capital) – decided to “release this excess of capital” and, following this resolution, the shareholders decided: i) on 22.02.2010 to redeem 30,000 shares, with a share capital reduction, at a price of EUR 500.00 each, with a subsequent share capital increase of EUR 33. 000.00, by means of incorporation of legal reserves, ... Continue to full case
Australia vs Singapore Telecom Australia Investments Pty Ltd, December 2021, Federal Court of Australia, Case No FCA 1597

Australia vs Singapore Telecom Australia Investments Pty Ltd, December 2021, Federal Court of Australia, Case No FCA 1597

Singapore Telecom Australia Investments Pty Ltd entered into a loan note issuance agreement (the LNIA) with a company (the subscriber) that was resident in Singapore. Singapore Telecom Australia and the subscriber were ultimately 100% owned by the same company. The loan notes issued totalled approximately $5.2 billion to the subscriber. The terms of the LNIA was amendet on three occasions – the first amendment and the second amendment were expressed to have effect as from the date when the LNIA was originally entered into. The interest rate under the LNIA as amended by the third amendment was 13.2575% Following an audit the tax authorities issued an amended assessment under the transfer pricing provisions and denied interest deductions totalling approximately $894 million in respect of four years of income. According to the tax authorities the conditions agreed between the parties differed from the arm’s length principle ... Continue to full case
Finland vs D Oy, December 2021, Supreme Administrative Court, Case No. KHO:2021:179

Finland vs D Oy, December 2021, Supreme Administrative Court, Case No. KHO:2021:179

At issue was whether interest expenses incurred as a result of intra-group liabilities related to the acquisition of shares were tax deductible. In August 2010, the Swedish companies H AB and B AB had agreed, among other things, to sell E Oy’s shares to B AB and to allow B AB to transfer its rights and obligations to purchase the said shares directly or indirectly to its own subsidiary. B AB’s subsidiary had established D Oy in August 2010. In September 2010, before the completion of the acquisition, B AB had transferred its rights and obligations to purchase E Oy’s shares to D Oy. Ownership of E Oy’s shares had been transferred to D Oy at the end of September 2010. D Oy had financed the acquisition of E Oy’s shares mainly with a debt it had taken from B AB, from which D Oy ... Continue to full case
Finland vs G Oy, December 2021, Supreme Administrative Court, Case No. KHO:2021:178

Finland vs G Oy, December 2021, Supreme Administrative Court, Case No. KHO:2021:178

At issue was whether interest expenses incurred as a result of intra-group liabilities related to the acquisition of shares were tax deductible. In 2005, CA / S, indirectly owned by private equity investors A and B, had purchased a listed share in DA / S. DA / S’s subsidiary EA / S had established H AB in July 2008. On 25 August 2008, EA / S had transferred approximately 83.8 per cent of F Oy’s shares in kind to H AB and sold the remaining approximately 16.2 per cent at the remaining purchase price. On August 26, 2008, EA / S had subscribed for new shares in G Oy and paid the share subscription price in kind, transferring 56 percent of H AB’s shares. On August 27, 2008, G Oy had purchased the remaining 44 percent of H AB’s shares. EA / S had granted ... Continue to full case
France vs UBS AG and UBS SA, December 2021, CAA of Paris, Dossier No. 19/05566 Arrét No. 192/21

France vs UBS AG and UBS SA, December 2021, CAA of Paris, Dossier No. 19/05566 Arrét No. 192/21

Swiss banking group, UBS, had set up a system aimed at facilitating tax evasion and money laundering of wealthy French taxpayers. Judgement of the Court of Appeal By judgment of the Paris Court of Appeal dated 13 December 2021, the Swiss parent, UBS AG, was found guilty of banking and financial canvassing and of facilitating tax evasion and money laundering. The Court Sentenced UBS AG to a fine of €3,750,000.00 and confiscation of €1,000,000,000.00. Furthermore UBS AG was ordered to pay €800,000,000.00 for damages to the French State. UBS FRANCE SA, the French subsidiary, was found guilty of complicity in banking and financial canvassing and sentenced to a fine of €1,875,000.00. Click here for English translation France vs UBS Dec 2021 ... Continue to full case
US vs Whirlpool, December 2021, U.S. Court of Appeals, Case No. Nos. 20-1899/1900

US vs Whirlpool, December 2021, U.S. Court of Appeals, Case No. Nos. 20-1899/1900

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 FBCSI/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. In May 2020 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 ... Continue to full case
Canada vs Loblaw Financial Holdings Inc., December 2021, Supreme Court, Case No 2021 SCC 51

Canada vs Loblaw Financial Holdings Inc., December 2021, Supreme Court, Case No 2021 SCC 51

In 1992, Loblaw Financial Holdings Inc. (“Loblaw Financial”), a Canadian corporation, incorporated a subsidiary in Barbados. The Central Bank of Barbados issued a licence for the subsidiary to operate as an offshore bank named Glenhuron Bank Ltd. (“Glenhuron”). Between 1992 and 2000, important capital investments in Glenhuron were made by Loblaw Financial and affiliated companies (“Loblaw Group”). In 2013, Glenhuron was dissolved, and its assets were liquidated. For the 2001, 2002, 2003, 2004, 2005, 2008 and 2010 taxation years, Loblaw Financial did not include income earned by Glenhuron in its Canadian tax returns as foreign accrual property income (“FAPI”). Under the FAPI regime in the Income Tax Act (“ITA”), Canadian taxpayers must include income earned by their controlled foreign affiliates (“CFAs”) in their Canadian annual tax returns on an accrual basis if this income qualifies as FAPI. However, financial institutions that meet specific requirements benefit ... Continue to full case
Denmark vs Takeda A/S and NTC Parent S.a.r.l., November 2021, High Court, Cases B-2942-12 and B-171-13

Denmark vs Takeda A/S and NTC Parent S.a.r.l., November 2021, High Court, Cases B-2942-12 and B-171-13

The issue in these two cases is whether withholding tax was payable on interest paid to foreign group companies considered “beneficial owners” via conduit companies covered by the EU Interest/Royalties Directive and DTA’s exempting the payments from withholding taxes. The first case concerned interest accruals totalling approximately DKK 1,476 million made by a Danish company in the period 2007-2009 in favour of its parent company in Sweden in connection with an intra-group loan. The Danish Tax Authorities (SKAT) subsequently ruled that the recipients of the interest were subject to the tax liability in Section 2(1)(d) of the Corporation Tax Act and that the Danish company was therefore obliged to withhold and pay withholding tax on a total of approximately DKK 369 million. The Danish company brought the case before the courts, claiming principally that it was not obliged to withhold the amount collected by SKAT, ... Continue to full case
ATO and Singtel in Court over Intra-company Financing Arrangement

ATO and Singtel in Court over Intra-company Financing Arrangement

In 2001, Singtel, through its wholly owned Australian subsidiary, Singapore Telecom Australia Investments Pty Limited (Singtel Au), acquired the majority of the shares in Cable & Wireless Optus for $17.2 billion. The tax consequences of this acqusition was decided by the Federal Court in Cable & Wireless Australia & Pacific Holding BV (in liquiatie) v Commissioner of Taxation [2017] FCAFC 71. Cable & Wireless argued that part of the price paid under a share buy-back was not dividends and that withholding tax should therefor be refunded. The ATO and the Court disagreed. ATO and Singtel is now in a new dispute  – this time over tax consequences associated with the intra-group financing of the takeover. This case was heard in the Federal Court in August 2021. At issue is a tax assessments for FY 2011, 2012 and 2013 resulting in additional taxes in an amount ... Continue to full case
Spain vs SGL Carbon Holding, September 2021, Tribunal Supremo, Case No 1151/2021 ECLI:EN:TS:2021:3572

Spain vs SGL Carbon Holding, September 2021, Tribunal Supremo, Case No 1151/2021 ECLI:EN:TS:2021:3572

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 of appeal upheld the decision of the tax 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: The decision was appealed by SGL Carbon to the Supreme Court. Judgement of ... Continue to full case
Argentina vs Molinos Río de la Plata S.A., September 2021, Supreme Court, Case No CAF 1351/2014/1/RH1

Argentina vs Molinos Río de la Plata S.A., September 2021, Supreme Court, Case No CAF 1351/2014/1/RH1

In 2003 Molinos Argentina had incorporated Molinos Chile under the modality of an “investment platform company” regulated by Article 41 D of the Chilean Income Tax Law. Molinos Argentina owned 99.99% of the shares issued by Molinos Chile, and had integrated the share capital of the latter through the transfer of the majority shareholdings of three Uruguayan companies and one Peruvian company. Molinos Argentina declared the dividends originating from the shares of the three Uruguayan companies and the Peruvian company controlled by Molinos Chile as non-taxable income by application of article 11 of the DTA between Argentina and Chile. On that factual basis, the tax authorities applied the principle of economic reality established in article 2 of Law 11.683 (t.o. 1998 and its amendments) and considered that Molinos Argentina had abused the DTA by using the Chilean holding company as a “conduit company” to divert ... Continue to full case
Israel vs Sephira & Offek Ltd and Israel Daniel Amram, August 2021, Jerusalem District Court, Case No 2995-03-17

Israel vs Sephira & Offek Ltd and Israel Daniel Amram, August 2021, Jerusalem District Court, Case No 2995-03-17

While living in France, Israel Daniel Amram (IDA) devised an idea for the development of a unique and efficient computerized interface that would link insurance companies and physicians and facilitate financial accounting between medical service providers and patients. IDA registered the trademark “SEPHIRA” and formed a company in France under the name SAS SEPHIRA . IDA then moved to Israel and formed Sephira & Offek Ltd. Going forward the company in Israel would provid R&D services to SAS SEPHIRA in France. All of the taxable profits in Israel was labled as “R&D income” which is taxed at a lower rate in Israel. Later IDA’s rights in the trademark was sold to Sephira & Offek Ltd in return for €8.4m. Due to IDA’s status as a “new Immigrant” in Israel profits from the sale was tax exempt. Following the acquisition of the trademark, Sephira & Offek ... Continue to full case
Switzerland vs "A SA", July 2021, Federal Supreme Court, Case No 2C_80/2021

Switzerland vs “A SA”, July 2021, Federal Supreme Court, Case No 2C_80/2021

In this case, the Swiss tax authorities had refused to refund A SA withholding tax on an amount of the so-called distributable reserves. The refund was denied based on the Swiss “Old Reserves-doctrin”. “…the doctrine relates the existence of the practice of the Federal Tax Administration of 15 November 1990, known as the “purchase of a full wallet” (“Kauf eines vollen Portemonnaies” or the “old reserves” practice… According to this practice, “tax avoidance is deemed to have occurred when a holding company based in Switzerland buys all the shares of a company based in Switzerland with substantial reserves from persons domiciled (or having their seat) abroad at a price higher than their nominal value, …” The doctrin is applied by the tax authorities based on a schematic asset/liability test: if there are distributable reserves/retained earnings prior to the transfer of shares from a jurisdiction with ... Continue to full case

Luxembourg vs “Lux PPL SARL”, July 2021, Administrative Tribunal, Case No 43264

Lux PPL SARL received a profit participating loan (PPL) from a related company in Jersey to finance its participation in an Irish company.  The participation in the Irish company was set up in the form of debt (85%) and equity (15%). The profit participating loan (PPL) carried a fixed interest of 25bps and a variable interest corresponding to 99% of the profits derived from the participation in the Irish company, net of any expenses, losses and a profit margin. After entering the arrangement, Lux PPL SARL filed a request for an binding ruling with the Luxembourg tax administration to verify that the interest  charge under the PPL would not qualify as a hidden profit distribution subject to the 15% dividend withholding tax. The tax administration issued the requested binding ruling on the condition that the ruling would be terminate if the total amount of the ... Continue to full case
Malaysia vs Ensco Gerudi Malaysia SDN. BHD., July 2021, Juridical Review, High Court, Case No. WA-25-233-08-2020

Malaysia vs Ensco Gerudi Malaysia SDN. BHD., July 2021, Juridical Review, High Court, Case No. WA-25-233-08-2020

Ensco Gerudi provided offshore drilling services to the petroleum industry in Malaysia, including leasing drilling rigs, to oil and gas operators in Malaysia. In order to provide these services, the Ensco entered into a Master Charter Agreement dated 21.9.2006 (amended on 17.8.2011) (“Master Charter Agreement”) with Ensco Labuan Limited (“ELL”), a third-party contractor, to lease drilling rigs from ELL. Ensco then rents out the drilling rigs to its own customers. As part of the Master Charter Agreement, Ensco agreed to pay ELL a percentage of the applicable day rate that Ensco earns from its drilling contracts with its customers for the drilling rigs. By way of a letter dated 12.10.2018, the tax authorities initiated its audit for FY 2015 to 2017. The tax authorities issued its first audit findings letter on 23.10.2019 where it took the position that the pricing of the leasing transactions between ... Continue to full case