Category: Tax Planning (Aggressive)

Aggressive tax planning consists in taxpayers’ reducing their tax liability through arrangements that may be within a strict literal interpretation of the wording of the law but at the same time are in contradiction with the intent of the law. Aggressive tax planning includes exploiting loopholes in a tax system and mismatches between tax systems leading to double non taxation or double deductions.

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
US vs TBL LICENSING LLC, January 2022, U.S. Tax Court, Case No. 158 T.C. No 1 (Docket No. 21146-15)

US vs TBL LICENSING LLC, January 2022, U.S. Tax Court, Case No. 158 T.C. No 1 (Docket No. 21146-15)

A restructuring that followed the acquisition of Timberland by VF Enterprises in 2011 resulted in an intra-group transfer of ownership to valuable intangibles to a Swiss corporation, TBL Investment Holdings. The IRS was of the opinion that gains from the transfer was taxable. Judgement of the US Tax Court The tax court upheld the assessment of the tax authorities. Excerpt: “we have concluded that petitioner’s constructive distribution to VF Enterprises of the TBL GmbH stock that petitioner constructively received in exchange for its intangible property was a “disposition” within the meaning of section 367(d)(2)(A)(ii)(II). We also conclude, for the reasons explained in this part IV, that no provision of the regulations allows petitioner to avoid the recognition of gain under that statutory provision.” “Because we do not “agree[] to reduce the adjustment to income for the trademarks based on a 20-year useful life limitation, pursuant ... Continue to full case
Italy vs BenQ Italy SRL, March 2021, Corte di Cassazione, Sez. 5 Num. 1374 Anno 2022

Italy vs BenQ Italy SRL, March 2021, Corte di Cassazione, Sez. 5 Num. 1374 Anno 2022

BenQ Italy SRL is part of a multinational group headed by the Taiwanese company BenQ Corporation that sells and markets technology products, consumer electronics, computing and communications devices. BenQ Italy’s immediate parent company was a Dutch company, BenQ Europe PV. Following an audit the tax authorities issued a notice of assessment for FY 2003 in which the taxpayer was accused of having procured goods from companies operating in countries with privileged taxation through the fictitious interposition of a Dutch company (BenQ Europe BV), the parent company of the taxpayer, whose intervention in the distribution chain was deemed uneconomic. On the basis of these assumptions, the tax authorities found that the recharge of costs made by the interposed company, were non-deductible. The tax authorities also considered that, through the interposition of BenQ BV, the prices charged by the taxpayer were aimed at transferring most of the ... 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
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
UK vs G E Financial Investments Ltd., June 2021, First-tier Tribunal, Case No [2021] UKFTT 210 (TC), TC08160

UK vs G E Financial Investments Ltd., June 2021, First-tier Tribunal, Case No [2021] UKFTT 210 (TC), TC08160

The case concerned a complex financing structure within the General Electric Group. The taxpayer, GE Financial Investments Ltd (GEFI Ltd), a UK resident company was the limited partner in a Delaware limited partnership, of which, GE Financial Investments Inc (GEFI Inc) a Delaware corporation was the general partner. GEFI Ltd filed UK company tax returns for FY 2003-2008 in which the company claimed a foreign tax credit for US federal income tax. In total, US federal income taxes amounted to $ 303 millions and exceeded the amount of tax due in the UK. The tax authorities opened an enquiry into each of GEFI’s company tax returns for the relevant period, and subsequently issued an assessment where the claims for foreign tax credits was denied in their entirety. Judgement of the Tax Tribunal The tribunal dismissed the appeal of GEFI Ltd and ruled that the UK ... Continue to full case
St. Vincent & the Grenadines vs Unicomer (St. Vincent) Ltd., April 2021, Supreme Court, Case No SVGHCV2019/0001

St. Vincent & the Grenadines vs Unicomer (St. Vincent) Ltd., April 2021, Supreme Court, Case No SVGHCV2019/0001

Unicomer (St. Vincent) Ltd. is engaged in the business of selling household furniture and appliances. In FY 2013 and 2014 Unicomer entered into an “insurance arrangement” involving an unrelated party, United insurance, and a related party, Canterbury. According to the tax authorities United Insurance had been used as an intermediate/conduit to funnel money from the Unicomer to Canterbury, thereby avoiding taxes in St. Vincent. In 2017 the Inland Revenue Department issued an assessments of additional tax in the sum of $12,666,798.23 inclusive of interest and penalties. The basis of the assessment centered on Unicomer’s treatment of (1) credit protection premiums (hereinafter referred to as “CPI”) under the insurance arrangement, (2) tax deferral of hire-purchase profits and (3) deductions for royalty payments. Unicomer appealed the assessment to the Appeal Commission where a decision was rendered in 2018. The Appeal Commission held that the CPI payments were ... 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
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
UK vs GE Capital, July 2020, High Court, Case No RL-2018-000005

UK vs GE Capital, July 2020, High Court, Case No RL-2018-000005

GE Capital (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
Uganda vs East African Breweries International Ltd. July 2020, Tax Appeals Tribunal, Case no. 14 of 2017

Uganda vs East African Breweries International Ltd. July 2020, Tax Appeals Tribunal, Case no. 14 of 2017

East African Breweries International Ltd (applicant) is a wholly owned subsidiary of East African Breweries Limited, and is incorporated in Kenya. East African Breweries International Ltd was involved in developing the markets of the companies in countries that did not have manufacturing operations. The company did not carry out marketing services in Uganda but was marketing Ugandan products outside Uganda. After sourcing customers, they pay to the applicant. A portion is remitted to Uganda Breweries Limited and East African Breweries International Ltd then adds a markup on the products obtained from Uganda Breweries Limited sold to customers in other countries. East African Breweries International Ltd would pay a markup of 7.5 % to Uganda Breweries and then sell the items at a markup of 70 to 90%. In July 2015 the tax authorities (respondent) audited Uganda Breweries Limited, also a subsidiary of East African Breweries ... 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
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
Finland vs A Group, April 2020, Supreme Administrative Court, Case No. KHO:2020:35

Finland vs A Group, April 2020, Supreme Administrative Court, Case No. KHO:2020:35

In 2008, the A Group had reorganized its internal financing function so that the Group’s parent company, A Oyj, had established A Finance NV in Belgium. Thereafter, A Oyj had transferred to intra-group long-term loan receivables of approximately EUR 223,500,000 to A Finance NV. In return, A Oyj had received shares in A Finance NV. The intra-group loan receivables transferred in kind had been unsecured and the interest income on the loan receivables had been transferred to A Finance NV on the same day. A Finance NV had entered the receivables in its balance sheet as assets. In addition, A Oyj and A Finance NV had agreed that target limits would be set for the return on investment achieved by A Finance NV through its operations. A Finance NV has reimbursed A Oyj for income that has exceeded the target limit or, alternatively, invoiced A ... 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