Category: Withholding Tax (WHT)

Poland vs "N. sp. z o.o.", January 2024, Administrative Court, Case No I SA/Lu 584/23

Poland vs “N. sp. z o.o.”, January 2024, Administrative Court, Case No I SA/Lu 584/23

A Polish real estate company, “N. sp. z o.o.”, had asked the tax office for an opinion on the tax treatment of interest paid on a loan received from a related party ‘M’ in Romania. The tax office refused the request. In its view, “M” had received the funds needed to make the loans to N from other group companies and therefore almost all of the interest income earned by “M” was ultimately transferred to “M.C.”, which was based in Malta. On this basis, the ultimate beneficiary of the interest paid by N was not “M” in Romania, but “M.C.” in Malta. “N. sp. z o.o.” disagreed and appealed to the Administrative Court. Decision of the Administrative Court The Court dismissed the appeal. Excerpts “The company has not provided any argumentation to exclude the authority’s finding that the coincidence of dates, juxtaposed with the fact ... Continue to full case
France vs SASU Alchimedics, January 2024, CAA de Lyon, Case No. 21PA04452

France vs SASU Alchimedics, January 2024, CAA de Lyon, Case No. 21PA04452

Since 2012, the French company SASU Alchimedics has been owned by Sinomed Holding Ltd, the holding company of a group of the same name set up by a Chinese resident domiciled in the British Virgin Islands. SASU Alchimedics was engaged in the manufacture and marketing of products using electro-grafting technology for biomedical applications and the licensing and assignment of patents in the field of electro-grafting technologies. SASU Alchimedics was subject to an audit for the financial years 2014 and 2015, as a result of which the tax authorities increased its income for the financial years ended 31 December 2013, 2014 and 2015 by the price of services not invoiced to Sinomed Holding Ltd. In addition, the non-invoicing of these services was considered to be a transfer of profits abroad within the meaning of Article 57 of the French General Tax Code and the amounts were ... Continue to full case
Canada vs Husky Energy Inc., December 2023, Tax Court, Case No 2023 TCC 167

Canada vs Husky Energy Inc., December 2023, Tax Court, Case No 2023 TCC 167

Prior to the payment of dividends by Husky Energy Inc. to its shareholders in 2003, two of its shareholders (companies resident in Barbados) transferred their shares to companies in Luxembourg under securities lending arrangements, and therefore Husky Energy Inc. only withheld dividend tax at a reduced rate of 5% under the Canada-Luxembourg Income Tax Treaty. Judgment of the Court The Court found Husky Energy liable for failing to withhold dividend tax at the non-Convention rate of 25%. As the dividends were not paid to the Barbados companies, the 15% rate under the Canada – Barbados Income Tax Convention was not available. The Canada-Luxembourg Income Tax Convention rate was also not available as the Luxembourg companies were not the beneficial owners of the dividends as they were required to pay compensation to the Barbados companies equal to the dividends received. Excerpts “Under the securities lending arrangements, ... Continue to full case
Australia vs PepsiCo, Inc., November 2023, Federal Court 2023, Case No [2023] FCA 1490

Australia vs PepsiCo, Inc., November 2023, Federal Court 2023, Case No [2023] FCA 1490

At issue was the “royalty-free” use of intangible assets under an agreement whereby PepsiCo’s Singapore affiliate sold concentrate to Schweppes Australia, which then bottled and sold PepsiCo soft drinks for the Australian market. As no royalties were paid under the agreement, no withholding tax was paid in Australia. The Australian Taxation Office (ATO) determined that the payments for “concentrate” from Schweppes to PepsiCo had been misclassified and were in part royalty for the use of PepsiCo’s intangibles (trademarks, branding etc.), and an assessment was issued for FY2018 and FY2019 where withholding tax was determined on that basis. The assessment was issued under the Australian diverted profits tax provisions. The assessment was appealed to the Federal Court in February 2022. Judgment of the Court The Federal Court ruled in favor of the tax authorities. Following the decision of the Court, the ATO issued an announcement concerning ... Continue to full case

Belgium vs S.E. bv, October 2023, Court of First Instance, Case No. 21/942/A

The taxpayer paid interest on five loans concluded with its Dutch subsidiary (“BV2”) on 31 December 2017, claiming exemption from withholding tax on the basis of the double taxation treaty between Belgium and the Netherlands (Article 11, §3, (a)). The dispute concerns whether the Dutch subsidiary “BV2” can be considered the beneficial owner of these interests. The concept of “beneficial owner” is not defined in the Belgium-Netherlands double tax treaty. However, this concept is also used in the European Directive on interest and royalties. In the Court’s view, this concept must be interpreted in the same way for the application of the Belgian-Dutch double taxation treaty. Indeed, as members of the EU, Belgium and the Netherlands are also obliged to ensure compliance with EU law. The Court noted that, of the five loans on which the taxpayer paid interest to its subsidiary “BV2”, four loans were linked to four other loans granted by a Dutch company higher up in the group’s organisation chart and having the legal form of a “CV” (now an LLC), to the taxpayer’s Dutch parent company, “BV1”. The ... Continue to full case
Ukraine vs Slobozhanshchyna Agro, September 2023, Supreme Court, Case No. 480/5366/22 (K/990/22197/23)

Ukraine vs Slobozhanshchyna Agro, September 2023, Supreme Court, Case No. 480/5366/22 (K/990/22197/23)

An Ukrainian company, Slobozhanshchyna Agro, paid dividends to a Cypriot company, Unigrain Holding Limited, which held 25% of the shares in Slobozhanshchyna Agro. Withholding tax on the dividend paid was declared by Slobozhanshchyna Agro at a reduced rate of 5 % in accordance with Art. 10(2)(a) of the Ukraine-Cyprus Double Tax Treaty (see the relevant article below). Following an audit, the tax authorities concluded that the conditions for the application of the reduced rate of 5% under Art. 10(2)(a) were not met. Accordingly, Slobozhanshchyna Agro should have applied a withholding tax rate of 10% under Art. 10(2)(b) of the Tax Treaty. Slobozhanshchyna Agro disagreed with this conclusion and appealed to the Administrative Court. In December 2022, the Administrative Court ruled in favour of the tax authorities. According to the court, entitlement to the benefits under Art. 10(2)(a) of the Ukraine-Cyprus Double Tax Treaty was subject ... Continue to full case
France vs SAS Arrow Génériques, September 2023, Court of Administrative Appeal, Case No 22LY00087

France vs SAS Arrow Génériques, September 2023, Court of Administrative Appeal, Case No 22LY00087

SAS Arrow Génériques is in the business of distributing generic medicinal products mainly to the pharmacy market, but also to the hospital market in France. It is 82.22% owned by its Danish parent company, Arrow Groupe ApS, which is itself a wholly-owned subsidiary of the Maltese company Arrow International Limited. In 2010 and 2011, SAS Arrow Génériques paid royalties to its Danish parent, Arrow Group ApS, and to a related party in the UK, Breath Ltd. According to the French tax authorities, the royalties constituted a benefit in kind granted to Arrow Group ApS and Breath Ltd, since SAS Arrow Génériques had not demonstrated the reality and nature of the services rendered and had therefore failed to justify the existence and value of the consideration that it would have received from the payment of these royalties, which constitutes an indirect transfer of profits to related ... Continue to full case
Denmark vs "Soy A/S", June 2023, Eastern High Court, SKM2023.316.ØLR

Denmark vs “Soy A/S”, June 2023, Eastern High Court, SKM2023.316.ØLR

Two issues were adressed in this case – transfer pricing and withholding taxes. The transfer pricing issue concerned whether the Danish tax authorities (SKAT) had been entitled to issue an assessment on controlled transactions made between “Soy A/S” and a flow-through company in the group located in a low tax jurisdiction. The withholding tax issue concerned whether the 13 transfers actually constituted taxable dividends under section 31, D of the Danish Corporation Tax Act, which “Soy A/S” was subsequently liable for not having withheld tax at source, cf. section 69(1) of the Danish Withholding Tax Act. Judgement of the High Court In regards of the transfer pricing issue, the High Court found that the company’s TP documentation was subject to a number of deficiencies which meant that the documentation did not provide the tax authorities with a sufficient basis for assessing whether the transactions were ... Continue to full case
Colombia vs Bavaria S.A., June 2023, Supreme Administrative Court, Case No. 25000-23-37-000-2017-00654-01 (25885)

Colombia vs Bavaria S.A., June 2023, Supreme Administrative Court, Case No. 25000-23-37-000-2017-00654-01 (25885)

Bavaria S.A. is part of the SABMiller group – a multinational brewing and beverage group – and in FY2013 the company had deducted costs related to various intra-group transactions – licences, cost of sales, procurement services, administrative services, technical support, other expenses (reimbursements to related parties), etc. Following an audit, the Colombian tax authorities disallowed the deduction of some of these costs. Deductions for investments in productive assets were also disallowed. This resulted in additional taxable income and an assessment was issued together with a substantial penalty. Judgement of the Supreme Administrative Court The Court partially upheld the assessment and partially annulled it. Excerpts “At this point it is necessary to clarify that, although the Administration alleges the violation of the arm’s length principle, insofar as it considers that no independent third party, in a comparable situation, would have paid the commission under the conditions ... Continue to full case
Spain vs GLOBAL NORAY, S.L., June 2023, Supreme Court, Case No STS 2652/2023

Spain vs GLOBAL NORAY, S.L., June 2023, Supreme Court, Case No STS 2652/2023

In 2009 and 2010 Global Nory, S.L. distributed a dividend of 7,000,000 euros to its parent company resident in Luxembourg, without declaring withholding taxes, as it considered that the dividend was exempt. In 2013, Global Nory, S.L. was notified of the commencement of general inspection proceedings, referring, among other items, to the dividend payments, and in 2014 the final assessment was issued, resulting in additional withholding taxes of 700,000 euros and 138,753.43 euros to late payment interest. The assessment was based on the following facts: The only relevant asset of Global Noray SL is a 5% stake in the listed company Corporación Logística de Hidrocarburos. This shareholding was acquired for a sum of 176,500,000 euros. Global Noray, S.L.’s income consists mainly of dividends received on these shares. Global Noray, S.L., is wholly owned by PSP Eur SARL, which in turn is wholly owned by PSP ... Continue to full case
Netherlands vs "POEM B.V.", June 2023, Court of Appeal, Case No. BKDH-21/01014 to BKDH-21/01020 (ECLI:NL:GHSHE:2023:2393)

Netherlands vs “POEM B.V.”, June 2023, Court of Appeal, Case No. BKDH-21/01014 to BKDH-21/01020 (ECLI:NL:GHSHE:2023:2393)

In 2001 “POEM B.V.” was incorporated in the Netherlands under Dutch law by its shareholder X, and has since then been registered in the Dutch trade register. In 2010 its administrative seat was moved to Malta where it was also registered as an ‘Oversea Company’. X was from the Netherlands but moved to Switzerland in 2010. In “POEM B.V.”‘s Maltese tax return for the year 2013, the entire income was registered as ‘Untaxed Account’ and no tax was paid in Malta. “POEM B.V.” distributed dividend to X in FY 2011-2014. Following an audit the Dutch tax authorities issued an assessment where corporate income tax and withholding tax over the dividend had been calculated. The assessment was based on Article 4 (4) of the Dutch-Maltese DTA under which “POEM B.V.” was deemed to be a resident of the Netherlands. Not satisfied with the assessment “POEM B.V.” ... Continue to full case
Denmark vs Takeda A/S (former Nycomed A/S) and NTC Parent S.à.r.l., May 2023, Supreme Court, Cases 116/2021 and 117/2021

Denmark vs Takeda A/S (former Nycomed A/S) and NTC Parent S.à.r.l., May 2023, Supreme Court, Cases 116/2021 and 117/2021

The cases concerned in particular whether Takeda A/S under voluntary liquidation and NTC Parent S.à.r.l. were obliged to withhold tax on interest on intra-group loans granted by foreign group companies. The cases were to be assessed under Danish tax law, the EU Interest/Royalty Directive and double taxation treaties with the Nordic countries and Luxembourg. In a judgment of 9 January 2023, concerning dividends distributed to foreign parent companies, the Supreme Court has ruled on when a foreign parent company is a “beneficial owner” under double taxation treaties with, inter alia, Luxembourg, and when there is abuse of rights under the EU Parent-Subsidiary Directive. In the present cases on the taxation of interest, the Supreme Court referred to the judgement of January 2023 on the general issues and then made a specific assessment of the structure and loan relationships of the two groups. The Supreme Court ... Continue to full case
Czech Republic vs YOLT Services s.r.o., April 2023, Regional Court, Case No 29 Af 62/2018-214

Czech Republic vs YOLT Services s.r.o., April 2023, Regional Court, Case No 29 Af 62/2018-214

YOLT Services s.r.o. is active in distribution of TV programmes and paid royalties/license for use of these programmes to its parent company in Romania and subsidiaries in Hungary and Slovakia. These companies were contractually obliged to pay royalties received on to the producers of the programmes. According to the tax authorites, the beneficial owners of the royalties were not the group companies, but rather the producers of the programmes. On that basis the royalty payments were not excempt from withholding taxes. An assessment of additional taxes was issued where withholding taxes had been calculated as 15% of the royalties paid by YOLT services. Judgement of the Regional Court The court upheld the decision of the tax authorities in regards of the producers – and not the group companies – beeing the beneficial owners of the royalties. But the court referred the case back to the ... Continue to full case
France vs SAS Blue Solutions, March 2023, CAA, Case N° 21PA06144 & 21PA06143

France vs SAS Blue Solutions, March 2023, CAA, Case N° 21PA06144 & 21PA06143

SAS Blue Solutions manufactures electric batteries and accumulators for electric and hybrid vehicles and car-sharing systems. In FY 2012-2014 it granted a related party – Blue Solutions Canada – non-interest-bearing current account advances of EUR 42.9 million, EUR 43 million, and EUR 39 million. The French tax authorities considered that the failure to charge the interest on these advances was an indirect transfer of profit subject to withholding taxes and reintegrated the interest into the taxable income of Blue Solutions in France. Not satisfied with the resulting assessment an appeal was filed where SAS Blue Solutions. The company argued that the loans was granted interest free due to industrial and technological dependence on its Canadian subsidiary and that the distribution of profits was not hidden. Finally it argued that the treatment of the transactions in question was contrary to the freedom of movement of capital ... Continue to full case
Poland vs "Cosmetics sp. z o.o.", March 2023, Supreme Administrative Court, Case No II FSK 2034/20

Poland vs “Cosmetics sp. z o.o.”, March 2023, Supreme Administrative Court, Case No II FSK 2034/20

“Cosmetics sp. z o.o.” is a Polish distributor of cosmetics. It purchases the goods from a related foreign company. The contract concluded between “Cosmetics sp. z o.o.” and the foreign company contained a provision according to which 3% of the price of the goods purchased was to be paid (in the form of royalties) for the right to use the trademarks for the promotion, advertising and sale of the products. However, the invoices issued by the foreign company for the sale of the goods in question did not show the amount paid for the right to use the trademarks as a separate item. The invoices simply stated the price of the goods purchased. “Cosmetics sp. z o.o. requested an “individual interpretation” from the tax authorities as to whether the royalty payments included in the price of the goods were subject to withholding tax in Poland ... Continue to full case
Denmark vs Copenhagen Airports Denmark Holdings ApS, February 2023, High Court, Case No SKM2023.404.OLR

Denmark vs Copenhagen Airports Denmark Holdings ApS, February 2023, High Court, Case No SKM2023.404.OLR

A parent company resident in country Y1 was liable to tax on interest and dividends it had received from its Danish subsidiary. There should be no reduction of or exemption from withholding tax under the Parent-Subsidiary Directive or the Interest and Royalties Directive or under the double taxation treaty between Denmark and country Y1, as neither the parent company nor this company’s own Y1-resident parent company could be considered the rightful owner of the dividends and interest within the meaning of the directives and the treaty, and as there was abuse. The High Court thus found that the Y1-domestic companies were flow-through companies for the interest and dividends, which were passed on to underlying companies in the tax havens Y2-ø and Y3-ø. The High Court found that there was no conclusive evidence that the companies in Y2 were also flow-through entities and that the beneficial ... Continue to full case
Poland vs I. sp. z o.o. , January 2023, Supreme Administrative Court, Cases No II FSK 1588/20

Poland vs I. sp. z o.o. , January 2023, Supreme Administrative Court, Cases No II FSK 1588/20

I. sp. z o.o. is a Polish tax resident. Its sole shareholder is an Italian tax resident company. The Company plans to pay a dividend to the shareholder in the future, and therefore asked the following question to the Polish Tax Chamber: in order to exercise the right to exempt a dividend paid to a shareholder from corporate income tax (withholding tax) under Article 22(4) of the Corporate Income Tax Act of 15 February 1992 (Journal of Laws of 2019, item 865, hereinafter the CIT), is the Company required to verify whether the entity to which the dividend is paid is the actual owner of the dividend? The Tax Chamber answered that verification of the beneficial ownership is part of the due diligence obligation introduced in Article 26(1) of the Corporate Income Tax Act in 2019. The company challenged this interpretation before the Administrative Court ... Continue to full case
Italy vs Engie Produzione S.p.a, January 2023, Supreme Court, Case No 6045/2023 and 6079/2023

Italy vs Engie Produzione S.p.a, January 2023, Supreme Court, Case No 6045/2023 and 6079/2023

RRE and EBL Italia, belonged to the Belgian group ELECTRABEL SA (which later became the French group GDF Suez, now the Engie group); RRE, like the other Italian operating companies, benefited from a financing line from the Luxembourg subsidiary ELECTRABEL INVEST LUXEMBOURG SA (“EIL”). In the course of 2006, as part of a financial restructuring project of the entire group, EBL Italia acquired all the participations in the Italian operating companies, assuming the role of sub-holding company, and EIL acquired 45 per cent of the share capital of EBL Italia. At a later date, EBL Italia and EIL signed an agreement whereby EIL assigned to EBL Italia the rights and obligations deriving from the financing contracts entered into with the operating companies; at the same time, in order to proceed with the acquisition of EIL’s receivables from the operating companies, the two companies concluded a ... Continue to full case
Denmark vs NetApp Denmark ApS and TDC A/S, January 2023, Supreme Court, Cases 69/2021, 79/2021 and 70/2021

Denmark vs NetApp Denmark ApS and TDC A/S, January 2023, Supreme Court, Cases 69/2021, 79/2021 and 70/2021

The issue in the Danish beneficial ownership cases of NetApp Denmark ApS and TDC A/S was whether the companies were obliged to withhold dividend tax on distributions to foreign parent companies. The first case – NetApp Denmark ApS – concerned two dividend distributions of approximately DKK 566 million and DKK 92 million made in 2005 and 2006 to an intermediate parent company in Cyprus – and then on to NETAPP Bermuda. The second case – TDC A/S – concerned the distribution of dividends of approximately DKK 1.05 billion in 2011 to an intermediate parent company in Luxembourg – and then on to owner companies in the Cayman Islands. In both cases, the tax authorities took the view that the intermediate parent companies were so-called “flow-through companies” which were not the real recipients of the dividends, and that the real recipients (beneficial owners) were resident in ... Continue to full case
Bulgaria vs Vivacom Bulgaria EAD, January 2023, Supreme Administrative Court, Case No 81/2023

Bulgaria vs Vivacom Bulgaria EAD, January 2023, Supreme Administrative Court, Case No 81/2023

In 2013, Viva Telecom Bulgaria EAD, as borrower/debtor, entered into a convertible loan agreement with its parent company in Luxembourg, InterV Investment S.a.r.l.. According to the agreement, the loan was non-interest bearing and would eventually be converted into equity. The tax authorities considered the arrangement to be a loan and applied an arm’s length interest rate and applied withholding tax to the amount of interest expense calculated. Vivacom appealed to the Administrative Court, which, in a judgment issued in 2019, agreed with the tax authorities’ argument for determining the withholding tax liability. Judgement of the Supreme Administrative Court The Bulgarian Supreme Administrative Court requested a ruling from the CJEU, which was issued in case C-257/20. The CJEU ruled that the applicable EU directives do not prevent the application of withholding tax on notional interest. On this basis, the Bulgarian Supreme Administrative Court issued its decision ... Continue to full case