Netherlands vs “Tobacco B.V.”, October 2022, Rechtbank Noord-Holland, Case No ECLI:NL:RBNHO:2022:8936

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“Tobacco B.V.” is a Dutch company belonging to an international tobacco group.

Following an audit an assessment of additional taxable income of €196,001,385, €220,624,304 and €179,896,349 for FY 2008-2010 was issued to “Tobacco B.V.”, and a penalty for non-compliance for FY 2010 of €477,624 was imposed. The dispute focused on whether the fees charged by various group companies for supplies and services had been at arm’s length.

To finance their activities, the group companies issued listed bonds under the tobacco group’s so-called EMTN Programme, guaranteed by the parent company in the UK. For this, the claimant paid an annual guarantee fee to the parent company of approximately €35,000,000.

Judgement of the court

– the guarantee fees are not expenses originating from the “Tobacco B.V.”‘s acceptance of liability for debts of an affiliated company;

– the EMTN Programme is not a credit arrangement within the meaning of the Umbrella Credit Judgment (ECLI:NL:HR:2013:BW6520);

– the tax authorities has not made it plausible that it is not possible to determine a non profit-related remuneration at which an independent third party would have been willing to accept the same liability under otherwise the same conditions and circumstances;

– the tax authorities did make it plausible that “Tobacco B.V.”, as a ‘core company’ of the tobacco group, enjoys an implied guarantee from the parent company for which no remuneration should be paid because there is no group service;

– “Tobacco B.V.” has not put forward any arguments capable of rebutting the objective presumption of awareness that follows from the size of the adjustments (the entire guarantee fee), that the disadvantage suffered by “Tobacco B.V.” as a result of the payment of the guarantee fees is due to its affiliation to its parent company,

– the tax authorities did not reasonably have to doubt the accuracy of the information on the guarantee fees contained in the declarations, so that the authorities did not commit an official omission

– the tax authorities did not provide information or create the justified impression of a deliberate determination of position as a result of which the authorities was entitled to rely on the principle of legitimate expectations.

One of the group companies provided factoring services to the claimant. The factoring fee of €2,500,000 charged annually for this purpose includes a risk fee to cover the debtor risk – excluding a bad debtor – and an annual fee of €1,200,000 for other services. Noting that the debtor risk – including the bad debtor – can be insured on the market for €438,000, the court inferred that an independent third party would not be willing to pay the risk fee. Given the large share of the risk fee, the court qualifies the entire factoring fee as non-business.

The court considers that the tax due according to the tax return in respect of the factoring fees, assessed independently, is not significantly lower than the actual tax due. The court further considers that the tax payable in respect of the factoring fees and guarantee fees taken together is indeed significantly lower than the actual tax payable, and the amounts are individually significant. However, reversal and aggravation of the burden of proof is not forthcoming because the subjective awareness required for this is lacking.

The court ruled that the adjustment of transfer prices did not violate European law. It follows from the Hornbach judgment (ECLI:EU:C:2018:366) that the TFEU in principle does not preclude a regulation such as that contained in Section 8b of the Vpb Act. The claimant could have made it plausible without undue administrative effort that the transactions were agreed for commercial reasons arising from the shareholder link with the group companies involved, but it did not put forward such reasons.

Finally, the court found that the “Tobacco B.V.” knew that the entire debtor portfolio was insurable on the market for €438,000, and by deducting the proportionally much higher factoring fees, knew that too little tax would be levied. The court ruled that there was no pleading and found that the fine was appropriate and necessary in principle, albeit reduced for exceeding the reasonable time limit.

The court declares the appeals unfounded and reduces the fine decision.

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Netherlands vs Tobacco Oct 2022 ORG

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