Tag: Bargaining power

Netherlands vs Restructuring BV, September 2017, Rechtbank ZWB, No BRE 15/5683

Netherlands vs Restructuring BV, September 2017, Rechtbank ZWB, No BRE 15/5683

A Dutch company was engaged in smelting of zinc. The business was then restructured, for which the company received a small compensation payment. Dutch tax authorities disagreed with both the amount of compensation payment and the arm’s-length remuneration of the post restructuring manufacturing activities. Until 2003 the Dutch Company was a fully fledged business. The company owned the assets and controlled the risks relating to the activities. In the years after 2003, the company was involved in several business restructurings: Activities other than the actual production activities were gradually transferred to other group companies, among others the global marketing and services team (GMS), took over purchasing, sales and deployment of personnel. After becoming part of another group in 2007, the company entered a consultancy agreement with another group company under witch strategic and business development, marketing, sales, finance, legal support, IT, staffing and environmental services was now provided on a cost plus 7.5% basis. Under ‘Project X’, a Belgian company was established in April 2009, which concluded both a business transfer agreement and a cooperation agreement with related smelting companies ... Continue to full case
Italy vs GE TRANSPORTATION SYSTEMS SPA, December 2014, Supreme Court 27296

Italy vs GE TRANSPORTATION SYSTEMS SPA, December 2014, Supreme Court 27296

In this case the Italien tax administration concluded that transactions between an Italien company an a German sister company had been priced lower than the “normal value”. The Court found that in relation to intercompany transactions GE Transportation Systems S.p.A. was a contract manufacturer. The German company owned the intellectual property. In relation to transactions with independent companies, GE Transportation Systems S.p.A. assumed the risks of the transaction and had the rights to manufacture and sell the products. These differences justified the different price and led to the incomparability of them. The Court concluded that a contract manufacturer cannot be compared to full-fledged manufacturers. The former is in a weak barganing position compared to the German principal. The principal is in fact the owner of all of the intangibles, and this puts the Italien contract manufacturer in a weaker barganing position compared to a full-fledged manufacturer that owns the relevant intangibles. The Court ruled in favor of the GE Transportation ... Continue to full case
Finland vs. Corp. March 2013, Supreme Administrative Court HFD 2013:36

Finland vs. Corp. March 2013, Supreme Administrative Court HFD 2013:36

A AB purchased manufacturing services of its subsidiary B AS, which had its headquarters in Estonia. The internal pricing of services had since July 2004 been under the net margin method. The price data beside B AS’s realized expenses also included half of the so-called location-savings. On taxation of A AB approved as deductible expenditure only B AS’s actual expenses plus a calculated profit margin. The Supreme Administrative Court stated that A AB in Finland did not have such manufacturing as B AS was conducted in Estonia during the tax year. B AS’s production of the products differed substantially from A ABs former manufacturing in Finland, where A AB had manufactured the products by hand. Most of the new working methods and stages developed in Estonia had never been used in Finland. Hence the situation was not comparable to the location savings by moving the activities as described in the OECD report, and the pricing of would not be judged ... Continue to full case
Canada vs. General Electric Capital. November 2010

Canada vs. General Electric Capital. November 2010

In the case of General Electric Capital, Canada, the issue was if a 1% guarantee fee  paid by General Electric Capital Canada Inc. to its AAA-rated US parent company satisfied the arm’s length test. The Canadian tax administration argued  that implicit support resulted in General Electric Canada having a AAA credit rating, so that the guarantee provided by the US parent had no value. Taxpayer argued that the 1% guarantee fee did not exceed arm’s length pricing and that implicit support from the US parent should be ignored since it stemmed from the non-arm’s length relationship. The Tax Court agreed with the tax administration that implicit support should be taken into account and applied a “yield approach,” comparing the interest rate the Canadian company would have paid with and without the guarantee. The Tax Court found that credit rating of the Canadian company – with implicit support but without the guarantee – was at most BBB-/BB+ and the 1% guarantee was arm’s length. The Federal Court of Appeal approved of both the Tax Court’s yield approach and its ... Continue to full case
UK vs. DSG Retail (Dixon case), Tax Tribunal, Case No. UKFT 31

UK vs. DSG Retail (Dixon case), Tax Tribunal, Case No. UKFT 31

This case concerns the sale of extended warranties to third-party customers of Dixons, a large retail chain in the UK selling white goods and home electrical products. The DSG group captive (re)insurer in the Isle of Man (DISL) insured these extended warranties for DSG’s UK customers. Until 1997 this was structured via a third-party insurer (Cornhill) that reinsured 95% on to DISL. From 1997 onwards the warranties were offered as service contracts that were 100% insured by DISL. The dispute concerned the level of sales commissions and profit commissions received by DSG. The Tax Tribunal rejected the taxpayer’s contentions that the transfer pricing legislation did not apply to the particular series of transactions (under ICTA 88 Section 770 and Schedule 28AA) – essentially the phrases ‘facility’ (Section 770) and ‘provision’ (Schedule 28AA) were interpreted broadly so that there was something to price between DSG and DISL, despite the insertion of a third party and the absence of a recognised transaction ... Continue to full case