Tag: Benefit test

For intra-group service to be attributable to a party they must provide a reasonable economic or commercial benefit to that party.
In most countries similar requirements are found in regulations for tax deductibility of costs in general. Costs must be related to the business – protect, sustain or enhance the taxable income – in order for them to be tax deductible.

France vs SAS Groupe Lagasse Europe, January 2020, CCA de VERSAILLES, Case No. 18VE00059 18VE02329

France vs SAS Groupe Lagasse Europe, January 2020, CCA de VERSAILLES, Case No. 18VE00059 18VE02329

A French subsidiary, SAS Groupe Lagasse Europe, of the Canadian Legasse Group had paid service fees to another Canadian group company, Gestion Portland Vimy. The French tax authorities held that the basis for the payments of service fees had not been established, and that there was no benefit to the French subsidiary. The payments constituted an indirect transfer of profits within the meaning of the ‘article 57 of the general tax code; Excerps from the judgement of the Court: “11. Under the terms of article 57 of the general tax code, applicable in matters of corporate tax under article 209 of the same code: “For the establishment of income tax due by the companies which are dependent or have control of companies located outside of France, the profits indirectly transferred to the latter, either by increasing or decreasing the purchase or sale prices, or by any other means, are incorporated into the results recognized by the accounts (…) “. These ... Continue to full case
Spain vs ARW Enterprise Computin Solution SA, September 2019, Tribunal Superior de Justicia, Case No STSJ M 7038/2019 - ECLI: ES:TSJM:2019:7038

Spain vs ARW Enterprise Computin Solution SA, September 2019, Tribunal Superior de Justicia, Case No STSJ M 7038/2019 – ECLI: ES:TSJM:2019:7038

A Spanish subsidiary, ARW Enterprise Computin Solution SA, had deducted intra-group management fees paid according to two service contracts with two french group companies – Distrilogie SA and DCC France Holding SAS. For an expense to be deductible it is required not only that invoice, account, payments have been imputed correctly, but also that the expense have been held for obtaining income and to the direct benefit of the subsidiary. The Spanish tax authorities found, that these requirements had not been sufficiently proved by Computin Solution SA and issued a tax assessment. Click here for translation Spain vs Computin STSJ_M_7038_2019 ... Continue to full case
Brazil vs CCA group, September 2019, COSIT, SC No. 276-2019

Brazil vs CCA group, September 2019, COSIT, SC No. 276-2019

In a public ruling, the General Tax Coordination Office in Brazil (COSIT) found that a transaction labled as a “cost sharing agreement” between a foreign group and its Brazilian subsidiary, was in fact a mere agreement for provision of services. COSIT pointed to the key characteristics of cost sharing agreements. These had been listed in a prior ruling from 2012: Segregation of costs and risks inherent in the development, production or acquisition of goods, services or rights; Consistent contribution by each entity with expected and effectively-received benefits by each entity; Identification of the benefit to each participant entity; Mandatory reimbursement of costs incurred with no mark-up; Advantages offered to all participating group entities; and Payments for support activities whether such activities were actually used. < COSIT also pointed to the guidance provided in the 2017 Transfer Pricing Guidelines, Chapter VIII. Click here for translation SC_Cosit_n_276-2019 ... Continue to full case
Poland vs L S.A, June 2019, Supreme Administrative Court, Case No. II FSK 1808/17 - Wyrok NSA

Poland vs L S.A, June 2019, Supreme Administrative Court, Case No. II FSK 1808/17 – Wyrok NSA

A Polish subsidiary in a German Group had taken out a significant inter-company loan resulting in a significantly reduced income due to interest deductions. At issue was application of the Polish arm’s length provisions and the arm’s length nature of the interest rate on the loan. The tax authorities had issued an assessment where the interest rate on the loans had been adjusted and the taxable income increased. On that basis, a complaint was filed by the company to the Administrative Court. The administrative court rejected the complaint and ruled in favor of the tax authorities. An appeal was then brought before the Supreme Administrative Court. The Supreme Administrative Court rejected the appeal, although it did not share some of the conclusions and statements of the Court of first instance. The key issue in the case was to determine is whether the provisions of Art. 11 (Containing the Polish arm’s length provisions), allowing the authority to determine the income of ... Continue to full case
France vs Office Depot, December 2017, CE, Case No. 387975

France vs Office Depot, December 2017, CE, Case No. 387975

Re-invoicing to a Office Depot France, by the controlling US company Office Depot Inc, of a part of the cost of an audit service, as it related to the internal control procedures of the French company. Office Depot France was audited for the period from 28 December 2003 to 31 December 2005, after which the administration notified it of a VAT reminder and a withholding tax on the re-invoicing by the US company Office Depot Inc. of a portion of the cost of an audit service relating to its own internal control procedures. The cost was not necessary for the operation of Office Depot France and thus not deductible. The charge in question corresponded to an indirect transfer of profits abroad. Click here for translation France vs Office Depot_13_12_2017_387975_Inédit_au_recueil_Lebon ... Continue to full case
New Zealand vs Honk Land Trustee Limited, 10 March 2017, Court of Appeal

New Zealand vs Honk Land Trustee Limited, 10 March 2017, Court of Appeal

The Court of Appeal upheld decisions of the High Court confirming the Commissioner of Inland Revenue’s disallowance of a $1,116,000 management fee for income tax purposes. The Court of Appeal dismissed Honk Land Trustees Limited’s (“HLT”) appeal on the following alternative grounds: (1) there was no satisfactory evidence to show that management services were in fact provided; (2) there was no sufficient nexus shown; and (3) in the event the management fees were deductible, they were nevertheless part of a void tax avoidance arrangement. Additionally, the Court of Appeal agreed that the Commissioner was entitled to impose abusive tax position shortfall penalties. NewZealand vs Honk-Land-Trustees-Limited-v-Commissioner-of-Inland-Revenue ... Continue to full case
France vs. Sté Property Investment Holding, 9 December 2015, CE No 367897

France vs. Sté Property Investment Holding, 9 December 2015, CE No 367897

In the case of Sté Property Investment Holding a French company deducted fees paid for management services provided by a foreign related company. The court indicated that, even if the recharge concerned fees charged by subcontractors of the foreign company, the French company could only deduct the fees if it could prove that the services provided were real, the services were not duplicates, and the price of the services complied with the arm’s length principle. Click here for translation France vs Sté Property Investment Holding, 9 December 2015, CE No 367897 ... Continue to full case
Italy vs Alfa Gomma SUD s.r.l. July 2014, Supreme Court 16480

Italy vs Alfa Gomma SUD s.r.l. July 2014, Supreme Court 16480

This case was about tax deductibility of service costs charged to an Italien company by an European Cost Centre within the group. The Supreme Court stated that it is necessary to give evidence that the Italian company have actually received a service and that this service is objectively definable and documented. The Court ruled in favor of the tax administration. Click here for translation Italy Supreme-Court-18-July-2014-No.-16480.pdf ... Continue to full case
France vs. Société Office Dépôt France SNC, Jan 12 CAA No

France vs. Société Office Dépôt France SNC, Jan 12 CAA No

In the case of Société Office Dépôt France SNC, a US company recharged a portion of audit costs to the French company. The court found that such costs were incurred in the interest of the US company only, and were accordingly not tax deductible in France. DEPOT FRANCE SNC _15_10_2013_CAA 12VE00798″ target=”_blank” rel=”noopener noreferrer”>Click here for translation DEPOT FRANCE SNC _15_10_2013_CAA 12VE00798 ... Continue to full case

Czech Republic vs. Corp. February 2011, Supreme Administrative Court, Afs 19/2010-125

A Czech company (the lessor) owned real estate and rented it to independent parties. An Austrian related company provided management and consulting services to the lessor The service fees significantly increased each year, although the income of the Czech company and the number of lease contracts were constant in the examined years The tax authorities required that the taxpayer prove the actual provision of the services and their relationship to taxable income. The tax authorities rejected this explanation and concluded that the taxpayer had not proven the real condition of the real estate in the examined period. The legal question was: the scope of the burden of proof that rests with the taxpayer with respect to services received from related party The court ruled that: the taxpayer was obliged to prove the relationship of the expensed service fees to its taxable income. Tangible evidence of the provided services, including reports, correspondence and confirmation of business trips should be provided by ... Continue to full case
India vs. Gemplus India Pvt. Ltd. March 2009, ITA case no. 352

India vs. Gemplus India Pvt. Ltd. March 2009, ITA case no. 352

Gemplus India Pvt. Ltd. is a part of the Gemplus group, engaged in providing smart card solutions for the telecommunications industry, financial services industry and other e-businesses. The company entered into a intra group management services agreement for receipt of services in marketing and sales support, customer service support, finance, accounting and administration support and legal support. The tax administration found there was no clear proof that such services had actually been rendered. There was no specific benefit derived by the Indian company. Gemplus India Pvt. Ltd. had not established the benefit of these services and had already incurred expenses towards professional and consultancy services and employed qualified personnel in India for rendering similar services. The Appellate Tribunal decided the case in favour of Revenue. To satisfy the arm’s-length standard, a charge for intra group services or intangibles must at least meet the following conditions: • The need for intra group services or intangibles is established. • The intra group ... Continue to full case
France vs. SA Bossard Consultants, March 1998, Adm. Court, no 96pa00673N° 96PA00673

France vs. SA Bossard Consultants, March 1998, Adm. Court, no 96pa00673N° 96PA00673

A subsidiary company, which paid royalties for a licence of a trademark to its parent company, could not deduct part of the sums paid as a temporary increase of the royalties by one point because it could not justify the benefit from the use of the trademark. Click here for translation SA Bossard Consultants, March 1998, Adm. Court, no 96pa00673 ... Continue to full case
France vs SA Borsumij Whery France, Feb 1997, Adm Court of appeal, No 94PA00511

France vs SA Borsumij Whery France, Feb 1997, Adm Court of appeal, No 94PA00511

The administration found that the reimbursement of a charge represented a transfer of profits abroad where the French company has not substantiated the benefit of the services which the French company could perform itself. The submission of incomplete documents was deemed to be insufficient. This analysis was confirmed by the French Supreme Tax Court. Click here for translation France vs SA Borsumij Whery France, Feb 1997, Adm Court of appeal, ... Continue to full case
France vs Vansthal International, March 1993, CAA, No 92NC00227

France vs Vansthal International, March 1993, CAA, No 92NC00227

In the case of Vansthal France the Court disallowed a transfer pricing policy under which a 20%-40% mark-up was added to payments to a Swiss entity because in its capacity as a billing centre the Swiss entity assumed no risk. Click here for translation France vs Vansthal, march 1992, CAA No 92NC00227 ... Continue to full case