Tag: Business rationale

Test used in determining the economic substance of an arrangement/transaction. Artificial schemes which create circumstances under which no tax or minimal tax is levied may be disregarded if they do not have a “business rationale”. See also lack of economic substance.

Spain vs SGL Carbon Holding, April 2019, Audiencia Nacional, Case No ES:AN:2019:1885

Spain vs SGL Carbon Holding, April 2019, Audiencia Nacional, Case No ES:AN:2019:1885

A Spanish subsidiary – SGL Carbon Holding SL – had significant financial expenses derived from an intra-group loan granted by the parent company for the acquisition of shares in companies of the same group. The taxpayer argued that the intra-group acquisition and debt helped to redistribute the funds of the Group and that Spanish subsidiary was less leveraged than the Group as a whole. The Spanish tax authorities found the transactions lacked any business rationale other than tax avoidance and therefor disallowed the interest deductions. The Court held in favor of the authorities. The court found that the transaction lacked any business rationale and was “fraud of law” only intended to avoid taxation. The Court also denied the company access to MAP on the grounds that Spanish legislation determines: Article 8 Reglamento MAP: Mutual agreement procedure may be denied, amongst other, in the following cases: … (d) Where it is known that the taxpayer’s conduct was intended to avoid taxation ... Continue to full case
Nederlands vs. Corp, January 2014, Lower Court, Case nr. AWB11/3717, 11/3718, 11/3719, 11/3720, 11/3721

Nederlands vs. Corp, January 2014, Lower Court, Case nr. AWB11/3717, 11/3718, 11/3719, 11/3720, 11/3721

The case involved a Dutch mutual insurance company, DutchCo, which paid surpluses from the insurance activity back to the participating members in the form of premium restitution. Prior to 2002, DutchCo reinsured the majority of its risks with external reinsurers via an external reinsurance broker. DutchCo kept a small part of the risks for its own account. In 2001, DutchCo established a subsidiary in Switzerland, Captive, to act as a captive reinsurance provider. DutchCo stated that the business rationale to establish Captive goes back to “9/11.” The resulting worldwide turmoil significantly impacted the reinsurance market. In an extremely nervous market, premiums increased and conditions were sharpened. From 2002 onward, all the reinsurance contracts of DutchCo were concluded with Captive (in exchange for payment of premiums), whereby Captive reinsured a vast majority of these risks with external reinsurers and kept a limited part of the risk for itself. As mentioned above, Captive did not employ any personnel, but made use of ... Continue to full case
Netherlands vs Corp, 2011, Dutch Supreme Court, Case nr. 08/05323 (10/05161, 10/04588)

Netherlands vs Corp, 2011, Dutch Supreme Court, Case nr. 08/05323 (10/05161, 10/04588)

In this case, the Dutch Supreme Court further outlined the Dutch perspective on the distinction between debt and equity in its already infamous judgments on the so-called extreme default risk loan (EDR loan) L sold a securities portfolio to B for EUR 5.3 million against B’s acknowledgement of debt to L for the same amount. The debt was then converted into a 10 year loan with  an interest rate of 5% and a pledge on the portfolio. Both L and B were then moved to the Netherlands Antilles. Later on L deducted a EUR 1.2 mill. loss on the loan to B due to a decrease in value of the securities portfolio. The Dutch Tax Authorities disallowed the deduction based on the argument, that the loan was not a business motivated loan. The Dutch Supreme Court ruled that in principle civil law arrangement is decisive in regard to taxation. However there are exceptions in which a civil law loan arrangement can be disregarded ... Continue to full case
Nederlands vs. Corp, July 2011, Lower Court AWB 08/9105

Nederlands vs. Corp, July 2011, Lower Court AWB 08/9105

X is the holding company of the so-called A-group, which is a recreation company driven. The activities in X was taking out cancellation insurance. Within the group an Irish company was established. Between X and an insurer, that insurer and a reinsurer and the reinsurer and the Irish company several contracts were concluded with regard to the cancellation activities. The court considers that the tax administration has proved that X has let on un-businesslike grounds earnings miss in favor of the Irish company. Click here for translation Nederlands-vs-Corp-July-2011-Lower-Court-Case-nr-AWB-08-9105 ... Continue to full case
Netherlands vs Shoe Corp, June 2007, District Court, Case nr. 05/1352, VSN June 2, 2007

Netherlands vs Shoe Corp, June 2007, District Court, Case nr. 05/1352, VSN June 2, 2007

This case is about a IP sale-and-license-back arrangement. The taxpayer acquired the shares in BV Z (holding). BV Z owns the shares in BV A and BV B (the three BVs form a fiscal unity under the CITA). BV A produces and sells shoes. In 1993, under a self-proclaimed protection clause, BV A sells the trademark of the shoes to BV C, which is also part of the fiscal unity. The protection clause was supposedly intended to protect the trademark in case of default of BV A. Taxpayer had created BV C prior to the sale of the trademark. In 1994, the taxpayer entered into a licensing agreement with BV C: the taxpayer pays NLG 2 to BV C per pair of shoes sold. Next, BV C is then moved to the Netherlands Antilles, which results in the end of the fiscal unity as of January 1, 1994. The roundtrip arrangement, the sale of an intangible and the subsequent payment of ... Continue to full case