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 countries not covered by the EU Parent-Subsidiary Directive (Bermuda and Cayman respectively). Therefore, withholding taxes ... Read more

In 2016 “Lux SARL” had – via the immediate parent company – been granted funds by a related company on Cayman Islands, in the form of a profit participating loan. In 2018, after looking into the arrangement, the tax authorities informed “Lux SARL” that it intended to adjust its tax return for the year 2016 insofar as it “(…) does not accept the deduction of notional interest in relation to a capital gain realised on the sale of securities, and after dismissing an objection by Lux SARL, a final assessment was issued in 2019”. Lux SARL then filed an appeal with the Administrative Tribunal. Judgement of the Administrative Tribunal The Tribunal found the appeal of Lux SARL unjustified and upheld the decision of the tax administration. The Tribunal agreed with the approach taken by the tax authorities disregarding the classification of the financing received and denying deductions of a notional interest. According to the Tribunal, the choice of financing was ... Read more

“Dividend B.V.” is the legal successor of a BV that has made (dividend) distributions. With respect to the distributions to a Luxembourg company (LuxCo), no Dutch dividend tax was withheld on the basis of the withholding tax exemption. Prior to the first distribution, the relevant shares in the BV were held by a limited partnership established in the Cayman Islands. This limited partnership transferred the shares in the BV to LuxCo in view of the first distribution. In the light of the T-Danmark judgment, the Court found that the tax authorities had proved that there had been an abuse of EU law, on the basis that without the use of LuxCo, a 15% withholding tax would have been due in the Netherlands, and after the use of LuxCo, this was not the case – based only on the formal conditions. The use of letter shares and preferred equity certificates avoided withholding tax in Luxembourg. LuxCo passed on 99.84% of the ... Read more

This case concerns a private equity takeover structure with apparently an intended international mismatch, i.e. a deduction/no inclusion of the remuneration on the provision of funds. The case was (primarily) decided by the Court of Appeal on the basis of non-business loan case law. The facts are as follows: A private equity fund [A] raised LP equity capital from (institutional) investors in its subfund [B] and then channelled it into two (sub)funds configured in the Cayman Islands, Fund [C] and [D] Fund. Participating in those two Funds were LPs in which the limited partners were the external equity investors and the general partners were Jersey-based [A] entities and/or executives. The equity raised in [A] was used for leveraged, debt-financed acquisitions of European targets to be sold at a capital gain after five to seven years, after optimising their EBITDA. One of these European targets was the Dutch [F] group. The equity used in its acquisition was provided not only by ... Read more

“Cosmetics Corp” is active in wholesale of medicinal products, cosmetics, perfumery and cleaning products. Following an audit the tax authorities issued an assessment regarding the interest rate on loans granted to the related parties domiciled in Cayman Islands and Luxembourg. An appeal was filed by the company. Judgement of the Tax Court The court partially upheld the assessment. Excerpt “In this sense, it is essential to create a law that contains the guidelines that the OECD has established to guarantee the principle of full competition in transactions carried out between national taxpayers with related companies, for the purpose of applying the technical methods and procedures that they provide; The express reference made by Article 62-A of the TC cannot be considered as a dimension of the principle of relative legal reserve, insofar as there is no full development of the methods or procedures contained therein, nor a reference to an infra-legal rule containing them, but rather a reference that does ... Read more

Redington India Limited (RIL) established a wholly-owned subsidiary Redington Gulf (RG) in the Jebel Ali Free Zone of the UAE in 2004. The subsidiary was responsible for the Redington group’s business in the Middle East and Africa. Four years later in July 2008, RIL set up a wholly-owned subsidiary company in Mauritius, RM. In turn, this company set up its wholly-owned subsidiary in the Cayman Islands (RC) – a step-down subsidiary of RIL. On 13 November 2008, RIL transferred its entire shareholding in RG to RC without consideration, and within a week after the transfer, a 27% shareholding in RC was sold by RG to a private equity fund Investcorp, headquartered in Cayman Islands for a price of Rs.325.78 Crores. RIL claimed that the transfer of its shares in RG to RC was a gift and therefore, exempt from capital gains taxation in India. It was also claimed that transfer pricing provisions were not applicable as income was exempt from ... Read more

In the case of BlueCrest Capital Management Cayman Limited (& others), the key issues involved partnership profit/loss allocations for mixed member partnerships and the associated anti-avoidance legislation – limitation on tax relief for interest on unallowable purpose loans and the sale of occupational income provisions. Judgement The Tribunal found that the sale of occupational income rules could apply to charge Income tax on partnership capital contributions. Although the arrangements  did have a commercial purpose (retention and incentivization of partners), they also had as a main object the avoidance or reduction of liability to pay income tax. The test for application of the occupational income rules was therefore met ... Read more

Broadcom Semiconductors Ltd is an Israeli company established in 2001 under the name Dune Semiconductors Ltd. The Company is engaged in development, production, and sale of components to routers, switches etc. The shares in Dune Semiconductors were acquired by the Broadcom Corporation (a US group) in 2009 and following the acquisition intellectual property was transferred to the new Parent for a sum of USD 17 million. The company also entered into tree agreements to provide marketing and support services to a related Broadcom affiliate under a cost+10%, to provide development services to a related Broadcom affiliate for cost+8%, and a license agreement to use Broadcom Israel’s intellectual property for royalties of approximately 14% of the affiliate’s turnover. The tax authorities argued that functions, assets, and risks had been transferred leaving only an empty shell in Israel and a tax assessment was issued based on the purchase price for the shares resulting in additional taxes of USD 29 millions. According to the ... Read more

In 2012 Broadcom Corporation acquired all the shares of Broadlight Inc, another US corporation which owned a subsidiary in Israel, for around $200 million. Three months later, the subsidiary in Israel sold its IP to a group company for $59.5m and then an agreement was entered according to which the subsidiary going forward would supply R&D, marketing and support services to the other group companies for a cost plus fee. Based on these facts the Israeli tax authorities issued an assessment equivalent to $168.5m. The tax authorities found that the full value of the company in Israel had been transferred. The tax assessment was brought to court where Broadcom claimed that the tax authorities had re-characterised the transaction and that the onus of proof was on the tax authorities to justify the value of $168.5m. The District Court held that all the values in the Israeli subsidiary had been transferred and ruled in favor of the tax authorities. This ruling ... Read more

A Luxembourg-based limited company (LU) held a 30% stake in an Austrian stock company operating an airport. LU employed no personnel and did not develop any activities. The parent company of LUP was likewise resident in Luxembourg. LUP had business premises in Luxembourg and employed three people. All of the shares in LUP were held by a company in the British Cayman Islands in trust for a non- resident Cayman Islands-based fund. In 2015, the Austrian Company distributed a dividend to LU. LU was not yet involved in the Austrian corporation “for an uninterrupted period of at least one year” thus withholding tax was withheld and deducted. A request for refunding of the withholding tax was denied by the tax office because the dividend was distributed to recipients in a third country and the tax authorities regarded the structure as abusive. LU then appealed the decision to the Federal Fiscal Court. The Court held that the appeal was unfounded, because ... Read more

In moving to the United Kingdom, a New Zealand citizen, Mr. Eric Watson, restructured a significant shareholding into debt owed by a New Zealand company, Cullen Group Ltd, to two Cayman Island conduit companies, all of which he still controlled to a high degree. This allowed Cullen Group Ltd to pay an Approved Issuer Levy (AIL) totalling $8 million, rather than Non-Resident Withholding Tax of $59.5 million. The steps in the arrangement were as follows: (a) Mr Watson sold his shares in Cullen Investments Ltd to Cullen Group, at a (rounded) value of $193 million, being $291 million less his previous $98 million shareholder advances. The sale was conditional on Cullen Investments Ltd selling its shares in Medical Holdings Ltd to Mr Watson and on Cullen Investments Ltd selling its shares in Vonelle Holdings Ltd to Maintenance Ltd which was owned by Mr Watson. (b) Cullen Group’s purchase of the Cullen Investments Ltd shares from Mr Watson was funded by a vendor loan from Mr Watson of ... Read more

The Third Circuit of Appeal upheld the tax courts prior decision in a $377 million dispute involving the affiliate of a US based commodities trader. The Court found that SIH Partners LLLP, an affiliate of Pennsylvania-based commodities trader Susquehanna International Group LLP, owed taxes on approximately $377 million in additional income. The extra earnings stemmed from a $1.5 billion loan from Bank of America brokerage Merrill Lynch, which was guaranteed by SIH’s subsidiaries in Ireland and the Cayman Islands. The Tax Court’s ruling was based on regulations under Section 956 of the Internal Revenue Code, which states that U.S. shareholders must include their controlled foreign corporations’ applicable earnings, up to the amount of such a loan, in their own income when the foreign units invest in U.S. property ... Read more

The 2018 Vodafone case from India – whether termination of option rights under an agreement can be treated as a “deemed international transaction” under section 92B(2) of the Income Tax Act. Vodafone India Services had a call option to buy shares in SMMS Investment Pvt Ltd — which held 5.11% equity capital of the Vodafone India through a web of holdings for 2.78 crore if the fair market value of these shares was less than 1,500 crore. If the fair market value was higher, it had to pay a little more. Under the same agreement, if Vodafone India Services terminated its right to acquire the share, the company would have to pay Rs 21.25 crore. Instead of exercising the call option and acquiring the valuable shares at a very low price, Vodafone India Service terminated the option and paid 21.25 crore. The tax administration held that the Vodafone India Service should have received a substantial consideration for not exercising the ... Read more

Oxfam’s list of Tax Havens, in order of significance are: (1) Bermuda (2) the Cayman Islands (3) the Netherlands (4) Switzerland (5) Singapore (6) Ireland (7) Luxembourg (8) Curaçao (9) Hong Kong (10) Cyprus (11) Bahamas (12) Jersey (13) Barbados, (14) Mauritius and (15) the British Virgin Islands. Most notably is The Netherlands placement as no. 3 on the list. Oxfam researchers compiled the list by assessing the extent to which countries employ the most damaging tax policies, such as zero corporate tax rates, the provision of unfair and unproductive tax incentives, and a lack of cooperation with international processes against tax avoidance (including measures to increase financial transparency). Many of the countries on the list have been implicated in tax scandals. For example Ireland hit the headlines over a tax deal with Apple that enabled the global tech giant to pay a 0.005 percent corporate tax rate in the country. And the British Virgin Islands is home to more ... Read more

In this case a tax assessment based on Japanese CFC rules (anti-tax haven rules) had been applied to a Japanese Group’s subsidiary on Cayman Islands. According to Japanese CFC rules, income arising from a foreign subsidiary located in a state or territory with significantly lower tax rates is deemed to arise as the income of the parent company when the principal business of the subsidiary is holding shares or IP rights. However, the CFC rules do not apply when the subsidiary has substance and it makes economic sense to conduct business in the subsidiary in the low tax jurisdiction. The Court upheld the tax assessment. Click here for English translation ... Read more

A company of a Swiss based group maintained a permanent establishment in the Cayman Islands for financing the domestic group companies. Whereas the group companies were able to deduct the interest payments from the taxable profit to their full extent, the interest income, for Swiss tax purposes, was allocated to the permanent establishment in the Cayman Islands, and therefore led to non-taxation of this interest income. By interpreting the legal term “foreign permanent establishment” the Federal Supreme Court concluded that the finance company in the Cayman Islands had only four employees and that such a lean structures was in contrast to the figures in the annual accounts. Therefore, it denied the allocation of interest income to the Cayman Islands for Swiss tax purposes. Click here for English translation ... Read more

The issue is whether MIL (INVESTMENTS) S.A. was exempt from Canadian income tax in respect of the capital gain of $425,853,942 arising in FY 1997 on the sale of shares of Diamond Field Resources Inc. by virtue of the Canadian Income Tax Act and the Convention Between Canada and The Grand Duchy of Luxembourg for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital (“Treaty”). The Canadian Tax Authorities found that MIL was not exempt under local anti avoidance provisions and issued an assessment where the capital gain had been added to the taxable income. Disagreeing with the assessment, MIL (INVESTMENTS) S.A. filed an appeal with the Tax Court. The tax court allowed the appeal of MIL (INVESTMENTS) S.A. and set aside the assessment issued by the tax authorities. An appeal was then filed with the Federal Court by the tax authorities. Judgement of Federal Court The Federal Court ... Read more

The issue is whether MIL (INVESTMENTS) S.A. was exempt from Canadian income tax in respect of the capital gain of $425,853,942 arising in its 1997 taxation year on the sale of shares of Diamond Field Resources Inc. by virtue of the Canadian Income Tax Act and the Convention Between Canada and The Grand Duchy of Luxembourg for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital (“Treaty”). The Canadian Tax Authorities found that MIL was not exempt under local anti avoidance provisions and issued an assessment where the capital gain had been added to the taxable income. Disagreeing with the assessment, MIL (INVESTMENTS) S.A. filed an appeal with the Tax Court. Judgement of Tax Court The court allowed the Appeal of MIL investments and set aside the assessment issued by the tax authorities. Excerpts “Accordingly, having found that, at the time of the Series, DFR had no desire of ... Read more