Tag: Credit rating

Germany vs X Sub GmbH, December 2016, Münster Fiscal Court, Case No 13 K 4037/13 K,F

Germany vs X Sub GmbH, December 2016, Münster Fiscal Court, Case No 13 K 4037/13 K,F

X Sub GmbH is a German subsidiary of a multinational group. The parent company Y Par B.V. and the financial hub of the group Z Fin B.V. – a sister company to the German subsidiary – are both located in the Netherlands. In its function as a financial hub, Z Fin B.V granted several loans to X Sub GmbH. As part of a tax audit, the German tax authority considered that the interest on the inter-company loans paid by X Sub GmbH to Z Fin B.V. was too high. In order to determine the arm’s length interest rate, X Sub GmbH had applied the CUP method. The tax authority instead applied the cost plus method and issued an assessment. X Sub GmbH filed an appeal to Münster Fiscal Court. The Court found that the cost plus method was justly chosen by the tax authority, as the external CUPs could not be used because of differences in conditions between the uncontrolled ... 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