Tag: Delineation

Delineation is the framework for analysing transactions between associated enterprises and requires taking the following steps:

(i) Identify the objekt transferred in the transaction with specificity and the specific, economically significant risks associated with the transfer

(ii) Identify the full contractual arrangements and other indicia of legal ownership, contractual rights and obligations including contractual assumption of risks in the relations between the associated enterprises;

(iii) Identify the parties performing functions, using assets, and managing risks by means of the functional analysis, and in particular determine which parties control any outsourced functions, and control specific, economically significant risks;

(iv) Confirm the consistency between the terms of contractual arrangements and the conduct of the parties, and determine whether the party assuming economically significant risks under Step 4 (i) of paragraph 1.60, also controls the risks and has the financial capacity to assume the risks;

(v) Delineate the actual controlled transactions in light of the relevant contractual relations and the conduct of the parties, including their relevant contributions of functions, assets and risks, taking into account the framework for analysing and allocating risk under Section D.1.2.1 of Chapter I;

After having accurately delineated the transaction, where possible, determine arm’s length prices for the transactions consistent with each party’s contributions of functions performed, assets used, and risks assumed, unless the guidance in Section D.2 of Chapter I (non-recognition) applies.

TPG 1.33-1.73 and 6.34

Switzerland vs. A GmbH, 12 Sep. 2018, Administrative Court, Case No. SB.2017.00100

Switzerland vs. A GmbH, 12 Sep. 2018, Administrative Court, Case No. SB.2017.00100

A GmbH, based in Zurich, was a subsidiary of the D group operating mainly in the field of consumer electronics worldwide, headquartered in country E. A GmbH was primarily responsible for acquiring exploitation rights to … and other related activities. The D Group also owned company F in Land H, which was responsible for the global treasury and cash pooling of the Group. On December 1 2008 A GmbH had entered into an agreement with Company F for the short-term deposit of excess capital and short-term borrowing. Under the terms of the agreement, if the balance was in A GmbH’s favor, A GmbH would be credited interest based on the one-month London Interbank Bid Rate (LIBID) minus 6.25 basis points, but not less than 0.05%. Following an audit in relation to the tax periods of 1.4.2009-31.3.2010 and 1.4.2010-31.3.2011, the tax authorities took the view that the cash pool credit contains a proportion of long-term loans to company F and insofar ... Continue to full case
Norway vs. Exxonmobil Production Norway Inc., January 2018, Lagsmanret no LB-2016-160306

Norway vs. Exxonmobil Production Norway Inc., January 2018, Lagsmanret no LB-2016-160306

An assessment was issued by the Norwegian tax authorities for years 2009 2010 and 2011 concerning the interest on a loan between Exxonmobil Production Norway Inc. (EPNI) as the lender and Exxon Mobile Delaware Holdings Inc. (EMDHI) as the borrower. Both EPNI and EMDHI are subsidiaries in the Exxon Group, where the parent company is domiciled in the United States. The loan agreement between EPNI and EMDHI was entered into in 2009. The loan had a drawing facility of NOK 20 billion. The agreed maturity was 2019, and the interest rate was fixed at 3 months NIBOR plus a margin of 30 basis points. The agreement also contained provisions on quarterly interest rate regulation and a interest adjustment clause allowing the lender to adjust the interest rate on changes in the borrower’s creditworthiness. The dispute concerns the margin of 30 basis points and the importance of the adjustment clause, also referred to as the step-up clause. The Oil Tax office ... Continue to full case
South Africa vs Sasol, 30 June 2017, Tax Court, Case No. TC-2017-06 - TCIT 13065

South Africa vs Sasol, 30 June 2017, Tax Court, Case No. TC-2017-06 – TCIT 13065

The taxpayer is registered and incorporated in the Republic of South Africa and carries on business in the petrochemical industry. It has some of its subsidiaries in foreign jurisdictions. Business activities include the importation and refinement of crude oil. This matter concerns the analysis of supply agreements entered into between the XYZ Corp and some of its foreign subsidiaries. It thus brings to fore, inter alia the application of the South African developing fiscal legal principles, namely, residence based taxation, section 9D of the Income Tax Act 58 of 1962 and other established principles of tax law, such as anti-tax avoidance provisions and substance over form. Tax avoidance is the use of legal methods to modify taxpayer’s financial situation to reduce the amount of tax that is payable SARS’s ground of assessment is that the XYZ Group structure constituted a transaction, operation or scheme as contemplated in section 103(1) of the Act. The structure had the effect of avoiding liability ... Continue to full case
Switzerland vs. A GmbH, 7 Dec. 2016, Administrative Court, Case No. SB.2016.00008

Switzerland vs. A GmbH, 7 Dec. 2016, Administrative Court, Case No. SB.2016.00008

The distinction between cash pool receivables and long-term loans. A GmbH is a group company of the global A-group. The A Group also includes company F Ltd, which is responsible for the global treasury and cash pooling of the A Group. In 2008, A GmbH entered into an agreement with F Ltd on the short-term deposit of excess liquidity and short-term borrowing (cash pool). Under the terms of the agreement, if the balance were in A GmbH’s favor, recievables would be credited interest based on the one-month London Interbank Bid Rate (LIBID) less 6 , 25 basis points, but at least 0.05%. The Swiss tax administration argued that a portion of the cash pool receivable had to be treated as a long-term loan bearing higher interest rates. The long-term loan was set to the minimum cash pool receivable balance of each fiscal year. The interest rate on the long-term loan was set to the Swiss „Safe Habor Rates“ according to ... Continue to full case
Italy vs Edison s.p.a. April 2016, Supreme Court no 7493

Italy vs Edison s.p.a. April 2016, Supreme Court no 7493

The Italien company had qualified a funding arrangement as a non-interest-bearing contribution for future capital increase, hence part of Net Equity. The Italian Supreme Court found that intra-group financing agreements are subject to transfer pricing legislation and that non-interest-bearing financing is generally not consistent with the arm’s-length principle ... Continue to full case
France vs SARL Garnier Choiseul Holding, 17 July 2013, CE No 352989

France vs SARL Garnier Choiseul Holding, 17 July 2013, CE No 352989

This case is about the importance of proving that the transaction has a real economic purpose, and that it does not artificially seek to achieve tax benefits. The courts also consider the spirit of the law, for example, the purpose of the tax exemptions relating to parent-subsidiary distributions is to involve the parent company in the business of the subsidiary. Click here for translation France vs SARL Garnier Choiseul Holding Conseil_d_État_9ème___10ème_SSR_17_07_2013_352989 ... Continue to full case