Tag: Dividend or interest

Switzerland vs "PPL AG", March 2020, Federal Supreme Court, Case No 2C_578/2019

Switzerland vs “PPL AG”, March 2020, Federal Supreme Court, Case No 2C_578/2019

“PPL AG” had been set up as a limited liability company and in addition to the ordinary share capital, “PPL AG” had issued non-voting shares (participation certificates) to its German parent company and to three German individual investors in an aggregate amount of CHF 1.82 million. “PPL AG” was later converted into a joint stock corporation and on that occasion the participation certificates were converted into Profit Participating Loans (PPL), with an annual interest rate of 7%. In 2015, the Swiss tax administration carried out a tax audit of “PPL AG” for the years 2010-2014 and issued an assessment claiming payment of CHF 94,000 in withholding taxes on constructive dividends. According to the tax administration “PPL AG” had paid excessive amounts of interest to its lenders under the PPLs, exceeding the safe harbour interest rates published by the Swiss tax administration for the years under review. According to the tax administration, the portion of the interest payments exceeding the published ... Continue to full case
Netherlands vs Lender BV, June 2019, Tax Court, Case No 17/871

Netherlands vs Lender BV, June 2019, Tax Court, Case No 17/871

A Dutch company, Lender BV, provided loans to an affiliated Russian company on which interest was paid. The Dispute was (1) whether the full amount of interest should be included in the taxable income in the Netherlands, or if part of the “interest payment” was subject to the participation exemption or (2) whether the Netherlands was required to provide relief from double taxation for the Russian dividend tax and, if so, to what amount. The Tax court found it to be a loan and the payments therefor qualified as interest and not dividend. The participation exemption does not apply to interest. In addition, the court ruled that the Russian thin-capitalization rules did not have an effect on the Netherlands through Article 9 of the Convention for the avoidance of double taxation between the Netherlands and Russia. Application of the participation exemption was not an issue. In the opinion of the court, a (re) qualification of interest as a dividend on the basis of ... Continue to full case
Switzerland vs "PPL AG", May 2019, Federal Court, Case No A-6360/2017

Switzerland vs “PPL AG”, May 2019, Federal Court, Case No A-6360/2017

“PPL AG” had been set up as a limited liability company and in addition to the ordinary share capital, “PPL AG” had issued non-voting shares (participation certificates) to its German parent company and to three German individual investors in an aggregate amount of CHF 1.82 million. “PPL AG” was later converted into a joint stock corporation and on that occasion the participation certificates were converted into Profit Participating Loans (PPL), with an annual interest rate of 7%. In 2015, the Swiss tax administration carried out a tax audit of “PPL AG” for the years 2010-2014 and issued an assessment claiming payment of CHF 94,000 in withholding taxes on constructive dividends. According to the tax administration “PPL AG” had paid excessive amounts of interest to its lenders under the PPLs, exceeding the safe harbour interest rates published by the Swiss tax administration for the years under review. According to the tax administration, the portion of the interest payments exceeding the published ... Continue to full case
New Zealand vs Cullen Group Limited, March 2019, New Zealand High Court, Case No [2019] NZHC 404

New Zealand vs Cullen Group Limited, March 2019, New Zealand High Court, Case No [2019] NZHC 404

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 ... Continue to full case
US vs PepsiCo, September 2012, US Tax Court, 155 T.C. Memo 2012-269

US vs PepsiCo, September 2012, US Tax Court, 155 T.C. Memo 2012-269

PepsiCo had devised hybrid securities, which were treated as debt in the Netherlands and equity in the United States. Hence, the payments were treated as tax deductible interest expenses in the Netherlands but as tax free dividend income on equity in the US. The IRS held that the payments received from PepsiCo in the Netherlands should also be characterised as taxable interest payments for federal income tax purposes and issued an assessment for FY 1998 to 2002. PepsiCo brought the assessment before the US Tax Court. Based on a 13 factors-analysis the Court concluded that the payments made to PepsiCo were best characterised as nontaxable returns on capital investment and set aside the assessment. Factors considered were: (1) names or labels given to the instruments; (2) presence or absence of a fixed maturity date; (3) source of payments; (4) right to enforce payments; (5) participation in management as a result of the advances; (6) status of the advances in relation ... Continue to full case