Tag: Double tax treaty

France vs Accor (Hotels), June 2022, CAA de Versailles, Case No. 20VE02607

France vs Accor (Hotels), June 2022, CAA de Versailles, Case No. 20VE02607

The French Accor hotel group was the subject of an tax audit related to FY 2010, during which the tax authorities found that Accor had not invoiced a fee for the use of its trademarks by its Brazilian subsidiary, Hotelaria Accor Brasil, in an amount of 8,839,047. The amount not invoiced was considered a deemed distribution of profits and the tax authorities applied a withholding tax rate of 25% to the amount which resulted in withholding taxes in an amount of EUR 2.815.153. An appeal was filed by Accor with the Administrative Court. In a judgment of 7 July 2020, the Administrative Court partially discharged Accor from the withholding tax up to the amount of the application of the conventional reduced rate of 15% (related to dividends), and rejected the remainder of the claim. The Administrative Court considered that income deemed to be distributed did not fall within the definition of dividends under article 10 of the tax treaty with ... Read more
France vs Société Planet, May 2022, Conseil d'État, Case No 444451

France vs Société Planet, May 2022, Conseil d’État, Case No 444451

In view of its purpose and the comments made on Article 12 of the OECD Model Convention, the Conseil d’État found that Article 12(2) of the Franco-New Zealand tax treaty was applicable to French source royalties whose beneficial owner resided in New Zealand, even if the royalties had been paid to an intermediary company established in a third country. The Supreme Court thus set aside the previous 2020 Judgement of the Administrative Court of Appeal. The question of whether the company in New Zealand actually qualified as the beneficial owner of the royalties for the years in question was referred to the Court of Appeal. Excerpt “1. It is clear from the documents in the file submitted to the judges of the court of first instance that the company Planet, which carries on the business of distributing sports programmes to fitness clubs, was subject to reminders of withholding tax in respect of sums described as royalties paid to the companies ... Read more
Canada vs Dow Chemicals, April 2022, Federal Court of Appeal, Case No 2022 FCA 70

Canada vs Dow Chemicals, April 2022, Federal Court of Appeal, Case No 2022 FCA 70

This appeal and cross-appeal arise as a result of the response provided by the Tax Court of Canada to a question submitted under Rule 58 of the Tax Court of Canada Rules (General Procedure), SOR/90-688a. The question was: Where the Minister of National Revenue has exercised her discretion pursuant to subsection 247(10) of the Income Tax Act (“ITA”) to deny a taxpayer’s request for a downward transfer pricing adjustment, is that a decision falling outside the exclusive original jurisdiction granted to the Tax Court of Canada under section 12 of the Tax Court of Canada Act and section 171 of the ITA? This question arose in the context of the appeal commenced by Dow Chemical Canada ULC (Dow) in relation to the reassessment of its 2006 taxation year. The Tax Court (2020 TCC 139) provided the following answer to this question: The Court has determined that where the Minister has decided, pursuant to subsection 247(10) of the Income Tax Act ... Read more
Korea vs Microsoft, February 2022, Supreme Court, Case no. 2019두50946

Korea vs Microsoft, February 2022, Supreme Court, Case no. 2019두50946

In 2011 Samsung signed the contract with Microsoft for use of software-patent in Android-based smartphone and tablets, and for the years 2012-2015 Samsung paid royalties to a Microsoft subsidiary, MS Licensing GP, while saving 15 percent for withholding tax. The royalties paid by Samsung to Microsoft during these years amounted to 4.35 trillion won, of which 15%, or 653.7 billion won, was paid as withholding tax. In June 2016, Microsoft filed a claim for a tax refund in a amount of 634 billion won with the Tax Office. According to Microsoft royalty paid for patent rights not registered in Korea is not domestic source income, and should not be subject to withholding tax. The request was refused by the tax authorities. Microsoft then filed a lawsuit against the tax authorities in 2017. Microsoft argued that the withholding tax imposed on income from a patent unregistered in Korea resulted in double taxation. The Trail court issued a decision in favour of ... Read more
Argentina vs Molinos Río de la Plata S.A., September 2021, Supreme Court, Case No CAF 1351/2014/1/RH1

Argentina vs Molinos Río de la Plata S.A., September 2021, Supreme Court, Case No CAF 1351/2014/1/RH1

In 2003 Molinos Argentina had incorporated Molinos Chile under the modality of an “investment platform company” regulated by Article 41 D of the Chilean Income Tax Law. Molinos Argentina owned 99.99% of the shares issued by Molinos Chile, and had integrated the share capital of the latter through the transfer of the majority shareholdings of three Uruguayan companies and one Peruvian company. Molinos Argentina declared the dividends originating from the shares of the three Uruguayan companies and the Peruvian company controlled by Molinos Chile as non-taxable income by application of article 11 of the DTA between Argentina and Chile. On that factual basis, the tax authorities applied the principle of economic reality established in article 2 of Law 11.683 (t.o. 1998 and its amendments) and considered that Molinos Argentina had abused the DTA by using the Chilean holding company as a “conduit company” to divert the collection of dividends from the shares of the Uruguayan and Peruvian companies to Chilean ... Read more
Luxembourg vs "Lux Service SA", December 2020, Higher Administrative Court, Case No 45072

Luxembourg vs “Lux Service SA”, December 2020, Higher Administrative Court, Case No 45072

In August 2020, the competent authority of the Belgian tax administration sent a request for information to the Luxembourg tax administration concerning “Lux Service SA” under the tax convention between Luxembourg and Belgium. The requested information regarding “Lux Service SA” was documentation related to the basis for service payments from a related party in Belgium. The tax administration in Luxembourg contacted “Lux Service SA” and requested submission of the information and documents. Lux Service SA did not want to accommodate the request and brought the case to the High Administrative court for an annulment. The tax authorities argued that the appeal should be dismissed as unfounded. The Court dismissed the appeal of “Lux Services SA” and upheld the information injunction issued by the tax administration. The argument that the tax administration had failed to state the reasons for the information injunction was rejected by the Court as unfounded. According to the Court, the information injunction was based on a sufficiently ... Read more
Switzerland vs A GmbH und B GmbH, August 2020, Federal Supreme Court, Case No 2C_1116/2018

Switzerland vs A GmbH und B GmbH, August 2020, Federal Supreme Court, Case No 2C_1116/2018

Two Swiss companies, A GmbH und B GmbH, belonged to a multinational group under a Dutch parent. The group provided food and fuel to military troops and civilian in areas of crises and armed conflicts. A group company located in the United Arab Emirates provided services to the Swiss companies primarily in relation to activities in Afghanistan. A GmbH und B GmbH had a permanent establishment in Afghanistan. As there are no tax treaties between Switzerland and Afghanistan, for Swiss tax purposes the allocation of income between the two companies and the permanent establishment in Afghanistan was governed by Swiss domestic law. A tax assessment was issued by the authorities which was brought to the Swiss courts by the companies. In 2018 the case ended up in the Swiss Supreme Court. The Supreme Court ruled that according to Swiss law, the profit allocation has to start from the total global income of the companies. Hence, the assessment was partially incorrect, ... Read more
France vs Société Planet, July 2020, CAA, Case No 18MA04302

France vs Société Planet, July 2020, CAA, Case No 18MA04302

The Administrative Court of Appeal (CAA) set aside a judgement of the administrative court and upheld the tax authorities claims of withholding taxes on royalties paid by Société Planet to companies in Belgium and Malta irrespective of the beneficial owner of those royalties being a company in New Zealand. Hence, Article 12(2) of the Franco-New Zealand tax treaty was not considered applicable to French source royalties whose beneficial owner resided in New Zealand, where they had been paid to an intermediary company established in a third country. Click here for English translation Click here for other translation France vs Planet July 2020 CAA 18MA04302 ... Read more
Switzerland vs Coffee Machine Group, April 2020, Federal Supreme Court, Case No 2C_354/2018

Switzerland vs Coffee Machine Group, April 2020, Federal Supreme Court, Case No 2C_354/2018

Coffee Machine Ltd. was founded in Ireland and responsible for the trademark and patent administration as well as the management of the research and development activities of the A group, the world’s largest manufacturer of coffee machines. A Swiss subsidiary of the A group reported payments of dividend to the the Irish company and the group claimed that the payments were exempt from withholding tax under the DTA and issued a claim for a refund. Tax authorities found that the Irish company was not the beneficial owner of the dividend and on that basis denied the companies claim for refund. The lower Swiss court upheld the decision of the tax authorities. Judgement of the Supreme Court The Supreme Court upheld the decision of the lower court and supplemented its findings with the argument, that the arrangement was also abusive because of the connection between the share transfer in 2006 and the distribution of pre-acquisition reserves in 2007 and the total ... Read more
Korea vs "Lux corp", 16 January 2020, Supreme Court Case no. 2016두35854

Korea vs “Lux corp”, 16 January 2020, Supreme Court Case no. 2016두35854

In this case the Korean Supreme Court held that Luxembourg SICAV and SICAF are entitled to reduced withholding tax rate on interest and dividend income under the Korea–Luxembourg Tax Treaty. Meaning of “residents of Luxembourg,” which is subject to the “Convention between the Government of the Republic of Korea and the Government of 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” (held: any person who, under the laws of Luxembourg, is liable to pay tax therein), and in a case where tax is not imposed in accordance with the benefit of tax exemption, etc. for which legal requirements has been fulfilled, whether it may be considered that the tax liability does not exist (negative). Standard for determining whether one qualifies as the “beneficial owner” as prescribed in Article 10(2) Item (b) or 11(2) of the “Convention between the Government of the Republic ... Read more
Italy vs CDC srl, December 2018, Tax Court, Case No 32255/2018

Italy vs CDC srl, December 2018, Tax Court, Case No 32255/2018

A refund of withholding tax on dividend payments from an Italien subsidiary, CDC srl, was claimed by the parent company in Luxembourg, CDC Net SA. The parent company had been subject to income tax in Luxembourg as required by the EU Directive, but in Luxembourg there were no actual taxation of the dividends. The refund was denied as, according to the authorities, the Luxembourg company did not meet the requirements of the EU Directive due to lack of actual taxation of the dividends in Luxembourg. The Court ruled in favor of the tax authorities and denied the refund of withholding taxes under the European Parent Subsidiary Directive (Directive 90/435/EEC, Article 5, paragraph 1, ) as no double taxation existed due to the dividend exemption regime in Luxembourg. Click here for English translation Click here for other translation Italy Dividend Supreme Court 2018 ... Read more

Korea vs Company A, November 29, 2018, Supreme Court Case no. 2018Du38376

The issue in this case was the meaning of and standard for determining what constitutes “beneficial owner” as prescribed by Article 10(2)(a) of the Convention between the Government of the Republic of Korea and the Government of the Hungarian People’s Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income. Whether a tax treaty may be deemed inapplicable in the event that treaty abuse is acknowledged according to the principle of substantial taxation under the Framework Act on National Taxes even if constituting a beneficial owner of dividend income (affirmative) In a case where: (a) Company A, in paying dividends on six occasions to Hungary-based Company B that owns 50% of its shares, paid the withheld corporate tax based on the limited tax rate of 5% as prescribed by Article 10(2)(a) of the Convention between the Government of the Republic of Korea and the Government of the Hungarian People’s Republic for ... Read more
Korea vs CJ E&M Co., Ltd. , November 2018, Supreme Court Case no. 2017두33008

Korea vs CJ E&M Co., Ltd. , November 2018, Supreme Court Case no. 2017두33008

In 2011, a Korean company, CJ E&M Co., Ltd concluded a license agreement relating to the domestic distribution of Paramount films, etc. with Hungary-based entity Viacom International Hungary Kft (hereinafter “VIH”), which is affiliated with the global entertainment content group Viacom that owns the film producing company Paramount and music channel MTV. From around that time to December 2013, the Plaintiff paid VIH royalties amounting to roughly KRW 13.5 billion (hereinafter “pertinent royalty income”). CJ E&M Co., Ltd did not withhold the corporate tax regarding the pertinent royalty income according to Article 12(1) of the Convention between the Government of the Republic of Korea and the Government of the Hungarian People’s Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (hereinafter “Korea-Hungary Tax Treaty”). The Hungarian company was interposed between the Korean entertainment company and a Dutch company which previously licensed the rights to the Korean entertainment company. The Korean ... Read more
Netherlands vs X B.V., November 2018, Supreme Court, Case No 17/03918

Netherlands vs X B.V., November 2018, Supreme Court, Case No 17/03918

Company X B.V. held all the shares in the Irish company A. The Tax Agency in the Netherlands claimed that the Irish company A qualified as a “low-taxed investment participation”. The court agreed, as company A was not subject to a taxation of 10 per cent or more in Ireland. The Tax Agency also claimed that X B.V.’s profit should include a hidden dividend due to company A’s providing an interest-free loan to another associated Irish company E. The court agreed. Irish company E had benefited from the interest-free loan and this benefit should be regarded as a dividend distribution. It was then claimed by company X B.V, that the tax treaty between the Netherlands and Ireland did not permit including hidden dividends in X’s profit. The Supreme Court disagreed and found that the hidden dividend falls within the scope of the term “dividends” in article 8 of the tax treaty. Click here for other translation ECLI-NL-HR-2018-2034 ... Read more
Australia vs Satyam Computer Services Limited, October 2018, Federal Court of Australia, Case No FCAFC 172

Australia vs Satyam Computer Services Limited, October 2018, Federal Court of Australia, Case No FCAFC 172

The question in this case was whether payments received by Satyam Computer Services Limited (now Tech Mahindra Ltd) from its Australian clients – that were royalties for the purposes of Article 12 of the tax treaty with India, but not otherwise royalties under Australian tax law – were deemed to be Australian source income by reason of Article 23 of the tax treaty and ss 4 and 5 of the International Tax Agreements Act 1953 and therefore included in the company’s assessable income for Australian tax purposes. The answer provided by the Federal Court confirmed this to be the case. Click here for translation 2018FCAFC0172 ... Read more
Korea vs Korean Finance PE, February 2018, Supreme Court, Case No 2015Du2710

Korea vs Korean Finance PE, February 2018, Supreme Court, Case No 2015Du2710

In cases where a domestic corporation that operates a financial business (including a domestic place of business of a foreign corporation) borrowed money from a foreign controlling shareholder and such borrowed amount exceeds six times the amount invested in shares or equity interests by the foreign controlling shareholder, a certain amount of the interest paid in relation to the exceeding amount shall be excluded from deductible expenses of the domestic corporation and subsequently deemed to have been disposed of as a dividend of the domestic corporation pursuant to Article 67 of the Corporate Tax Act. In that sense, the interest paid in relation to the exceeding amount borrowed is regarded as a domestic source income of a foreign corporation, which is a foreign controlling shareholder. The Convention between the Republic of Korea and the Republic of Singapore for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, which allows dividend income and ... Read more

TPG2017 Preface paragraph 9

The main mechanisms for resolving issues that arise in the application of international tax principles to MNEs are contained in these bilateral treaties. The Articles that chiefly affect the taxation of MNEs are: Article 4, which defines residence; Articles 5 and 7, which determine the taxation of permanent establishments; Article 9, which relates to the taxation of the profits of associated enterprises and applies the arm’s length principle; Articles 10, 11, and 12, which determine the taxation of dividends, interest, and royalties, respectively; and Articles 24, 25, and 26, which contain special provisions relating to non-discrimination, the resolution of disputes, and exchange of information ... Read more
Poland vs CP Corp, September 2016, Supreme Administrative Court, Case No. II FSK 2299/14

Poland vs CP Corp, September 2016, Supreme Administrative Court, Case No. II FSK 2299/14

A Polish company were planning to enter into a inter-group cash pooling agreement. The cash pooling operation were to be managed by a foreign bank, which would open a group account as a basic account for Norwegien parent company, the pool leader. The question was whether the taxation of interest payments made from the Polish company to the pool leader will apply art. 21 par. 3 of the Corporate Income Tax Act, as a result of which interest should be exempt from withholding tax, and if not – whether the taxation of the interest will apply art. 11 of the tax treaty between Norway and Poland. In this judgement the Court stated that the cash pool leader cannot be regarded as the owner of all receivables paid to the group account, because it is not entitled to dispose of the interest in its sole discretion. The judgement in this case is aligned with prior rulings of 11 June 2015, file ... Read more
Poland vs Cash Pool Corp, March 2016, Supreme administrative Court, Case No. II FSK 3666/13

Poland vs Cash Pool Corp, March 2016, Supreme administrative Court, Case No. II FSK 3666/13

In a request for a binding ruling, a Polish Company indicated that it was joining an inter-group Cash Pooling Agreement (“Agreement”) in which the leader was based in Luxembourg. Under the Agreement, the pool leader acts as a regional financial center and consolidates the balances of current accounts of all the cash pool participants. The banking platform used by the Group for the purposes of Cash Pooling is operated by D. Bank (“DB”) based in Germany. The actual operation of the Cash pooling system will consist in automated transfers of positive balances existing on the accounts of participants of Cash pooling, including the applicant’s account at the end of the settlement day into the superior account of Leader. The Minister of Finance found that the role of Cash pool leader boils down to the management of cash that will flow from participants in the cash pooling system. It is the companies participating in this cash pool that can actually enjoy ... Read more
Germany vs Capital GmbH, June 2015, Bundesfinanzhof, Case No I R 29/14

Germany vs Capital GmbH, June 2015, Bundesfinanzhof, Case No I R 29/14

The German subsidiary of a Canadian group lent significant sums to its under-capitalised UK subsidiary. The debt proved irrecoverable and was written off in 2002 when the UK company ceased trading. At the time, such write-offs were permitted subject to adherence to the principle of dealing at arm’s length. In its determination of profits on October 31, 2002, the German GmbH made a partial write-off of the repayment claim against J Ltd. in the amount of 717.700 €. The tax authorities objected that the unsecured loans were not at arm’s length. The tax authorities subjected the write-down of the claims from the loan, which the authorities considered to be equity-replacing, to the deduction prohibition of the Corporation Tax Act. The authorities further argued that if this was not the case, then, due to the lack of loan collateral, there would be a profit adjustment pursuant to § 1 of the Foreign Taxation Act. Irrespective of this, the unsecured loans had ... Read more
Poland vs Cash Pool Corp, Warsaw Administrative Court, Case no II-FSK-1518-13

Poland vs Cash Pool Corp, Warsaw Administrative Court, Case no II-FSK-1518-13

In a request for a binding ruling, a Polish Company indicated that it was joining an inter-group Cash Pooling Agreement (“Agreement”) in which the leader was based in Luxembourg. Under the Agreement, the pool leader acts as a regional financial center and consolidates the balances of current accounts of all the cash pool participants. The banking platform used by the Group for the purposes of Cash Pooling is operated by D. Bank (“DB”) based in Germany. The actual operation of the Cash pooling system will consist in automated transfers of positive balances existing on the accounts of participants of Cash pooling, including the applicant’s account at the end of the settlement day into the superior account of Leader. The Minister of Finance found that the role of Cash pool leader boils down to the management of cash that will flow from participants in the cash pooling system. It is the companies participating in this cash pool that can actually enjoy ... Read more
Switzerland vs DK Bank, May 2015, Federal Supreme Court, Case No BGE 141 II 447)

Switzerland vs DK Bank, May 2015, Federal Supreme Court, Case No BGE 141 II 447)

The Federal Supreme Court denied the refund of withholding taxes claimed by a Danish bank on the basis of the double tax treaty between Denmark and Switzerland due to the lack of beneficial ownership. The Danish bank entered into total return swap agreements with different clients. For hedging purposes, the Danish bank purchased a certain amount of the underlying assets (companies listed in the Swiss stock exchange) and received dividend distributions from these Swiss companies. The Federal Supreme Court was of the opinion that the Danish bank lost the right for refund of the withholding taxes on the dividends received based on the DTT-DK/CH. According to the Federal Supreme Court, the Danish Bank could not be qualified as the beneficial owner of these shares. The Federal Supreme Court denied the beneficial ownership on the grounds that the Danish bank was, in fact, obliged to transfer the dividends to the respective parties of the total return swap agreements. Click here for ... Read more
Finland vs. Corp, July 2014, Supreme Administrative Court HFD 2014:119

Finland vs. Corp, July 2014, Supreme Administrative Court HFD 2014:119

A Ab had in 2009 from its majority shareholder B, based in Luxembourg, received a EUR 15 million inter-company loan. A Ab had in 2009 deducted 1,337,500 euros in interest on the loan. The loan had been granted on the basis that the banks financing A’s operations had demanded that the company acquire additional financing, which in the payment scheme would be a subordinated claim in relation to bank loans, and by its nature a so-called IFRS hybrid, which the IFRS financial statements were treated as equity. The loan was guaranteed. The fixed annual interest rate on the loan was 30 percent. The loan could be paid only on demand by A Ab. The Finnish tax authorities argued that the legal form of the inter-company loan agreed between related parties should be disregarded, and the loan reclassified as equity. Interest on the loan would therefore not be deductible for A Ab. According to the Supreme Administrative Court interest on the loan was tax deductible. The Supreme Administrative ... Read more
Germany vs US resident German taxpayer, October 2013, Supreme Tax Court, Case No IX R 25/12

Germany vs US resident German taxpayer, October 2013, Supreme Tax Court, Case No IX R 25/12

The Supreme Tax Court has held that the costs incurred by a taxpayer in connection with a tax treaty mutual agreement proceeding are not costs of earning the relevant income, but has left open a possible deduction as “unusual expenses”. A US resident realised a gain on the sale of a share in a GmbH. The German tax office sought to tax the gain, but the taxpayer objected on the grounds that it was taxable in the US under the double tax treaty. This tax office did not accept this objection, so a mutual agreement proceeding was initiated in an effort to clear the issue. Ultimately, the two competent authorities agreed to split the taxing right in the ratio 60:40 in favour of Germany. However, the taxpayer had incurred various consultancy and legal costs in the course of the process and these should, he claimed, be deducted from the taxable gain, as they would not have arisen without it. The tax ... Read more