Tag: Factoring

Financial transaction whereby an enterprise sells its debt-claims to a third party in order to obtain cash (although less than the full amount of the debt). The third party then assumes responsibility for the administration and collection of the debt on the due date for its own account.

Spain vs Acer Computer Ibérica S.A., March 2019, AUDIENCIA NACIONAL, Case No 125:2017, NFJ073359

Spain vs Acer Computer Ibérica S.A., March 2019, AUDIENCIA NACIONAL, Case No 125:2017, NFJ073359

Acer Computer Ibérica S.A. (ACI) is part of the multinational ACER group, which manufactures and distributes personal computers and other electronic devices. Acer Europe AG (AEAG), a group entity in Switzerland, centralises the procurement of the subsidiaries established in Europe, the Middle East and Africa, and acts as the regional management centre for that geographical area. ACI is responsible for the wholesale marketing of electronic equipment and material, as well as in the provision of technical service related to these products in Spain and Portugal. ACI is characterized as a limited risk distributor by the group. At issue was deductibility of payments resulting from factoring agreements undertaken ACI with unrelated banks, adopted to manage liquidity risks arising from timing mismatches between its accounts payable and accounts receivable. Based on an interpretation of the limited risk agreement signed between ACI and its principal AEAG, the tax authorities disregarded the allocation of the risk – and hence allocation of the relevant costs ... Continue to full case
France vs GE Medical Systems, November 2018, Supreme Court - Conseil d’État n° 410779

France vs GE Medical Systems, November 2018, Supreme Court – Conseil d’État n° 410779

Following an audit of GE Medical Systems Limited Partnership (SCS), which is engaged in the manufacturing and marketing of medical equipment and software, the French tax authorities issued an assessment related to the “value added amount” produced by the company, which serves as the basis for calculating the French minimum contribution of business tax provided for in Article 1647 E of the General Tax Code. The tax authorities was of the view that (1) prices charged for goods and services provided to foreign-affiliated companies had been lower than arm’s length prices and that (2) part of deducted factoring costs were not deductible in the basis for calculating the minimum business tax. On that basis a discretionary assessment of additional minimum business tax was issued. GE Medical Systems appealed the assessment to the Administrative Court of  Appeal. The Court of Appeal came to the conclusion that the basis for assessment of arm’s length prices of the goods and services sold had ... Continue to full case
US vs Pacific management Group, August 2018, US Tax Court Case, Memo 2018-131

US vs Pacific management Group, August 2018, US Tax Court Case, Memo 2018-131

This case concerned a tax scheme where taxable income was eliminated using factoring and management fees to shift profits. The Tax Court held that the scheme was in essence an attempt to eliminate the taxes. Factoring and management fees were not deductible expenses but rather disguised distributions of corporate profits and generally currently taxable to the individual shareholders as constructive dividends or as income improperly assigned to the corporations. In the TC Memo interesting views on the arm’s length nature of factoring and management fees is elaborated upon. TC memo 2018-131 US vs Pacific management Group 20aug 2018 TC memo 2018-131 ... Continue to full case
France vs GE Healthcare Clinical Systems, June 2018, CE n° 409645

France vs GE Healthcare Clinical Systems, June 2018, CE n° 409645

In this case, the French tax authorities questioned the method implemented by GE Healthcare Clinical Systems to determine the purchase price of the equipment it was purchasing from other General Electric subsidiaries in the United States, Germany and Finland for distribution in France. The method used by the GE Group for determining the transfer prices was to apply a margin of 5% to all direct and indirect production costs borne by the foreign group suppliers. For the years 2007, 2008 and 2009 the tax authorities applied a TNM-method based on a study of twenty-six comparable companies. The operating results of GE Healthcare France was then determined by multiplying the median value of the ratio “operating result/turnover” from the benchmark study to the turnover in GE Healthcare Clinical Systems. The additional profit was declared and qualified as constituting an indirect transfer of profits to the related party suppliers in the General Electric Group. The GE Group disagreed and brought the case ... Continue to full case
Canada vs. McKesson. October 2012. Tax Court

Canada vs. McKesson. October 2012. Tax Court

McKesson is a multinational group involved in wholesale distribution of pharmaceuticals. Its Canadian subsidiary entered into a receivables sales (factoring) agreement with its direct parent, McKesson International Holdings III Sarl in Luxembourg in 2002. Under the agreement, McKesson International Holdings III Sarl agreed to purchase the receivables for about C$460 million and committed to purchasing all the eligible receivables as they arose for the next five years. The price of the receivables was determined at a discount of 2.206 percent from the face amount. The funding to buy the receivables was borrowed in Canadian dollars from an indirect parent company of McKesson International Holdings III Sarl in Ireland and guaranteed by another indirect parent in Luxembourg. The Court didn’t recharacterize the transactions. The Court emphasized that the Canadian Income Tax Act was the only legally binding clause on appeal before the court and that the practice of the CRA under the OECD guidelines was irrelevant. This case recognizes the need to consider other factors (for example, a series ... Continue to full case