Tag: Force majeure

Denmark vs EAC Invest A/S, October 2021, High Court, Case No SKM2021.705.OLR

Denmark vs EAC Invest A/S, October 2021, High Court, Case No SKM2021.705.OLR

In 2019, the Danish parent company of the group, EAC Invest A/S, had been granted a ruling by the tax tribunal that, in the period 2008-2011, due to, inter alia, quite exceptional circumstances involving currency restrictions in Venezuela, the parent company should not be taxed on interest on a claim for unpaid royalties relating to trademarks covered by licensing agreements between the parent company and its then Venezuelan subsidiary, Plumrose Latinoamericana C.A. The Tax tribunal had also found that neither a payment of extraordinary dividends by the Venezuelan subsidiary to the Danish parent company in 2012 nor a restructuring of the group in 2013 could trigger a deferred taxation of royalties. The tax authorities appealed against the decisions to the High Court. Judgement of the High Court The High Court upheld the decisions of the tax tribunal with amended grounds and dismissed the claims of the tax authorities. Excerpts: Interest on unpaid royalty claim “The High Court agrees that, as ... Read more
Indonesia vs PT Nanindah Mutiara Shipyard Ltd, December 2020 Supreme Court, Case No. 4446/B/PK/Pjk/2020

Indonesia vs PT Nanindah Mutiara Shipyard Ltd, December 2020 Supreme Court, Case No. 4446/B/PK/Pjk/2020

PT Nanindah Mutiara Shipyard Ltd reported losses for FY 2013. The tax authorities issued an assessment where the income of the company was increased by a substantial amount referring to applicable transfer pricing regulations. Nanindah Mutiara Shipyard Ltd filed a complaint with the Tax Court, but the Tax Court upheld the assessment. An application for judicial review was then filed with the Supreme Court. Judgement of the Supreme Court The Supreme Court ruled in favor of Nanindah Mutiara Shipyard Ltd. The Tax Court had erred in assessing facts, data, evidence and application of the law. The decision of the Tax Court was canceled and the petition for judicial review was granted. Losses reported by Nanindah Mutiara Shipyard Ltd were not due to non-arm’s length pricing, but rather exceptional circumstances that occurred at the local company in the years following 2010. Excerpts: ” … a. that the reasons for the Petitioner’s petition for judicial review in the a quo case are positive corrections ... Read more

OECD COVID-19 TPG paragraph 59

In response to COVID-19, some taxpayers may seek to assert force majeure in situations where it is not contained within the relevant intercompany agreement (assuming here that the law governing the contract is not a civil law jurisdiction where force majeure would automatically apply), may seek to change an existing intercompany agreement to insert a force majeure clause, or may seek to assert that a renegotiation at arm’s length would have similar economic outcomes. In these circumstances, tax administrations should carefully review such assertions in light of the accurately delineated transaction (including consideration of the conduct of the parties, both past and present) and the economically relevant circumstances of the transaction. Tax administrations should therefore review the agreements and/or the conduct of associated enterprises, in light of the guidance in section D of Chapter I of the OECD TPG, together with observations of relevant behaviour of independent parties and this guidance, in order to ascertain whether any such assertion, revision ... Read more

OECD COVID-19 TPG paragraph 58

For example, assume that Company G in Jurisdiction G provides manufacturing services to Company H under a long-term manufacturing services agreement that includes a force majeure clause. The government in jurisdiction G mandates the closure of the manufacturing facility for a certain specified short-term period, which may be extended depending on the duration of the pandemic. Given the lack of clarity on the extent of the disruption, it would be important to analyse the contract to see if the disruption qualifies as a force majeure event and consider whether, at arm’s length, Company G or Company H would seek to invoke the clause. Assuming that a clause may be legally invoked under the relevant legal framework, given the long-term nature of the relationship and the short-term nature of the disruption, it may be the case that neither company would invoke the clause, even if it did qualify as a force majeure event. If the disruption was for a longer period, ... Read more

OECD COVID-19 TPG paragraph 57

Where one party to a controlled transaction seeks to invoke force majeure, the agreement and underlying legal framework within which force majeure may be invoked should form the starting point of a transfer pricing analysis. It cannot be automatically assumed that where a relevant intercompany contract contains a force majeure clause that the COVID-19 pandemic is sufficient for a party to that contract to invoke force majeure, nor can it be automatically assumed in the absence of such a clause in the intercompany contract that a renegotiation with a potentially similar outcome at arm’s length would be inappropriate (see paragraph 59 below). Whether COVID-19 constitutes a force majeure in a particular case will depend on the plain language of the force majeure provision (and possibly also on how that provision interacts with other terms, such as certain terms of the controlled transaction itself). In addition, it will be relevant to analyse the conduct of the parties in reviewing an existing ... Read more

OECD COVID-19 TPG paragraph 56

Because of the COVID-19 pandemic, a party may attempt to assert that the extreme circumstances justify the non-performance of a contract and this may be achieved through invoking a force majeure clause, which defines circumstances beyond the control of parties to a transaction that can frustrate or render impossible contractual performance. For instance, force majeure events arising in the context of COVID-19 could be the prohibition of activities by a governmental body, for example through the enforced closure of production or retail facilities ... Read more

OECD COVID-19 TPG paragraph 55

Force majeure clauses may be invoked in order to suspend, defer, or release an enterprise from its contractual duties without liability in certain situations.33 This may result in losses for enterprises because of the loss of a customer, supplier or an ordinarily profitable contract, and could also lead to the closure of business operations and associated restructuring costs. 33 Note that these guidelines do not seek to legally define concepts such as “force majeure” or provide comment on when it may legally be invoked, but instead focus on the transfer pricing implications of the existence of the force majeure concept and its invocation. The “force majeure” concept originated in civil law systems. While the doctrine does not apply automatically in all civil law countries, certain European civil law countries at least implicitly recognise the force majeure principle in their civil codes (i.e. it may not be necessary to include it in a contract because the statutory force majeure provisions apply ... Read more

OECD COVID-19 TPG paragraph 37

Finally, the COVID-19 pandemic has created conditions in which associated parties may consider whether they have the option to apply force majeure clauses, revoke or otherwise revise their intercompany agreements. This may impact the allocation of losses and COVID-19 specific costs between associated parties, and therefore also requires specific consideration in the current economic environment ... Read more