Tag: Functional and factual analysis

Foundational TP step requiring identification of economically significant activities, assets, risks, and contractual terms of each party. Tax authorities challenge characterisations diverging from actual conduct, recharacterising arrangements and reallocating profits accordingly. Addressed in OECD TPG Chapter I.

Sweden vs Essity Treasury B.V. Holland, October 2025, Supreme Administrative Court, Case No 5375-24 and 5376-24

Sweden vs Essity Treasury B.V. Holland, October 2025, Supreme Administrative Court, Case No 5375-24 and 5376-24

/ Financial Transactions, Tax Treaty Interpretation, Allocation of capital/equity, Article 7, Authorised OECD Approach (AOA), Decision making functions, Economic ownership, Functional and factual analysis, Interest deduction, Interpretation of article 7, Permanent establishment, Shareholder, Shareholder loan, Significant people functions
A Dutch company operating a Swedish branch claimed interest deductions on loans financing a Swedish subsidiary held through the branch. The Swedish tax authority denied the deductions, arguing decision-making functions were not located in the branch under the authorised OECD approach. In October 2025, Sweden's Supreme Administrative Court issued an interpretation ruling and remanded the case for reexamination of the functional and factual analysis ... Read more
Italy vs Citybank, April 2020, Supreme Court, Case No 7801/2020

Italy vs Citybank, April 2020, Supreme Court, Case No 7801/2020

/ Permanent Establishments, Allocation of capital/equity, Article 7, Attribution of profit, Authorised OECD Approach (AOA), Bank, Citybank, Financial capacity to assume risk, Functional and factual analysis, Permanent establishment
A US Citibank branch in Italy deducted losses arising from the sale of loan agreements to a third party. Italian tax authorities denied the deductions, arguing the PE lacked financial capacity to bear the risk. After lower courts split, Italy's Supreme Court reversed the Regional Tax Court in 2020, ruling in favour of Citibank and affirming the PE's status as a distinct, autonomous entity under Article 7 ... Read more
Italy vs HSBC Milano, September 2019, Supreme Court, Case No 23355

Italy vs HSBC Milano, September 2019, Supreme Court, Case No 23355

/ Permanent Establishments, Article 7, Attribution of profit, Authorised OECD Approach (AOA), Bank, Financial capacity to assume risk, Functional and factual analysis, HSBC bank, Permanent establishment
HSBC's Milan branch, a permanent establishment of a UK-resident bank, deducted interest on intra-group loans and losses on Parmalat receivables. The Italian tax authority disallowed these deductions, treating the PE as an autonomous entity under Article 7(2) of the Italy-UK tax treaty. Italy's Supreme Court ruled in favour of the tax authority in September 2019, upholding the arm's length principle for PE profit attribution ... Read more