GSS Holdings had claimed a loss of USD 22.54 million which the IRS disallowed. In disallowing the loss, the IRS claimed that the loss was not an ordinary business loss, but was incurred as part of a series of transactions that resulted in the sale of capital assets between related parties. The trial court upheld the IRS’s adjustment and GSS Holdings appealed to the Court of Federal Claims. The Court of Federal Claims applied a combination of substance over form and step transaction doctrines to combine two transactions and dismissed GSS Holdings’ claims on that basis. GSS Holdings then appealed to the US Court of Appeals. Opinion of the Court The Court of Appeals found that the Federal Claims Court had misapplied the step transaction doctrine and remanded the case for reconsideration under the correct legal standard. Excerpt “As part of this examination, the Claims Court must determine the outset of the series of transactions, keeping in mind that the ... Read more

In 2007, Forbes Medi-Tech Inc. (now Deans Knight Income Corporation) was a British Columbia-based drug research and nutritional food additive business in financial difficulty. It had accumulated approximately $90 million of unclaimed non-capital losses and other tax credits. Non-capital losses are financial losses resulting from carrying on a business that spends more than it makes in a given year. Under the Income Tax Act (the Act), a taxpayer can reduce their income tax by deducting non-capital losses from its taxable income. If the taxpayer does not use all, or a portion, of the loss in the year it incurred it, they may carry the loss back three years, or forward 20 years. However, under section 111(5) of the Act, when another entity acquires control of the company, the new owners may not carry over those non-capital losses and deduct them from its future taxes, unless the company continues to operate the same or a similar business. Deans Knight wanted to use its ... Read more

3 February 2023 the Inland Revenue of New Zealand issued an interpretation statement explaining the Commissioner’s view of the law on tax avoidance in New Zealand. It sets out the approach the Commissioner will take to the general anti-avoidance provisions in the Income Tax Act 2007 – ss BG 1 and s GA 1. Where s BG 1 applies, s GA 1 enables the Commissioner to make an adjustment to counteract a tax advantage obtained from or under a tax avoidance arrangement. The Supreme Court in Ben Nevis considered it desirable to settle the approach to the relationship between s BG 1 and the specific provisions in the rest of the Act. This approach is referred to as the Parliamentary contemplation test. The Parliamentary contemplation test was confirmed as the proper and authoritative approach to applying s BG 1 by the Supreme Court in Penny and Frucor. The statement is based on and reflects the view of the Supreme Court ... Read more

It is disputed between the parties whether the A Corp. resident in the USA – a so-called S corporation – or its shareholders are entitled to full exemption and reimbursement of the capital gains tax with regard to a profit distribution by a domestic subsidiary of A Corp. (S-Corporation). A Corp. (S-Corporation) is a corporation under US law with its registered office in the United States of America (USA). It has opted for taxation as an “S corporation” under US tax law and is therefore not subject to corporate income tax in the USA; instead, its income is taxed directly to the shareholders resident in the USA (Subchapter S, §§ 1361 to 1378 of the Internal Revenue Code (IRC)). The shareholders of A Corp. (S-Corporation) are exclusively natural persons resident in the USA as well as trusts established under US law and resident in the USA, the beneficiaries of which are in turn exclusively natural persons resident in the USA ... Read more

The issue was whether the benefits provided by the Argentina-Spain DTC were available to Empresa Distribuidora La Plata S.A., which was owned by two Spanish holding companies, Inversora AES Holding and Zargas Participaciones SL, whose shareholders were Uruguayan holding companies. The Argentine Personal Assets Tax provided that participations in Argentine companies held by non-resident aliens were generally subject to an annual tax of 0.5% or 0.25% on the net equity value of their participation. However, under the Argentina-Spain DTC, article 22.4, only the treaty state where the shareholders were located (Spain) had the right to tax the assets. On this basis, Empresa Distribuidora La Plata S.A. considered that its shares held by Spanish holding companies were not subject to the Personal Assets Tax. The tax authorities disagreed, finding that the Spanish holding companies lacked substance and that the benefits of the Argentina-Spain DTC were therefore not applicable. Judgement of the Tax Court The Tax Court ruled in favour of the ... Read more

A Holding ApS is the owner of all shares in F. AG, domiciled in G. (Canton of Schaffhausen), which it acquired in December 1999 for a total price of Fr. 1. F. AG produces consumer goods. In accordance with the resolution of the general meeting of F. AG on 30 November 2000, a dividend of Fr. 5,500,000 was distributed. Of this amount, F. Ltd paid Fr. 1,925,000 as withholding tax to the Swiss Federal Tax Administration and the remaining amount of Fr. 3,575,000 to Holding ApS. On 15 December 2000, the latter in turn decided to distribute a dividend of 26,882,350 Danish kroner to C. Ltd. On 19 December 2000, A Holding ApS submitted an application to the competent Danish authority for a refund of the withholding tax in the amount of Fr. 1,925,000. The Danish authority confirmed the application and forwarded it to the Federal Tax Administration. By decision of 3 April 2003, the Federal Tax Administration rejected the ... Read more

The first rulings where the IRS proposed recharacterizing transactions that could be considered abusive through use of transfer pricing provisions. Judgement of the Supreme Court The court instead applied the general anti-abuse doctrine. “It is earnestly contended on behalf of the taxpayer that, since every element required by the foregoing subdivision (B) is to be found in what was done, a statutory reorganization was effected, and that the motive of the taxpayer thereby to escape payment of a tax will not alter the result or make unlawful what the statute allows. It is quite true that, if a reorganization in reality was effected within the meaning of subdivision (B), the ulterior purpose mentioned will be disregarded. The legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or altogether avoid them, by means which the law permits, cannot be doubted. United States v. Isham, 17 Wall. 496, 84 U. S. 506; Superior Oil Co ... Read more