The German BASF group is active in the chemical industry and has subsidiaries all over the world including Italy. In FY 2006 BASF Italia s.p.a. was served with two notices of assessment by the tax authorities. The tax assessments formulated three findings. 1. non-deductibility of the cancellation deficit – arising from the merger by incorporation of Basf Agro s.p.a. into Basf Italia s.p.a., resolved on 27 April 2004 – which the acquiring company had allocated to goodwill, the amortisation portions of which had been deducted in tenths and then, from 2005, in eighteenths. The Office had denied the deductibility on the ground that the company, in the declaration submitted electronically, had not expressly requested, as required by Article 6(4) of Legislative Decree No. 358 of 8 October 1997, the tax recognition of the greater value of goodwill recorded in the balance sheet to offset the loss from cancellation, as allowed by paragraphs 1 and 2 of the same provision. Moreover, ... Read more

Following an audit, Mauser S.p.A. received four notices of assessment relating to the tax periods from 2004 to 2007. These notices contested, in relation to all tax periods, the elusive purpose of a financing operation of Mauser S.p.A. by the non-resident parent company, as it was aimed at circumventing the non-deductibility of interest expense pursuant to Article 98 pro tempore of Presidential Decree No. 917 of 22 December 1986 (TUIR) on the subject of thin capitalisation. The loan, which began in 2004, had resulted in the recognition of €25,599,000.00 among other reserves, indicated as a payment on account of a future capital increase, as well as €55,040,474.29 as an interest-bearing shareholder loan, the latter of which was subsequently partly waived and also transferred to reserves. The loan had also contributed to the generation of losses in the years in question, which had been covered through the use of the aforementioned reserve (as a reserve), whose interest paid to the parent ... Read more

“ACQ-Group” had acquired the shares in foreign subsidiaries and financed the acquisition partially by intra group loans. Furthermore, in the years following the acquisition, goodwill amortisations were deducted for tax purposes. The tax authorities issued an assessment where the interest rate on the loans had been reduced, and where costs related to external financing and amortisations of acquired goodwill had been denied. An appeal was filed by “ACQ”. Decision of the Federal Tax Court Before the judgment was delivered the appeal filed by “ACQ” in regards of the interest rate on the intra group loans was withdrawn. “***Firma*** Services GmbH pays interest of a non-variable 9% p.a. to the affiliated (grandparent) company ***6*** for an intercompany loan (“Intercompany Loan”). As stated in the statement of facts in the enclosure, the high difference between the intercompany loan interest rate and the arm’s length interest rate is a clear violation of the arm’s length principle as defined in the OECD Transfer Pricing ... Read more

Results in a Danish company engaged in distribution of pharmaceuticals were significantly below the arm’s length range of net profit according to the benchmark study, but by disregarding annual goodwill amortization of DKK 57.1 million, the results were within the arm’s length range. The goodwill being amortized in Pharma Distributor A A/S had been determined under a prior acquisition of the company, and later – due to a merger with the acquiring danish company – booked in Pharma Distributor A A/S. The main question in the case was whether Pharma Distributor A A/S were entitled to disregard the goodwill amortization in the comparability analysis. The national tax court had ruled in favor of the company, but the national court reached the opposite result. Thus, the National Court found that the goodwill in question had to be regarded as an operating asset, and therefore the depreciation had to be regarded as operating expenses when calculating the net profit (EBIT margin). In ... Read more

Microsoft Ibérica S.R.L is responsible for distribution and marketing of Microsoft products in Spain. According to an agreement concluded between Microsoft Ibérica and MIOL (Microsoft’s Irish sales and marketing hub) with effect from 1 July 2003, Microsoft Ibérica would received the largest amount of either a commission based on sales invoiced in Spain or a markup on it’s costs. In support of the remuneration according to the agreement, Microsoft had provided a benchmark study. The Spanish tax authorities found that Microsoft Ibérica had not been properly remunerated due to the fact that goodwill amortisations had been eliminated by in the transfer pricing analysis. By including the goodwill amortisations in the analysis, the result of the local company was below the interquartile rang. The authorities further held that the selected comparables in the benchmark study suffered from comparability defects, in that they had less functions and risk than Microsoft Ibérica. An assessment was issued where the results were adjusted to the ... Read more

The Danish Tax administration had made an estimated assessment due to a insufficient TP documentation. In the assessment goodwill amortizations were included when comparing the operating income of the company to that of independent parties in a database survey. The Tax Tribunal found that the tax administration was not entitled to make an estimated assessment under Article 3B (3) of the current Tax Control Act. 8 (now paragraph 9) and section 5 3, where the TP documentation provided a sufficient basis for assessing whether prices and terms were in accordance with the arm’s length principle. According to the Tax Tribunal goodwill amortizations should not be included when comparing the operating income of the company to the operating income of independent parties in a database survey. Hence the assessment was reduced to DKK 0. The case has been appealed to the Danish National Court by the tax authorities. Click here for translation ... Read more

The issue in these cases was tax provisions in Spain stipulating that, when a company in Spain acquires a share holding in a foreign company of at least 5%, goodwill resulting from that acquisition can be deducted for tax purposes through amortization (much like the US asset deal-regs). The Commission found these provisions to be in violation of EU State Aid rules. In 2014, the General Court annulled these Decisions, finding that the Commission had failed to establish the selective nature of the alleged aid measure. The General Court argued that for the selectivity condition to be satisfied, it is always necessary that a particular category of undertakings be identified that are exclusively favoured by the measure concerned and that can be distinguished by reason of specific properties common to them and characteristic of them. If that is not possible, then the measure is effectively open to all undertakings and thus not selective. The decision was then appealed by the ... Read more