Tag: Guarantee

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
Finland vs. Corp. November 2010, Supreme Administrative Court HFD 2010:73

Finland vs. Corp. November 2010, Supreme Administrative Court HFD 2010:73

A company, which belonged to a Nordic group, had until August 2005, two loans with an independent party outside the group. The interest of the loans was 3.135 to 3.25 percent. The company’s long-term loans amounted to over EUR 36 million and the guarantees granted by the Company for its loans amounted to about 41 million. In August 2005 the financing of the entire group was re organised. A Ltd paid off old bank loans and took up a new loan from the Swedish company B AB, which belonged to the group. For loans between the group companies was 9.5 percent interest rate. The interest rate had been affected by interest rate percentages on unrelated loans , risk loans and loans from shareholders. After the change in funding A Ltd’s long-term debt totaled just over EUR 38 million and the guarantees granted by the Company for the group was around 300 million euros. A Ltd’s capital structure was not affected ... Continue to full case
Canada vs. General Electric Capital. November 2010

Canada vs. General Electric Capital. November 2010

In the case of General Electric Capital, Canada, the issue was if a 1% guarantee fee  paid by General Electric Capital Canada Inc. to its AAA-rated US parent company satisfied the arm’s length test. The Canadian tax administration argued  that implicit support resulted in General Electric Canada having a AAA credit rating, so that the guarantee provided by the US parent had no value. Taxpayer argued that the 1% guarantee fee did not exceed arm’s length pricing and that implicit support from the US parent should be ignored since it stemmed from the non-arm’s length relationship. The Tax Court agreed with the tax administration that implicit support should be taken into account and applied a “yield approach,” comparing the interest rate the Canadian company would have paid with and without the guarantee. The Tax Court found that credit rating of the Canadian company – with implicit support but without the guarantee – was at most BBB-/BB+ and the 1% guarantee was arm’s length. The Federal Court of Appeal approved of both the Tax Court’s yield approach and its ... Continue to full case