A Dutch company, Lender B.V., had acquired companies through a private equity structure. The Dutch company that had been set up for the purpose of the acquisition was financed by subordinated loans payable to related parties established on the island of Guernsey. In the tax return for the Dutch company interest in the amount of € 13,157,632 was deducted in the taxable income based on an interest rate of 11,5 – 14 percent. The tax authorities denied the deduction, as the financing arrangement was considered abusive. Decision of the Supreme Court The Court decided in favor of the tax authorities. The interest on the loans was determined to 2.5% (instead of the agreed 11.5 – 14%). This interest was not deductible, because granting of the loans was considered as abusive. Furthermore, an Arrangement Fee of € 8.4 mio. could not be charged at once, but had to be capitalised. Click here for English translation Click here for other translation ... Read more

C. SA provides “services, in particular in the areas of communication, management, accounting, management and budget control, sales development monitoring and employee training for the group to which it belongs, active in particular in the field of “F”. C. SA is part of an international group of companies, G. group, whose ultimate owner is A. The G group includes H. Ltd, based in the British Virgin Islands, I. Ltd, based in Guernsey and J. Ltd, also based in Guernsey. In 2005, K. was a director of C. SA. On December 21 and December 31, 2004, an exclusive agreement for distribution of “F” was entered into between L. Ltd, on the one hand, and C. SA , H. Ltd and J. Ltd, on the other hand. Under the terms of this distribution agreement, L. Ltd. undertook to supply “F” to the three companies as of January 1, 2005 and for a period of at least ten years, in return for payment ... Read more

C. SA provides “services, in particular in the areas of communication, management, accounting, management and budget control, sales development monitoring and employee training for the group to which it belongs, active in particular in the field of “F”. C. SA is part of an international group of companies, G. group, whose ultimate owner is A. The G group includes H. Ltd, based in the British Virgin Islands, I. Ltd, based in Guernsey and J. Ltd, also based in Guernsey. In 2005, K. was a director of C. SA. On December 21 and December 31, 2004, an exclusive agreement for distribution of “F” was entered into between L. Ltd, on the one hand, and C. SA , H. Ltd and J. Ltd, on the other hand. Under the terms of this distribution agreement, L. Ltd. undertook to supply “F” to the three companies as of January 1, 2005 and for a period of at least ten years, in return for payment ... Read more

A Swiss bank had a subsidiary in Guernsey that administered a number of funds and received a management fee of 1.5% of the net value of the assets under management and a performance fee of 10–20% of the funds’ performance. The activities of the Guernsey company were delegated to the Swiss parent and third parties. Both the third parties and the Swiss parent received an management fee of 0.75%, but only the third parties also received a performance fee. The tax administration claimed that 70% of the performance fees and a remuneration for other activities should have been paid to the Swiss parent. Judgement of the Supreme Court The Court found that the agreed conditions with third-party service providers were at arm’s length, and should also have been applied in relation to the Swiss parent company. Hence, the court dismissed the appeal of Click here for English translation Click here for other translation ... Read more

A finance company registered in Guernsey was found to have effective place of management in Switzerland due to lack of functional substance in Guernsey. The Swiss Federal Supreme Court stated that the effective place of management is to be distinguished from the activity of the Board of Directors and the General Assembly and from mere administrative activity, such as accounting. Thus, the effective place of management of a company is where the company has its economic center. Management of the ongoing business in the context of the purpose of the company is decisive, including the decisions made in relation to the core business. According to the Federal Supreme Court, the only business of X Ltd was forwarding the start-up capital provided by Y Holding AG in the form of loans to Group companies. X Ltd activities in Guernsey were of a purely administrative nature, and in the exclusive interest of Y Holding AG. The decisions on the respective lending activities ... Read more

Tradehold is an investment holding company, incorporated in South Africa, with its registered office at 36 Stellenberg Road, Parow, Industria, and is listed on the Johannesburg Stock Exchange. During the tax year under consideration, being the year of assessment ended 28 February 2003, Tradehold’s only relevant asset was its 100 per cent shareholding in Tradegro Holdings which, in turn, owned 100 per cent of the shares in Tradegro Limited, a company incorporated in Guernsey which owned approximately 65 per cent of the issued share capital in the UK-based company, Brown & Jackson plc. On 2 July 2002, at a meeting of Tradehold’s board of directors in Luxembourg, it was resolved that all further board meetings would be held in that country. This had the effect that, as from 2 July 2002, Tradehold became effectively managed in Luxembourg. It nevertheless remained a ‘resident’ in the Republic notwithstanding the relocation of the seat of its effective management to Luxembourg by reason of ... Read more