Tag: Hybrid debt instruments

Luxembourg vs L SARL, January 2020, Luxembourg Administrative Tribunal, Case No 41800

Luxembourg vs L SARL, January 2020, Luxembourg Administrative Tribunal, Case No 41800

In 2013, L SARL requested in writing an “advance tax agreement” regarding the tax treatment of Mandatory Redeemable Preference Shares (MRPS) which generated a preferred dividend for its sole shareholder. L SARL wanted confirmation that the MRPS would be characterised as debt and that payments under the MRPS would therefore be tax deductible. The tax administration issued an advance tax agreement confirming that the content of the request complied with the tax laws and administrative practices in force. However, despite the agreement the tax authorities challenged the 2013 tax return and demanded proof that the return on the MRPS complied with the arm’s length principle. L SARL found that such proof was not necessary since the MRPS’ tax treatment had already been agreed by the tax administration agreement. The tax administration disagreed and issued an assessment. The case was brought before the Administrative Tribunal. The Administrative Tribunal held that an advance tax agreement is binding upon the tax administration where ... Read more
Switzerland vs "PPL AG", May 2019, Federal Court, Case No A-6360/2017

Switzerland vs “PPL AG”, May 2019, Federal Court, Case No A-6360/2017

“PPL AG” had been set up as a limited liability company and in addition to the ordinary share capital, “PPL AG” had issued non-voting shares (participation certificates) to its German parent company and to three German individual investors in an aggregate amount of CHF 1.82 million. “PPL AG” was later converted into a joint stock corporation and on that occasion the participation certificates were converted into Profit Participating Loans (PPL), with an annual interest rate of 7%. In 2015, the Swiss tax administration carried out a tax audit of “PPL AG” for the years 2010-2014 and issued an assessment claiming payment of CHF 94,000 in withholding taxes on constructive dividends. According to the tax administration “PPL AG” had paid excessive amounts of interest to its lenders under the PPLs, exceeding the safe harbour interest rates published by the Swiss tax administration for the years under review. According to the tax administration, the portion of the interest payments exceeding the published ... Read more