Tag: Inter-company loan

Netherlands vs X B.V., December 2020, Supreme Court (Preliminary ruling by the Advocate General), Case No 20/02096 ECLI:NL:PHR:2020:1198

Netherlands vs X B.V., December 2020, Supreme Court (Preliminary ruling by the Advocate General), Case No 20/02096 ECLI:NL:PHR:2020:1198

This case concerns a private equity takeover structure with apparently an intended international mismatch, i.e. a deduction/no inclusion of the remuneration on the provision of funds. The case was (primarily) decided by the Court of Appeal on the basis of your non-business loan case law. The facts are as follows: A private equity fund [A] raised LP equity capital from (institutional) investors in its subfund [B] and then channelled it into two (sub)funds configured in the Cayman Islands, Fund [C] and [D] Fund. Participating in those two Funds were LPs in which the limited partners were the external equity investors and the general partners were Jersey-based [A] entities and/or executives. The equity raised in [A] was used for leveraged, debt-financed acquisitions of European targets to be sold at a capital gain after five to seven years, after optimising their EBITDA. One of these European targets was the Dutch [F] group. The equity used in its acquisition was provided not only ... Continue to full case
Netherlands vs X B.V., July 2020, Supreme Court (Preliminary ruling by the Advocate General), Case No ECLI:NL:PHR:2020:672

Netherlands vs X B.V., July 2020, Supreme Court (Preliminary ruling by the Advocate General), Case No ECLI:NL:PHR:2020:672

X bv is part of the worldwide X group, a financial service provider listed on the US stock exchange. At issue is deductibility of interest payments by X bv on a € 482 million loan granted by the parent company, US Inc. In 2010 the original loan between X bv and US Inc. was converted into two loans of € 191 million and € 291 million granted by a Luxembourg finance company in the X group, to two jointly taxed subsidiaries of X bv. According to the Dutch Tax Authorities, the interest payments on these loans falls under the provisions in Dutch art. 10a of the VPB Act 1969 whereby interest deductions are restricted. The Court of appeal disagreed and ruled in favor of X bv. This decision was appealed to the Supreme Court by the tax authorities. In a preliminary ruling, the Advocate General advises the Supreme Court to dismiss the appeal. According to the Advocate General, X bv is ... Continue to full case
UK vs Smith & Nephew, March 2020, Court of Appeal, Case No A3/2019/0521

UK vs Smith & Nephew, March 2020, Court of Appeal, Case No A3/2019/0521

In the case of HMRC v Smith & Nephew Overseas Ltd, consideration was given to the “fairly represent” requirement in the loan relationship code. The dispute concerns each of the Smith & Nephew’s entitlement to set off foreign exchange losses against their liability to corporation tax. The exchanges loss arose as a result of Smith & Nephews changing their functional accounting currencies from sterling to US dollars on 23 December 2008 at a time when the only asset on their balance sheets was a very substantial inter-company debt owed to them by their parent company. The debts were denominated in sterling but then had to be converted into dollars when the companies’ accounts were restated in dollars. The next day, the debts were disposed of as part of a group restructuring. The exchange losses arose from Smith & Nephew’s ‘loan relationships’ as that term is used in Chapter 2 of Part IV of the Finance Act 1996 (‘Chapter 2’). Section ... Continue to full case
Norway vs Petrolia Noco AS, November 2019, Oslo Court -2019-48963 – UTV-2020-104

Norway vs Petrolia Noco AS, November 2019, Oslo Court -2019-48963 – UTV-2020-104

In 2011, Petrolia SE established a wholly owned subsidiary in Norway – Petrolia Noco AS – to conduct oil exploration activities on the Norwegian shelf. From the outset Petrolia Noco AS received a loan from the parent company Petrolia SE. The written loan agreement was first signed later on 15 May 2012. The loan limit was originally MNOK 100 with an agreed interest rate of 3 months NIBOR with the addition of a margin of 2.25 percentage points. When the loan agreement was formalized in writing in 2012, the agreed interest rate was changed to 3 months NIBOR with the addition of an interest margin of 10 percentage points. The loan limit was increased to MNOK 150 in September 2012, and then to MNOK 330 in April 2013. In the tax return for 2012 and 2013, Petrolia Noco AS demanded a full deduction for actual interest costs on the intra-group loan to the parent company Petrolia SE. Following an audit ... Continue to full case
British American Tobacco hit by £902 million tax assessments in the Netherlands

British American Tobacco hit by £902 million tax assessments in the Netherlands

According to the 2018 financial statement, British American Tobacco group has been hit by a £902 million tax assessments in the Netherlands. “The Dutch tax authority has issued a number of assessments on various issues across the years 2003-2016 in relation to various intra-group transactions. The assessments amount to an  aggregate net liability across these periods of £902 million covering tax, interest and penalties. The Group has appealed against the assessments in full. The Group believes that its companies have meritorious defences in law and fact in each of the above matters and intends to pursue each dispute through the judicial system as necessary. The Group does not consider it appropriate to make provision for these amounts nor for any potential further amounts which may be assessed in relation to these matters in subsequent years. While the amounts that may be payable or receivable in relation to tax disputes could be material to the results or cash flows of the Group in the period in ... Continue to full case
India vs TMW, August 2019, Income Tax Tribunal, Case No ITA No 879

India vs TMW, August 2019, Income Tax Tribunal, Case No ITA No 879

The facts in brief are that TMW ASPF CYPRUS (hereinafter referred to as ‘assessee’) is a private limited company incorporated in Cyprus and is engaged in the business of making investments in the real estate sector. The company in the year 2008 had made investments in independent third-party companies in India (hereinafter collectively known as ‘investee companies’) engaged in real estate development vide fully convertible debentures (FCCDs). It was these investments that made the investee companies an associated enterprise of the assessee as per TP provisions. The assessee had also entered agreements, according to which the assessee was entitled to a coupon rate of 4%. Further, after the conversion of the FCCDs into equity shares, the promoter of Indian Companies would buy back at an agreed option price. The option price would be such that the investor gets the original investment paid on subscription to the FCCDs plus a return of 18% per annum. During the impugned assessment year, the ... Continue to full case
Japan vs. Universal Music Corp, June 2019, Tokyo District Court, Case No 平成27(行ウ)468

Japan vs. Universal Music Corp, June 2019, Tokyo District Court, Case No 平成27(行ウ)468

An intercompany loan in the form of a so-called international debt pushdown had been issued to Universal Music Japan to acquire the shares of another Japanese group company. The tax authority found that the loan transaction had been entered for the principal purpose of reducing the tax burden in Japan and issued an assessment where deductions of the interest payments on the loan had been disallowed for tax purposes. Decision of the Court The Tokyo District Court decided in favour of Universal Music Japan and set aside the assessment. The Court held that the loan did not have the principle purpose of reducing taxes because the overall restructuring was conducted for valid business purposes. Therefore, the tax authorities could not invoke the Japanese anti-avoidance provisions to deny the interest deductions. The case is now pending at the Tokyo High Court awaiting a final decision. Click here for English Translation Jap UM 2019 ... Continue to full case
Netherlands vs Lender BV, June 2019, Tax Court, Case No 17/871

Netherlands vs Lender BV, June 2019, Tax Court, Case No 17/871

A Dutch company, Lender BV, provided loans to an affiliated Russian company on which interest was paid. The Dispute was (1) whether the full amount of interest should be included in the taxable income in the Netherlands, or if part of the “interest payment” was subject to the participation exemption or (2) whether the Netherlands was required to provide relief from double taxation for the Russian dividend tax and, if so, to what amount. The Tax court found it to be a loan and the payments therefor qualified as interest and not dividend. The participation exemption does not apply to interest. In addition, the court ruled that the Russian thin-capitalization rules did not have an effect on the Netherlands through Article 9 of the Convention for the avoidance of double taxation between the Netherlands and Russia. Application of the participation exemption was not an issue. In the opinion of the court, a (re) qualification of interest as a dividend on the basis of ... Continue to full case

The Australian Taxation Office and Bupa Health Insurance reaches $157m settlement after decade-long dispute

Bupa reaches $157m settlement with the Australian tax office after decade-long dispute The settlement was the result of a decade-long dispute with the ATO over a “number of different matters”, included transfer pricing issues with acquisitions in Australia in 2007 and 2008. Bupa’s tax affairs came under scrutiny last year in a report by the Tax Justice Network. The report alleged that Bupa frequently used related party loans and debts from a corporate restructure, among other things, to reduce its profits in Australia. According to the report, Bupa posted a total income of $7.5bn in Australia in 2015-16, but paid just $105m in tax on a taxable income of $352m. Its aged care business in Australia made more than $663m, about 70% of which was from government funding. At the time of the report’s release, Bupa denied it had breached any tax laws ... Continue to full case
South Africa vs. Crookes Brothers Ltd, May 2018, High Court, Case No 14179/2017 ZAGPHC 311

South Africa vs. Crookes Brothers Ltd, May 2018, High Court, Case No 14179/2017 ZAGPHC 311

A South African parent company, Crookes Brothers Ltd, owned 99% of the shares in a subsidiary in Mozambique, MML. Crookes Brothers and MML entred into a loan agreement. According to the agreements MML would not be obliged to repay the loan in full within 30 years. Furthermore, repayment of the loan would not take place if the market value of the assets of MML were less than the market value of its liabilities as of the date of the payment, and no interest would accrue or be payable. According to clause 7 of the loan agreement, in the event of liquidation or bankruptcy of MML, the loan would immediately become due and payable to Crookes Brothers. At the time of submitting the 2015 income tax return, Crookes Brothers made an adjustment to its taxable income in terms of section 31(2) and (3) on the basis that an arms-length interest rate should apply. Later, Crookes Brothers requested a reduced assessment on the basis that the loan met the requirements contained ... Continue to full case
Norway vs. Exxonmobil Production Norway Inc., January 2018, Lagsmanret no LB-2016-160306

Norway vs. Exxonmobil Production Norway Inc., January 2018, Lagsmanret no LB-2016-160306

An assessment was issued by the Norwegian tax authorities for years 2009 2010 and 2011 concerning the interest on a loan between Exxonmobil Production Norway Inc. (EPNI) as the lender and Exxon Mobile Delaware Holdings Inc. (EMDHI) as the borrower. Both EPNI and EMDHI are subsidiaries in the Exxon Group, where the parent company is domiciled in the United States. The loan agreement between EPNI and EMDHI was entered into in 2009. The loan had a drawing facility of NOK 20 billion. The agreed maturity was 2019, and the interest rate was fixed at 3 months NIBOR plus a margin of 30 basis points. The agreement also contained provisions on quarterly interest rate regulation and a interest adjustment clause allowing the lender to adjust the interest rate on changes in the borrower’s creditworthiness. The dispute concerns the margin of 30 basis points and the importance of the adjustment clause, also referred to as the step-up clause. The Oil Tax office ... Continue to full case
European Commission vs. Netherlands and IKEA, Dec. 2017

European Commission vs. Netherlands and IKEA, Dec. 2017

The European Commission has opened an in-depth investigation into the Netherlands’ tax treatment of Inter IKEA, one of the two groups operating the IKEA business. The Commission has concerns that two Dutch tax rulings may have allowed Inter IKEA to pay less tax and given them an unfair advantage over other companies, in breach of EU State aid rules. Commissioner Margrethe Vestager in charge of competition policy said: “All companies, big or small, multinational or not, should pay their fair share of tax. Member States cannot let selected companies pay less tax by allowing them to artificially shift their profits elsewhere. We will now carefully investigate the Netherlands’ tax treatment of Inter IKEA.” In the early 1980s, the IKEA business model changed into a franchising model. Since then, it has been the Inter IKEA group that operates the franchise business of IKEA, using the “IKEA franchise concept”. What this means more concretely is that Inter IKEA does not own the ... Continue to full case
Germany vs A Investment GmbH, June 2017, Cologne Fiscal Court , Case no 10 K 771/16

Germany vs A Investment GmbH, June 2017, Cologne Fiscal Court , Case no 10 K 771/16

A Investment GmbH, acquired all shares of B in May 2012. To finance the acquisition, A Investment GmbH took up a bank loan with a interest rate of 4.78%, a vendor loan with an interest rate of 10% and a shareholder loan with an interest rate 8% from its parent company, Capital B.V. The 8 % interest rate on the shareholder loan was determined by A Investment GmbH by applying the CUP method based on external comparables. The German tax authority, found that the interest rate of 8 % did not comply with the arm’s length principle. An assessment was issued where the interest rate was set to 5% based on the interest rate on the bank loan (internal CUP). A Investment GmbH filed an appeal to Cologne Fiscal Court. The court ruled that the interest rate of the bank loan, 4.78%, was a reliable CUP for setting the arm’s length interest rate of the controlled loan. The vendor loan was ... Continue to full case
France vs General Electric France, June 2017, Conseil d État, Case No 392543

France vs General Electric France, June 2017, Conseil d État, Case No 392543

The Supreme Administrative Court laid down the factors to be applied in determining the abnormal nature of the remuneration of intragroup loans. “The normal or abnormal nature of the remuneration of loans taken by an enterprise from another enterprise to which it is affiliated must be assessed in relation to the remuneration that the lender should pay to a financial institution or similar body to which the enterprise is not related and would borrow, under similar conditions, sums of an equivalent amount. A lender’s assessment of the default risk of the borrower, whose risk premium is the consideration, depends on the debtor’s ability to repay the debt to the obligee until maturity. The assessment of the solvency risk of the borrower, in particular summarized in the periodic ratings that the rating agencies attribute to the companies that may, where appropriate, solicit them to this effect, results from the analysis of the evolutions of a series. economic variables, both internal and ... Continue to full case
Spain vs McDonald's, March 2017, Spanish Tribunal Supremo, Case no 961-2017

Spain vs McDonald’s, March 2017, Spanish Tribunal Supremo, Case no 961-2017

This case is about adjustments made to a series of loans granted by GOLDEN ARCHES OF SPAIN SA (GAOS) to RMSA, throughout the period 2000/2004 for amounts ranging between 10,000,000 and 86,650,000 €, at a interest rate that between 3,450% and 6,020%. The tax administration argues that GAOS “has no structure or means to grant the loan and monitor compliance with its conditions … it does not have its own funds to lend, it receives them from other companies in the group”. In fact, the Administration refers to a loan received by GAOS from the parent company at a rate of 0%, which is paid in advance to receive another with an interest rate of 3.3%. The Administration indicates that “nobody, under normal market conditions, cancels a loan to constitute another one under clearly worse conditions”. The Court concludes as follows:: “As regards the OECD guidelines cited as violated the reason, this Chamber has already declared that they are not ... Continue to full case

Venezuela vs. Sodexho, 15. Dec 2016, Tax Court of Caracas

Sodexho Venezuela had appealed an adjustment made under the Venezuelan transfer pricing rules. The tax authorities claimed that the interest rate charged by Sodexho on a loan, made to a related party outside Venezuela, was not at arm’s-length. The tax authorities claimed that when applying the CUP method and comparing the controlled transaction with an uncontrolled transaction, Sodexho Pass Venezuela should have used an active rate such as the prime rate. The tax court ruled that Sodexho had correctly applied the CUP method and therefore cancelled the transfer pricing adjustment ... Continue to full case
Germany vs X Sub GmbH, December 2016, Münster Fiscal Court, Case No 13 K 4037/13 K,F

Germany vs X Sub GmbH, December 2016, Münster Fiscal Court, Case No 13 K 4037/13 K,F

X Sub GmbH is a German subsidiary of a multinational group. The parent company Y Par B.V. and the financial hub of the group Z Fin B.V. – a sister company to the German subsidiary – are both located in the Netherlands. In its function as a financial hub, Z Fin B.V granted several loans to X Sub GmbH. As part of a tax audit, the German tax authority considered that the interest on the inter-company loans paid by X Sub GmbH to Z Fin B.V. was too high. In order to determine the arm’s length interest rate, X Sub GmbH had applied the CUP method. The tax authority instead applied the cost plus method and issued an assessment. X Sub GmbH filed an appeal to Münster Fiscal Court. The Court found that the cost plus method was justly chosen by the tax authority, as the external CUPs could not be used because of differences in conditions between the uncontrolled ... Continue to full case
Norway vs. IKEA Handel og Ejendom, October 2016, HRD 2016-722

Norway vs. IKEA Handel og Ejendom, October 2016, HRD 2016-722

In 2007, IKEA reorganised its property portfolio in Norway so that the properties were demerged from the Norwegian parent company and placed in new, separate companies. The shares in these companies were placed in a newly established property company, and the shares in this company were in turn sold to the original parent company, which then became an indirect owner of the same properties. The last acquisition was funded through an inter-company loan. Based on the non-statutory anti-avoidance rule in Norwegian Tax Law, the Supreme Court concluded that the parent company could not be allowed to deduct the interest on the inter-company loan, as the main purpose of the reorganisation was considered to be to save tax. The anti-avoidance rule in section 13-1 of the Tax Act did not apply in this circumstance. Click here for translation Norway vs IKEA-Handel-og-Ejendom-HRD-2016-722 ... Continue to full case
Netherlands vs Corp, October 2016, Supreme Court 16/01370

Netherlands vs Corp, October 2016, Supreme Court 16/01370

Company A had acquired the business (assets and liabilities) of another company, through an Acquisition B.V. Company A provided a loan of EUR 300,000 to Acquisition B.V. in 2008. The Acquisition B.V. failed to perform well and went bankrupt in 2011. Company A claimed a write-down loss on the loan in its corporate income tax return. The Tax Administration stated that this was an extreme default risk loan and did not accept the loss. According to Dutch case law the main characteristic of an EDR loan is that an arm’s length interest rate cannot be found – the shareholder grants the loan under such circumstances that it is clear from the outset that it cannot be repaid and the shareholder does not have business interest, other than in its capacity as shareholder, to grant the loan. The Arnhem-Leeuwarden Court of Appeal disagreed with the Tax Administration. The Supreme Court stated that “special circumstance” between a creditor and a debtor occurs ... Continue to full case
Poland vs. Corp. Aug. 2016, Supreme Administrative Court, Case No. II FSK 1097/16

Poland vs. Corp. Aug. 2016, Supreme Administrative Court, Case No. II FSK 1097/16

A Group had established a physical cash-pool where funds from participants was transferred to and from a consolidating account (cash pool). The Polish Supreme Administrative Court concluded that every agreement in which the lender is obligated to transfer ownership of a specified amount of funds to the borrower, and the borrower is obligated to return the amount and pay interest, even if obligations of the parties to the agreement are implicit, constitutes a loan agreement. 2016 Decision Click here for translation Polish Cash Pool 2016 2015 Decision Click here for translation Polish Cash Pool 2015 ... Continue to full case