Tag: Interest free loan

India vs Times Infotainment Media Ltd, August 2021, Income Tax Appellate Tribunal - Mumbai, TIA No 298/Mum/2014

India vs Times Infotainment Media Ltd, August 2021, Income Tax Appellate Tribunal – Mumbai, TIA No 298/Mum/2014

Times Infotainment Media Ltd (TIML India), is in the entertainment business, including running an FM Broadcasting channel in India. It successfully participated in the auction of the radio business of Virgin radio in March 2008 in the United Kingdom. To complete the acquisition, it acquired two SPV companies, namely TML Golden Square Limited and TIML Global Limited. TIML India wholly held TIML Global which in turn wholly held TIML Golden. TIML India received funding from its parent Bennet Coleman & Co. Limited and remitted money primarily as an interest-free loan to TIML Global on 27 June 2008. TIML Global, on behalf of TIL Golden, paid UKP 53.51 million for the acquisition of Virgin Radio Shares. The acquisition of shares in Virgin Radios by TIML Golden was completed on 30 June 2008. TIML India booked the transaction in its accounts as a loan to TIML Global Limited, but the arm’s length interest rate on the loan was claimed at zero percent ... Read more
Allegations of tax avoidance in Dutch Pharma Group Qiagen

Allegations of tax avoidance in Dutch Pharma Group Qiagen

According to investigations by SOMO – an independent center for Research on Multinational Corporations – the annual accounts of Pharma Group Qiagen shows that the group has avoided tax on profits by passing internal loans through an elaborate network of letterbox companies in European tax havens including Ireland, Luxembourg and Malta. It is estimated that, since 2010, the group has avoided at least  €93 million in taxes and has accumulated tax deduction in an amount of €49 million ... Read more
Italy vs "Lender" SpA, February 2020, Regional Tax Tribunal for Umbria, Case No 18/02/2020 n. 56

Italy vs “Lender” SpA, February 2020, Regional Tax Tribunal for Umbria, Case No 18/02/2020 n. 56

An Italian parent company “Lender SpA” had granted interest free loans to foreign subsidiaries. Lender SpA had also paid subsidiaries for services rendered. The Italian tax authorities held that interest should be paid on the loans and that the company had not sufficiently demonstrated the conditions to justify the deductibility of costs of services. The regional Court found in favor of the tax authorities and dismissed the appeal of Lender SpA. “For these loans, which took place on the initiative of the Managing Director and in the absence of a resolution of the Shareholders’ Meeting, the Company partly used its available liquidity and partly resorted to the credit market. In this situation, contrary to what was claimed by the company xxxxx, the principle established by the aforementioned art. 110, paragraph 7 of the Consolidated Income Tax Act should have been applied and, therefore, the Italian company should have valued the financing services provided to its foreign subsidiaries at the same ... Read more
European Commission decision to open state-aid investigation into Luxembourg deduction of deemed interest on interest free loans - The Huhtamaki

European Commission decision to open state-aid investigation into Luxembourg deduction of deemed interest on interest free loans – The Huhtamaki

The European Commission has published a non-confidential version of the decision to open a state aid investigation into tax rulings granted by the Luxembourg tax authorities to the Huhtamaki Group in relation to the treatment of interest-free loans granted by an Irish group company to a Luxembourg group company, Huhtalux S.a.r.l. The investigation will focus on three rulings obtained by a Luxembourg subsidiary of a group from the Luxembourg tax administration in 2009, 2012 and 2013. The Luxembourg subsidiary which carried out intra-group financing activities was granted interest-free loans from an Irish group subsidiary and used the funds to grant interest bearing loans to other group companies. In the rulings the tax authorities in Luxembourg confirmes that the financing subsidiary can deduct an amount of deemed interest on the interest-free loans corresponding to interest payments that an independent third party would have demanded for the loans in question. As in the “Belgian excess profits” State aid case, the Commission considers that ... Read more
Commission opens in-depth investigation into tax treatment of Huhtamäki in Luxembourg

Commission opens in-depth investigation into tax treatment of Huhtamäki in Luxembourg

The European Commission has now opened an in-depth investigation to examine whether tax rulings granted by Luxembourg to Finnish food and drink packaging company Huhtamäki may have given the company an unfair advantage over its competitors, in breach of EU State Aid rules. Margrethe Vestager, Commissioner in charge of competition policy, said: “Member States should not allow companies to set up arrangements that unduly reduce their taxable profits and give them an unfair advantage over their competitors. The Commission will carefully investigate Huhtamäki’s tax treatment in Luxembourg to assess whether it is in line with EU State aid rules.” The Commission’s formal investigation concerns three tax rulings issued by Luxembourg to the Luxembourg-based company Huhtalux S.à.r.l. in 2009, 2012 and 2013. The 2009 tax ruling was disclosed as part of the “Luxleaks” investigation led by the International Consortium of Investigative Journalists in 2014. Huhtalux is part of the Huhtamäki group, which is headquartered in Finland. Huhtamäki is a company active ... Read more
India vs Aegis Ltd, January 2018, High Court of Bombay, Case No 1248 of 2016

India vs Aegis Ltd, January 2018, High Court of Bombay, Case No 1248 of 2016

Aegis Ltd had advanced money to an assosiated enterprice (AE)  and recived preference shares carrying no dividend in return. The Indian Transfer Pricing Officer (TPO) held that the “acqusition of preference shares” were in fact equivalent to an interest free loan advanced by Aegis Ltd to the assosiated enterprice and accordingly re-characterised the transaction and issued an assessment for 2009 and 2010 where interest was charged on notional basis. Aegis Ltd disagreed with the assessment of the TPO and brought the case before the Tax Tribunal. The Tribunal did not accept the conclusions of the TPO. “The TPO cannot disregard the apparent transaction and substitute the same without any material of exceptional circumstances pointing out that the assessee had tried to conceal the real transaction or that the transaction in question was sham. The Tribunal observed that the TPO cannot question the commercial expediency of the assessee entered into such transaction.” The Indian Revenue Service then filed an appeal to the High ... Read more
Netherlands vs X B.V., November 2018, Supreme Court, Case No 17/03918

Netherlands vs X B.V., November 2018, Supreme Court, Case No 17/03918

Company X B.V. held all the shares in the Irish company A. The Tax Agency in the Netherlands claimed that the Irish company A qualified as a “low-taxed investment participation”. The court agreed, as company A was not subject to a taxation of 10 per cent or more in Ireland. The Tax Agency also claimed that X B.V.’s profit should include a hidden dividend due to company A’s providing an interest-free loan to another associated Irish company E. The court agreed. Irish company E had benefited from the interest-free loan and this benefit should be regarded as a dividend distribution. It was then claimed by company X B.V, that the tax treaty between the Netherlands and Ireland did not permit including hidden dividends in X’s profit. The Supreme Court disagreed and found that the hidden dividend falls within the scope of the term “dividends” in article 8 of the tax treaty. Click here for other translation ECLI-NL-HR-2018-2034 ... Read more
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 ... Read more
Argentina vs YPF S.A., May 2018, Supreme Court, Case No TF 29.205-1

Argentina vs YPF S.A., May 2018, Supreme Court, Case No TF 29.205-1

The Tax authorities considered that the financial loans made by YPF S.A. to the controlled companies YPF Gas S.A.; Maleic S.A. and Operadora de Estaciones de Servicio constituted a “disposition of income in favor of third parties”, since in the first two cases (loans granted to YPF Gas S.A. and Maleic S.A.) the agreed interest was lower than that provided for in the aforementioned regulations, while in the last case (operation carried out with OPESSA) no interest payment had even been stipulated. Likewise, it estimated that the transfer prices corresponding to gas oil, propane butane exports made to Repsol YPF Trading and Transport S.A. were below the first quartile. Consequently, it made an adjustment to the taxable income. Furthermore, a fine equivalent to 70% of the allegedly omitted tax was issued. At issue before the Supreme Court was only the fine which was set aside. Click here for English Translation YPF FALLO CAF 040460_2012_1_RH001 ... Read more
Philippines vs Yi Wine Club, Inc., December 2017, Tax Court, CTA CASE No. 8809

Philippines vs Yi Wine Club, Inc., December 2017, Tax Court, CTA CASE No. 8809

In this case, the tax authorities had issued an assessment to Yi Wine Club, Inc. where interest on an interest free loan extended to its affiliates had been imputed and added to the taxable income, pursuant to Section 50 of the National Internal Revenue Code. Judgement of the Tax Court The Court decided in favour of Yi Wine Club and set aside the tax assessment. The court referred to the previous Supreme Court case of Commissioner of Internal Revenue vs. Filinvest Development Corporation. Excerpts from the Filinvest case: “Indeed, in the afore-cited Filinvest case, the Supreme Court ruled with finality that the CIR’s powers of distribution, apportionment or allocation of gross income and deductions under Section 43 of the 1993 NIRC and Section 179 of Revenue Regulations No. 2 do not include the power to impute ‘theoretical interests’ to the controlled taxpayer’s transactions.” More so, when it is borne in mind that, pursuant to Article 1956 of the Civil Code ... Read more
Italy vs Edison spa., Supreme Court, June 2016, No. 13387

Italy vs Edison spa., Supreme Court, June 2016, No. 13387

The Italien Supreme Court held that intra-group interest-free loans violates article 110(7); the Italien arm’s length provisions. Excerpt from the Judgement “…of the facts contained in the judgment under appeal, that the payments made by the parent company Edison spa to the foreign subsidiary Tanti Investimentos S.A, even though entitled ‘payments on account of future capital increases’, were not used for the declared purpose Instead, they were used for financial investments (which provided Edison with dividends subject to the reduced taxation provided for in Article 96 bis of Presidential Decree No. 917 of 22 December 1986 in force at the time), with the subsequent return of the capital to the company that paid Edison. Once it has been established that the reconstruction of the facts excludes the reason for the non-interest-bearing payment on account of a future capital increase and that the transfer of the sums of money must be attributed to the case of a loan (pursuant to Article ... Read more
Italy vs Edison s.p.a. April 2016, Supreme Court no 7493

Italy vs Edison s.p.a. April 2016, Supreme Court no 7493

The Italien company had qualified a funding arrangement in an amount of Lira 500 billion classified by the parties as a non-interest-bearing contribution reserved for a future capital increase. Judgement of the Supreme Court The Italian Supreme Court found that intra-group financing agreements are subject to transfer pricing legislation and that non-interest-bearing financing is generally not consistent with the arm’s-length principle. The court remanded the case to the lower court for further consideration. Excerpts “”In conclusion, with regard to appeal r.g. no. 12882/2008, the first plea should be upheld, the second absorbed, and the third and fourth declared inadmissible; the judgment under appeal should be set aside in relation to the upheld plea and the case referred to another section of the Regional Tax Commission of Lombardy, which will comply with the principle of law set out in paragraph 3.5…” In regards to the non-interest-bearing financing the Court states in paragraph 3.5: “35… It follows that the valuation “at arm’s ... Read more
Belgium vs. Société A, March 2016, Hof van Cassatie, Case No. F.14.0082.N

Belgium vs. Société A, March 2016, Hof van Cassatie, Case No. F.14.0082.N

In this case company A had received an interest-free loan in the amount of EUR 1,000,000 from an associated Belgian company B. The Tax Administration regarded the exemption of interests as an “abnormal and voluntary advantage”. It considered that there was a question of a current account receivable and assessed the amount in light of the average interest rates published by the National Bank. The amount of the abnormal advantage received amounted to 50,000 EUR per year (notional interest rate of 5% * 1,000,000 EUR) for the taxable years in question 2006, 2007 and 2008. As regards the 2006 tax year, the result of company A was profitable, but less than the amount of the abnormal benefit; as for the 2007 and 2008 taxation years, the result of A was in deficit. The administration has, in application of article 207 of the CIR, reinstated the amount of this abnormal benefit (interest unduly abandoned) in the taxable income of company A, ... Read more
Italy vs SGL CARBON SPA, September 2013, Supreme Court 22010

Italy vs SGL CARBON SPA, September 2013, Supreme Court 22010

SGL CARBON SPA paid interest on loans received from the German parent of the SGL Group. The tax authorities considered, that the interest rate applied to the intra-group loan was significantly higher than the average interest rate applied in the German market. SGL disagreed and brought the case before the Italien Courts. The Court of first instance ruled in favor of SGL but this decision was set aside by the second instance court. SGL then filed an appeal to the Supreme Court. Judgement of the Supreme Court The Supreme Court dismissed SGL’s appeal. “In view of the above, it is – therefore – quite clear that in the application of the method of “price comparison” preference should be given to the so-called internal comparison, based on the price lists and tariffs of the entity that has supplied the goods or services in the relationship between such entity and an independent company, given that it is to the above-mentioned documentary elements ... Read more
Philippines vs Filinvest Development Corporation, July 2011, Supreme Court, G.R. No. 163653

Philippines vs Filinvest Development Corporation, July 2011, Supreme Court, G.R. No. 163653

In the Filinvest case an assessment had been issued where the tax authorities had imputed interest on an interest free loan. Judgement of the Tax Court The Court set aside the assessment. The tax authorities power to allocate gross income does not include the power to impute ‘theoretical interest’ because there must be actual or, at the very least, probable receipt or realisation by the taxpayer of the income that is being allocated. Philippines vs Filinvest Development Corporation July 2011 Supreme Court 163653y ... Read more
Turkey vs No-Banker Corp, November 2008, Administrative Court, E. 2006/3620 K. 2008/4633 T. 18.11.2008

Turkey vs No-Banker Corp, November 2008, Administrative Court, E. 2006/3620 K. 2008/4633 T. 18.11.2008

No-banker Corp had issued an interest free loan to a related party. The Turkish tax office held that the lack of interest on the loan constituted a hidden distribution of profits and issued an assessment where additional income tax and a tax deficiency penalty was added and also banking and insurance transactions tax (BITT). The company filed a lawsuit based on the assessment. The tax court examined the case and determined that the loan to the partner had been used in the business of the company. Therefore, it was decided that the interest-free loan did not constitute a hidden distribution of profit. Hence, the tax court decided in favor of No-Banker Corp. The tax office then filed an appeal with Administrative Court. In a majority vote decision the Administrative Court rejected the appeal of the tax office and the decision of the tax court was upheld. It was emphasized that No-Banker Corp was not involved in bank or insurance business ... Read more
Norway vs. Statoil Angola, 2007, Supreme Court, No. RT 2007-1025

Norway vs. Statoil Angola, 2007, Supreme Court, No. RT 2007-1025

Two inter-company loans were provided to Statoil Angola by it’s Norwegian parent company, Statoil Norway ASA, and a Belgian sister company, Statoil Belgium (SCC). Statoil Angola only had the financial capacity to borrow an amount equal to the loan from Statoil Belgium. Hence, no interest was paid on the loan from Statoil Norway. The tax authorities divided Statoil Angola’s borrowing capacity between the two loans and imputed interest payments on part of the loan from Statoil Norway in an assessment for the years 2000 and 2001. The Supreme Court, in a split 3/2 decision, found that Statoil’s allocation of the full borrowing capacity of Statoil Angola to the loan from the sister company in Belgium was based on commercial reasoning and in accordance with the arm’s length principle. The Court majority argued that Statoil Norway – unlike Statoil Belgium – had a 100% ownership of Statoil Angola, and the lack of interest income would therefore be compensated by an increased ... Read more
France vs Baker International, April 1994, Court of Appeal, Case No 92BX01109

France vs Baker International, April 1994, Court of Appeal, Case No 92BX01109

In Baker International the court concluded that if interest is not charged in respect of deferrals of payments granted to a related company, it is considered either an abnormal act of management or is subject to Section 57 of the tax code. Excerpt “…it is clear from the investigation that the share of the applicant company’s turnover corresponding to sales of equipment to its subsidiary decreased significantly during the years under investigation, as did sales to Elf; whereas, on the other hand, the above-mentioned provisions of Article 57 prevented S.A. BAKER INTERNATIONAL FRANCE from charging its subsidiary sales prices that differed from the public prices; finally, neither the operating conditions decided by the company “Bi-Gabon” with regard to stocks and the taking back of equipment, nor the fact that the financial health of this subsidiary was able to provide it with income, can suffice to justify the interest that S. A. would have had in this matter. A. BAKER INTERNATIONAL ... Read more