Vodafone Idea Ltd. paid royalties in AY 2016–17 for use of the “Vodafone” and “Essar” brands: about ₹158.91 crore at 0.7 percent of net service revenue to Vodafone Ireland Marketing Ltd. and Vodafone Sales & Services Ltd., and about ₹19.17 crore at 0.35 percent of net service revenue to Rising Group Ltd. The company benchmarked these payments using the CUP as the most appropriate method and also under TNMM at the entity level. The tax authorities rejected that benchmarking claiming that the “Essar” mark had no value so the arm’s length price was Nil, and cut the “Vodafone” royalty rate to 0.25 percent, relying on a royalty arrangement between Virgin Enterprises Ltd. and Virgin Mobile USA LLC as a comparable. On that basis a transfer pricing adjustment of about ₹1,205.47 crore was issued, which the Dispute Resolution Panel later upheld. An appeal was filed with the Delhi Bench of the Income Tax Appellate Tribunal, where Vodafone Idea argued that the ... Read more

Oracle Australia purchases enterprise software and hardware from Oracle Ireland and distributes these products in Australia. The supply by Oracle Ireland to Oracle Australia is governed by complex contractual arrangements under which Oracle Australia made sublicence fee payments to Oracle Ireland. One bundle of rights which Oracle Australia obtained from Oracle Ireland related to Oracle Australia’s use of computer programs in which Oracle Ireland owned the copyright. The sublicence fee payments were made in the income years ending 31 May 2013 to 31 May 2018. If these sublicence fee payments are found to be ‘royalties’ within the meaning of Art 13(3) of the Agreement between the Government of Australia and the Government of Ireland for the Avoidance of Double Taxation, Oracle Ireland will be liable to pay withholding tax on them. An assessment was issued by the tax authorities where they concluded that the payments were royalties and that withholding taxes should therefore be paid by Oracle Ireland. A MAP ... Read more

In 2009 Facebook entered a cost-sharing arrangement, under which the US parent company granted its Irish affiliate the right to use its platform, user base, advertising relationships, and other marketing intangibles in all territories outside the US and Canada. Facebook valued those assets at $6.3 billion, arguing that Ireland’s ongoing share of research costs should be calculated from this figure. The Internal Revenue Service disagreed, asserting that the correct method for valuing the transfer was the ‘income method’. Using its own forecasts, discount rate and licensing benchmark, the IRS concluded that the US assets were actually worth $19.9 billion. Facebook challenged both the figures and the regulations. The company argued that, since both parties had contributed ‘non-routine’ intangibles, the income method was inappropriate. Even if that method had been applicable, Facebook claimed that the IRS had used inflated revenue projections and an unjustified risk premium in its discount rate, as well as an unrealistically low cost-plus alternative to cost sharing ... Read more

Oracle Australia purchases enterprise software and hardware from Oracle Ireland and distributes these products in Australia. The supply by Oracle Ireland to Oracle Australia is governed by complex contractual arrangements under which Oracle Australia made sublicence fee payments to Oracle Ireland. One bundle of rights which Oracle Australia obtained from Oracle Ireland related to Oracle Australia’s use of computer programs in which Oracle Ireland owned the copyright. The sublicence fee payments were made in the income years ending 31 May 2013 to 31 May 2018. If these sublicence fee payments are found to be ‘royalties’ within the meaning of Art 13(3) of the Agreement between the Government of Australia and the Government of Ireland for the Avoidance of Double Taxation, then Oracle Ireland will be liable to pay withholding tax on them. An assessment was issued by the tax authorities where they concluded that the payments were royalties and that withholding taxes should therefore be paid by Oracle Ireland. A ... Read more

In 1991 and 2007, Ireland issued two tax rulings in relation to two companies of the Apple Group (Apple Sales International – ASI and Apple Operations Europe – AOE), incorporated under Irish law but not tax resident in Ireland. The rulings approved the method by which ASI and AOE proposed to determine their chargeable profits in Ireland deriving from the activity of their Irish branches. In 2016, the European Commission considered that the tax rulings, by excluding from the tax base the profits deriving from the use of intellectual property licences held by ASI and AOE, granted those companies, between 1991 and 2014, State aid that was unlawful and incompatible with the internal market and from which the Apple Group as a whole had benefitted, and ordered Ireland to recover that aid. In 2020, on the application of Ireland and ASI and AOE, the General Court of the European Union annulled the Commission’s decision, finding that the Commission had not ... Read more

In 2013, Airbnb entered into a technology and licensing agreement with its Irish subsidiary, which included a cost-sharing arrangement for the use and development of its proprietary intellectual property. As part of this arrangement, the Irish affiliate made a lump-sum platform contribution transaction (PCT) payment of $35 million in exchange for rights to Airbnb’s IP. To determine the PCT amount, Airbnb applied the income method, using discount rates ranging from 25% to 35% and estimating the useful lives of the licensed intangibles. The U.S. Internal Revenue Service (IRS) challenged this valuation, asserting that an arm’s length payment should have been approximately $4.2 billion. Based on this position, the IRS issued an assessment for additional taxable income and associated penalties. The IRS employed a comparable uncontrolled transaction (CUT) method, referencing Airbnb’s Series D financing round, which took place on April 16, 2014—roughly three months after the PCT was executed. Airbnb disputed the IRS assessment and filed a petition with the United ... Read more

Avon Cosmetics s.r.o. paid 6% of its net sales in royalties/licences for the use of intangible assets to a Group company in Ireland. The Irish company in turn was contractually obliged to pay 5.68% of Avon Cosmetics s.r.o.’s net sales as royalties to its US parent company. In the opinion of the tax authorities, the beneficial owner of the royalties was not the Irish company but the US parent and therefore the royalty payments were not exempt from withholding tax. An assessment of additional withholding tax was therefore issued. Decision of the Supreme Administrative Court The Supreme Administrative Court upheld the decision of the tax authorities and found that the US parent company was the beneficial owner of the royalties. Excerpt in English “[32] The interpretation of the concept of beneficial owner, including in the context of the OECD Model Tax Treaty relied on by the complainant, was dealt with by the Municipal court in the judgment referred to in ... Read more

In 1991 and 2007, Ireland issued two tax rulings in relation to two companies of the Apple Group (Apple Sales International – ASI and Apple Operations Europe – AOE), incorporated under Irish law but not tax resident in Ireland. The rulings approved the method by which ASI and AOE proposed to determine their chargeable profits in Ireland deriving from the activity of their Irish branches. In 2016, the European Commission considered that the tax rulings, by excluding from the tax base the profits deriving from the use of intellectual property licences held by ASI and AOE, granted those companies, between 1991 and 2014, State aid that was unlawful and incompatible with the internal market and from which the Apple Group as a whole had benefitted, and ordered Ireland to recover that aid. In 2020, on the application of Ireland and ASI and AOE, the General Court of the European Union annulled the Commission’s decision, finding that the Commission had not ... Read more

During 2012, Coronation Investment Management SA (Pty) Ltd (CIMSA) was a 90% subsidiary of Coronation Fund Managers Limited and the 100% holding company of Coronation Management Company and Coronation Asset Management (Pty) Ltd (CAM), both registered for tax in South Africa. CIMSA was also the 100% holding company of CFM (Isle of Man) Ltd, tax resident in Isle of Man. CFM (Isle of Man) Ltd, in turn, was the 100% owner of Coronation Global Fund Managers (Ireland) Limited (CGFM) and Coronation International Ltd (CIL), which were registered and tax resident in Ireland and the United Kingdom respectively. At issue was whether the net income of CGFM should be included in the taxable income of CIMSA, or whether a tax exemption in terms of s 9D of the Income Tax Act 58 of 1962 (the Act) was applicable to the income earned by CGFM. This depends on what the primary functions of CGFM in Ireland are. If the primary operations are ... Read more

In a request for a binding consultation the question raised was whether activities carried out in Spain resulted in the existence of a permanent establishment. The General Directorate considered that an enterprise cannot fragment a cohesive operating business into several small operations and argue that each of these is merely engaged in a “preparatory or auxiliary activity”. The Irish company was considered to have a PE in Spain, as it carried out a significant part of all its activity in Spain – not just simple storage/warehousing, but rather multiple logistics operations. Click here for English Translation Click here for other translation ... Read more

In 2012, the Luxembourg tax authorities issued a tax ruling in favour of Fiat Chrysler Finance Europe (‘FFT’), an undertaking in the Fiat group that provided treasury and financing services to the group companies established in Europe. The tax ruling at issue endorsed a method for determining FFT’s remuneration for these services, which enabled FFT to determine its taxable profit on a yearly basis for corporate income tax in Luxembourg. In October 2015, the Commission concluded that the tax ruling constituted State aid under Article 107 TFEU and that it was operating aid that was incompatible with the internal market. The Commission found that the Grand Duchy of Luxembourg was required to recover the unlawful and incompatible aid from FFT. FFT brought an action before the General Court for annulment of the Commission’s decision. In it’s Judgment of September 2019, the General Court dismissed the actions brought by FFT and confirmed the validity of the Commission’s decision. This decision was ... Read more

Google Ireland licenses Google AdWords technology to its subsidiary in India and several other countries across the world. The Tax Tribunal in India found that despite the duty of Google India to withhold tax at the time of payment to Google Ireland, no tax was withheld. This was considered tax evasion, and Google was ordered to pay USD 224 million. The case was appealed by Google to the High Court, where the case was remanded to the Income Tax Appellate Authority for re-examination. Judgment of the ITAT After re-examining the matter on the orders of the Karnataka High Court, the Income Tax Appellate Authority concluded that the payments made by the Google India to Google Ireland between 2007-08 and 2012-13 was not royalties and therefore not subject to withholding tax. Excerpts “30. On a consideration of all the above agreements and the facts on record, we find that none of the rights as per section 14(a)/(b) and section 30 of ... Read more

This case concerns pricing of four reinsurance agreements concluded between Codan Forsikring A/S (Codan) and a controlled Irish company, RSA Reinsurance Ireland Ltd. for FY 2010-2013. The tax authorities had increased Codan’s taxable income for FY 2010, 2011 and 2012 by DKK 23 million, DKK 25 million, and DKK 18 million and reduced the taxable income for FY 2013 by DKK 4 million. At issue was whether the expenses incurred by Codan under the reinsurance agreements with RSA Ireland were commercially justified and thus deductible. If so, there were questions as to whether the reinsurance agreements had been concluded at arm’s length. By decision of 26 June 2019 the Tax Court reduced the assessment to DKK 0 for the 2010-2012 tax years and upheld Codan’s taxable income for FY 2013. An appeal was filed by the tax authorities. Judgment of the Eastern High Court The High Court upheld the decision of the Tax Court and set aside the assessment of ... Read more

SNC Oakley Europe, a subsidiary of SAS Oakley Holding, which belonged to the American group Oakley Inc. until its takeover in 2007 by the Italian group Luxottica, carried on the business of distributing clothing, footwear, eyewear and accessories of the Oakley brand on European territory. Following the takeover SNC Oakley Europe in 2008 transferred its distribution activity on the French market to another French company, Luxottica France, and its distribution activity on the European market to companies incorporated in Ireland, Luxottica Trading and Finance and Oakley Icon, and deducted restructuring costs in an amount of EUR 15,544,267. The tax authorities qualified these costs as an advantage granted without consideration to its sister companies, constituting, on the one hand, an abnormal management act and, on the other hand, an indirect transfer of profits within the meaning of Article 57 of the General Tax Code on the grounds that its costs had not been re-invoiced to the Italian company, the head of ... Read more

At issue in this case is whether the arm’s length principle as described in the OECD Transfer Pricing Guidelines can be applied by the EU in determining if state aid had been granted. In 2012, the Luxembourg tax authorities issued a tax ruling in favour of Fiat Chrysler Finance Europe (‘FFT’), an undertaking in the Fiat group that provided treasury and financing services to the group companies established in Europe. The tax ruling at issue endorsed a method for determining FFT’s remuneration for these services, which enabled FFT to determine its taxable profit on a yearly basis for corporate income tax in the Grand Duchy of Luxembourg. In 2015, the Commission concluded that the tax ruling constituted State aid under Article 107 TFEU and that it was operating aid that was incompatible with the internal market. The Commission found that the Grand Duchy of Luxembourg was required to recover the unlawful and incompatible aid from FFT. FFT brought an action ... Read more

In 2012, the Luxembourg tax authorities issued a tax ruling in favour of Fiat Chrysler Finance Europe (‘FFT’), an undertaking in the Fiat group that provided treasury and financing services to the group companies established in Europe. The tax ruling at issue endorsed a method for determining FFT’s remuneration for these services, which enabled FFT to determine its taxable profit on a yearly basis for corporate income tax in the Grand Duchy of Luxembourg. In 2015, the Commission concluded that the tax ruling constituted State aid under Article 107 TFEU and that it was operating aid that was incompatible with the internal market. The Commission found that the Grand Duchy of Luxembourg was required to recover the unlawful and incompatible aid from FFT. FFT brought an action before the General Court for annulment of the Commission’s decision. In it’s Judgment of September 2019 Union , the General Court dismissed the actions brought by FFT and confirmed the validity of the ... Read more

A new huge leak of financial records revealed by ICIJ, once again shows widespread use of offshore accounts, shell companies and trusts to hide wealth and/or avoid taxes. The new leak is known as the Pandora Papers and follows other recent leaks – lux leak, panama papers, paradise papers. The International Consortium of Investigative Journalists obtained 11.9 million confidential documents from 14 separate legal and financial services firms, which the group said offered “a sweeping look at an industry that helps the world’s ultrawealthy, powerful government officials and other elites conceal trillions of dollars from tax authorities, prosecutors and others.” “The key players in the system include elite institutions – multinational banks, law firms and accounting practices – headquartered in the U.S. and Europe.” The Consortium said the 2.94 terabytes of financial and legal data shows the “offshore money machine operates in every corner of the planet, including the world’s largest democracies,” and involves some of the world’s most well-known ... Read more

Lux PPL SARL received a profit participating loan (PPL) from a related company in Jersey to finance its participation in an Irish company. The participation in the Irish company was set up in the form of debt (85%) and equity (15%). The profit participating loan (PPL) carried a fixed interest of 25bps and a variable interest corresponding to 99% of the profits derived from the participation in the Irish company, net of any expenses, losses and a profit margin. After entering the arrangement, Lux PPL SARL filed a request for an binding ruling with the Luxembourg tax administration to verify that the interest charged under the PPL would not qualify as a hidden profit distribution subject to the 15% dividend withholding tax. The tax administration issued the requested binding ruling on the condition that the ruling would be terminate if the total amount of the interest charge on the PPL exceeded an arm’s length charge. Later, Lux PPL SARL received a dividend ... Read more

X B.V., a private limited company established in the Netherlands, is part of a globally operating group (hereafter: the Group). In the years under review, the head office, which was also the top holding company, was located in the USA. Until 1 February 2008, the X B.V. was, together with BV 1 and BV 2, included in a fiscal unity for corporate income tax with the Interested Party as the parent company. As of 1 February 2008, a number of companies were added to the fiscal unity, including BV 3 and BV 4. X B.V. is considered transparent for tax purposes according to US standards. Its parent company is a company domiciled in the USA, as further described in 2.1.8 below. In 2006, BV 1 borrowed € 195,000,000 under a Euro Credit Facility (ECF), a head office guaranteed credit facility with a syndicate of sixteen banks. BV 1 contributed this amount in 2007 as share premium to BV 2. BV ... Read more

“Uniclick B.V.” had performed all the important DEMPE functions with regard to intangible assets as well as managing all risks related to development activities without being remunerated for this. Royalty-income related to the activities had instead been received by a foreign group company incorporated in Ireland and with its place of management in Luxembourg. In 2012, the administration sent notices of amendment to the tax return to the respondent for assessment years 2006 and 2010. The tax administration stated that “Uniclick B.V.”, through its director B.T. and employees M.C. and S.M., invented and developed the Uniclic technology in 1996 and continued to exploit it, and that the subsequent transfer of rights to the Uniclic invention to U.B. BV was simulated. The administration added the profits foregone annually by the “Uniclick B.V.”, i.e. the royalties received by F. from third party licensees less the costs borne by F., to “Uniclick B.V’s” taxable base. “Uniclick B.V.” disagreed with this and argued, among ... Read more

According to the IRS, Bristol-Myers Squibb reduces its U.S. taxes by holding valuable intangibles in an Irish subsidiary. In a legal analysis, the IRS concluded that the Irish scheme saves Bristol-Myers Squibb up to $1.38 billion in US taxes. From Bristol-Myers Squibb’s 2019 10-K form, “Note 7. Income Taxes” “BMS is currently under examination by a number of tax authorities which have proposed or are considering proposing material adjustments to tax positions for issues such as transfer pricing, certain tax credits and the deductibility of certain expenses. It is reasonably possible that new issues will be raised by tax authorities which may require adjustments to the amount of unrecognized tax benefits; however, an estimate of such adjustments cannot reasonably be made at this time. It is also reasonably possible that the total amount of unrecognized tax benefits at December 31, 2019 could decrease in the range of approximately $290 million to $330 million in the next twelve months as a ... Read more

The issue in the case before the Supreme Administrative Court was whether an Irish company had a PE in France in a situation where employees of a French company in the same group carried out marketing, representation, management, back office and administrative assistance services on behalf of the group. The following facts were used to substantiate the presence of a French PE: French employees negotiated the terms of contracts and were involved in drafting certain contractual clauses with the customers. Contracts were automatically signed by the Irish company – whether this action corresponded to a simple validation of the contracts negotiated and drawn up by the managers and employees in France. Local advertising programs were developed and monitored by employees in France. French employees acted to third parties as employees of the Irish company. Customers did not distinguish between the Irish and the French company. In a 2018 decision the Administrative Court had found that none of these factors established that employees in France ... Read more

The European Commission has decided to appeal the decision of the EU General Court in the State Aid case of Apple and Ireland. According to the European Commission Ireland gave illegal tax benefits to Apple worth up to €13 billion, because it allowed Apple to pay substantially less tax than other businesses. In a decision issued july 2020 the General Court held in favor of Apple and Ireland. This decision will now be reviewed by the European Court of Justice. “Statement by Executive Vice-President Margrethe Vestager on the Commission’s decision to appeal the General Court’s judgment on the Apple tax State aid case in Ireland Brussels, 25 September 2020 “The Commission has decided to appeal before the European Court of Justice the General Court’s judgment of July 2020 on the Apple State aid case in Ireland, which annulled the Commission’s decision of August 2016 finding that Ireland granted illegal State aid to Apple through selective tax breaks. The General Court ... Read more

In a decision of 30 August 2016 the European Commission concluded that Ireland’s tax benefits to Apple were illegal under EU State aid rules, because it allowed Apple to pay substantially less tax than other businesses. The decision of the Commission concerned two tax rulings issued by Ireland to Apple, which determined the taxable profit of two Irish Apple subsidiaries, Apple Sales International and Apple Operations Europe, between 1991 and 2015. As a result of the rulings, in 2011, for example, Apple’s Irish subsidiary recorded European profits of US$ 22 billion (c.a. €16 billion) but under the terms of the tax ruling only around €50 million were considered taxable in Ireland. Ireland appealed the Commission’s decision to the European Court of Justice. The Judgment of the European Court of Justice The General Court annuls the Commission’s decision that Ireland granted illegal State aid to Apple through selective tax breaks because the Commission did not succeed in showing to the requisite ... Read more

Google’s tax affairs are back in the spotlight after filings in the Netherlands have showed that billions of dollars were moved to Bermuda in 2016 using the “double Irish Dutch sandwich”. According to the Washington Post, Google’s cash transfers to Bermuda reached $27b in 2016. Google uses the double Irish Dutch sandwich structure to shield the majority of it’s international profits from taxation. The setup involves shifting revenue from one Irish subsidiary to a Dutch company with no employees, and then on to a Bermuda-mailbox owned by another company registered in Ireland. US According to US filings, Google’s global effective tax rate in 2016 was 19.3%. New US tax law will give companies such as Google an incentive to repatriate much of that cash by offering them a “one-time”, 15.5% tax rate on offshore funds. After that, foreign earnings will be taxed at 10.5%, with companies allowed to deduct foreign tax liabilities from this amount. The law will also impose ... Read more

Microsoft’s tax affairs have been in the spotlight of tax authorities all over the World during the last decade. Why? The setup used by Microsoft involves shifting profits from sales in the US, Europe and Asia to regional operating centers placed in low tax jurisdictions (Bermuda, Luxembourg, Ireland, Singapore and Puerto Rico). The following text has been provided by Microsoft in a US filing concerning effective tax and global allocation of income: “Our effective tax rate for the three months ended September 30, 2017 and 2016 was 18% and 17%, respectively. Our effective tax rate was lower than the U.S. federal statutory rate primarily due to earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing our products and services through our foreign regional operations centers in Ireland, Singapore, and Puerto Rico.“ “In fiscal year 2017, our U.S. income before income taxes was $6.8 billion and our foreign income before income taxes was $23.1 billion. In fiscal year 2016, ... Read more

The district court of Paris has approved a  “convention judiciaire d’intérêt public” negotiated between the French state and Google for an amount of € 500 million plus another agreement with the French tax authorities which amounts to 465 million euros. The agreement puts an end to the French lawsuits against Google for aggressive tax evasion, and litigation with the tax administration relating to adjustments for the periods going from 2005 to 2018. The CJIP “convention judiciaire d’intérêt public“, was established by Article 22 of Law No. 2016-1691 of 9 December 2016 in France on transparency and fight against corruption. By Law No. 2018-898 of October 23, 2018 the law was extended to cover cases for tax evasion. According to the CJIP legal actions can be ended in return for the payment of a fine. The dispute concerned the existence of a permanent establishment of Google Ireland in France. In Googles European headquarters in Ireland the corporate tax rate is (12.5%). However, ... Read more

In July 2013 the Irish pharma company Elan was acquired by the US based Perrigo group for $8.6 billion (£5.6 billion). Ireland’s corporation tax rate was one of the main attractions for Perrigo and the deal was said to give Perrigo substantial tax savings due to a corporate tax inversion. The Irish 12.5 % corporate tax rate compared US rate of 30 % was further augmented by the trading losses built up over a number of years by Elan in its business as a drug development group. That meant that even with a $3.25 billion transaction like Elan’s sale of the rights to the multiple sclerosis drug Tysabri the company would still not have to pay any tax. The low-tax scenario envisioned by Perrigo did not last for long. First Perrigo was issued a $1.9 billion tax bill (excluding interest and penalties) by the Irish tax authorities for incorrect transfer pricing related to its sale of a 50% interest in Tysabri ... Read more

The French tax administration argued that Google had a permenent establishment in France because the parent company in the US and its subsidiary in Ireland had been selling a service – online ads – to customers in France. In 2017 the administrative court found that Google France did not have the capability to carry out the advertising activities on its own. Google Ireland Limited therefore did not have a permanent establishment in France. The same conclution was reached in 2019 by the Administrative court of appeal. Click here for translation ... Read more

In the annual report for 2018 Facebook Inc. has included the following statement on current tax disputes with the IRS. “…The tax laws applicable to our business, including the laws of the United States and other jurisdictions, are subject to interpretation and certain jurisdictions are aggressively interpreting their laws in new ways in an effort to raise additional tax revenue from companies such as Facebook. The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for valuing developed technology or intercompany arrangements, which could increase our worldwide effective tax rate and harm our financial position, results of operations, and cash flows. For example, in 2016, the IRS issued us a formal assessment relating to transfer pricing with our foreign subsidiaries in conjunction with the examination of the 2010 tax year, and although we disagree with the IRS’s position and are contesting this issue, the ultimate resolution is uncertain and, if resolved in a manner unfavorable to ... Read more

Western Digital has been issued a $549 million tax assessment for fiscal years 2008 – 2012 by the IRS relating to transfer pricing with the Company’s foreign subsidiaries and intercompany payable balances. In the Annual Report for 2018 the following is stated by Western Digital on the case: “The Internal Revenue Service (“IRS”) previously completed its field examination of the Company’s federal income tax returns for fiscal years 2008 through 2012 and proposed certain adjustments. As previously disclosed, the Company received Revenue Agent Reports from the IRS for fiscal years 2008 through 2009, proposing adjustments relating to transfer pricing with the Company’s foreign subsidiaries and intercompany payable balances. The Company disagrees with the proposed adjustments and in September 2015, filed a protest with the IRS Appeals Office and received the IRS rebuttal in July 2016. The Company and the IRS Appeals Office did not reach a settlement on the disputed matters. On June 28, 2018, the IRS issued a statutory ... Read more

In March 2018 a special EU committee on financial crimes, tax evasion and tax avoidance (TAX3) was established. Now, one year later, The EU Parliament has approved a controversial report from the committee. According to the report close to 40 % of MNEs’ profits are shifted to tax havens globally each year with some European Union countries appearing to be the prime losers of profit shifting, as 35 % of shifted profits come from EU countries. About 80 % of the profits shifted from EU Member States are channelled to or through a few other EU Member States. The latest estimates of tax evasion within the EU point to a figure of approximately EUR 825 billion per year. Tax avoidance via six EU Member States results in a loss of EUR 42,8 billion in tax revenue in the other 22 Member States, which means that the net payment position of these countries can be offset against the losses they inflict ... Read more

The Third Circuit of Appeal upheld the tax courts prior decision in a $377 million dispute involving the affiliate of a US based commodities trader. The Court found that SIH Partners LLLP, an affiliate of Pennsylvania-based commodities trader Susquehanna International Group LLP, owed taxes on approximately $377 million in additional income. The extra earnings stemmed from a $1.5 billion loan from Bank of America brokerage Merrill Lynch, which was guaranteed by SIH’s subsidiaries in Ireland and the Cayman Islands. The Tax Court’s ruling was based on regulations under Section 956 of the Internal Revenue Code, which states that U.S. shareholders must include their controlled foreign corporations’ applicable earnings, up to the amount of such a loan, in their own income when the foreign units invest in U.S. property ... Read more

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

In 2016, the Commission requested that Belgium reclaim around €700 million from multinational corporations in what the Commission found to be illegal state aid provided under the Belgian “excess profit” tax scheme. The tax scheme allowed selected multinational corporations to exempt “excess profits” from the tax base when calculating corporate tax in Belgium. The European Court of Justice concludes that the Commission erroneously considered that the Belgian excess profit system constituted an aid scheme and orders that decision must be annulled in its entirety, in as much as it is based on the erroneous conclusion concerning the existence of such a scheme. For state aid to constitute an ‘aid scheme’, it must be awarded without requiring “further implementing measures.” According to court, “the Belgian tax authorities had a margin of discretion over all of the essential elements of the exemption system in question.” Belgium could influence the amount and the conditions under which the exemption was granted, which precludes the ... Read more

The Danish tax authorities were of the opinion that Microsoft Denmark had not been properly remunerated for its marketing activities, as OEM sales to Danish customers via MNE OEMs had not been included in the calculation of local commissions. According to the Market Development Agreement (MDA Agreement) concluded between Microsoft Denmark and MIOL with effect from 1 July 2003, Microsoft Denmark received the largest amount of either a commission based on sales invoiced in Denmark or a mark-up on it’s costs. Microsoft Denmark’s commission did not take into account sales of Microsoft products through the sale of computers with pre-installed Microsoft software by multinational computer manufacturers to end users in Denmark (OEM sales). Microsoft asked the Court to dismiss the case. Judgment In a close 3-2 decision, the Danish Supreme Court ruled in favour of Microsoft. “…Microsoft Denmark’s marketing may have had some derivative effect, especially in the period around the launch in 2007 of the Windows Vista operating system, ... Read more

The Swiss company X SA (hereinafter: the Company or the Appellant), is part of the multinational pharmaceutical group X, whose parent holding is X BV (hereinafter referred to as the parent company) in Netherlands, which company owns ten subsidiaries, including the Company and company X France SAS (hereinafter: the French company). According to the appendices to the accounts, the parent company did not employ any employees in 2006 or in 2007, on the basis of a full-time employment contract. In 2010 and 2011, an average of three employees worked for this company. By agreement of July 5, 2006, the French company undertook to carry out all the works and studies requested by the parent company for a fee calculated on the basis of their cost, plus a margin of 15%. The French company had to communicate to the parent company any discoveries or results relating to the work entrusted to it. It should also keep the parent company informed of ... Read more

Analog Devices has been issued a $52m tax demand from the Revenue Commissioners in Ireland. The assessment is related to inter-company transfers back in 2013, where – according to the tax authorities – the Irish entity has failed to conform to OECD transfer pricing guidelines. Analog Devices specialises in data converters and chips that translate a button press or sound – into electronic signals. The company was established in Ireland in 1977, where today about 1,200 people is employed at its original and main hub in Limerick, in addition to its design facility in Cork. Analog Devises 10K filing “The Company has numerous audits ongoing at any time throughout the world, including an Internal Revenue Service income tax audit for Linear’s pre-acquisition fiscal 2015 and fiscal 2016, various U.S. state and local tax audits, and transfer pricing audits in Spain, the Philippines and Ireland. With the exception of the Linear pre-acquisition audit, the Company’s U.S. federal tax returns prior to fiscal ... Read more

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 ... Read more

New Oxfam research shows that four pharmaceutical corporations — Abbott, Johnson & Johnson, Merck, and Pfizer — systematically allocate super profits in overseas tax havens. In eight advanced economies, pharmaceutical profits averaged 7 percent, while in seven developing countries they averaged 5 percent. In comparison, profits margins averaged 31 percent in countries with low or no corporate tax rates – Belgium, Ireland, Netherlands and Singapore. The report exposes how pharmaceutical corporations uses sophisticated tax planning to avoid taxes ... Read more

Major US MNE’s with regional Headquarters in Ireland for European business activities. The corporation tax rate in Ireland is only 12.5%. However to further sweeten the deal for MNE’s, Ireland has been known to offer special tax deals to MNE’s resulting in much lower effective tax rates. Ireland provides MNEs with both low tax centers for European activities and conduit holding companies serving as hubs for transferring profits and capital to low tax jurisdictions such as Cyprus and Bermuda. Especially MNEs within the IT sector have been known to use a combination of subsidiaries in Ireland, Luxembourg, the Netherlands, and Bermuda to reduce their taxes (“Double Duch Irish sandwich”). Ireland has been involved in investigations concerning corporate taxes in both the EU and US. An investigation of Apple discovered that two of the company’s Irish subsidiaries were not classified as tax residents in the U.S. nor Ireland, despite being incorporated in Ireland. Ireland offers low tax, many tax treaties, low ... Read more

Since June 2013, the European Commission has been investigating tax ruling practices of EU Member States. A Task Force was set up in summer 2013 to follow up on allegations of favourable tax treatment of certain companies, in particular in the form of unilateral tax rulings. The Treaty on the Functioning of the European Union (“TFEU”) provides that “any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.”. The State aid rules ensures that the functioning of the internal market is not distorted by anticompetitive behavior favouring some to the detriment of others. In June 2014 the Commission initiated a series of State aid investigations on Multinational Corporations related to transfer pricing practices and rulings. Final decisions now have been published ... Read more

Apple’s tax affairs have been in the spotlight of tax authorities for decades – and still are! Settlements have been entered with numerous European Countries, among others – Italy, the UK and France. Apple has also been investigated by the EU and a State Aid ruling was issued in August 2016. According to the ruling “Ireland granted illegal tax benefits to Apple” and the European Commission ordered Apple to pay €13 billion, plus interest, in unpaid Irish taxes from 2004–14 to the Irish state. U.S. Senate scrutiny of Apple Inc.’s tax strategies back in 2009 turned the spotlight on a stateless entity with $30 billion in profit since 2009 that’s incorporated in Ireland, controlled by a board in California, and didn’t pay taxes in either place ... Read more

The Danish Tax Ministry and Microsoft meet in Court in a case where the Danish tax authorities had issued an assessment of DKK 308 million. The Danish tax authorities were of the opinion that Microsoft had not been properly remunerated for performing marketing activities due to the fact that OEM sales to Danish customers via MNE OEM’s had not been included in the calculation of local commissions. In court, Microsoft required a dismissal with reference to the fact that Sweden, Norway and Finland had either lost or resigned similar tax cases against Micorosoft. The National Court ruled in favor of Microsoft. The decision was later confirmed by the Supreme Court. Click here for translation ... Read more

The issue in the case before the Administrative Court of Appeal of Paris was whether an Irish company had a PE in France in a situation where employees of a French company in the same group carried out marketing, representation, management, back office and administrative assistance services on behalf of the group. The following facts were used to substantiate the presence of a French PE: French employees negotiated the terms of contracts and were involved in drafting certain contractual clauses with the customers. Contracts were automatically signed by the Irish company – whether this action corresponded to a simple validation of the contracts negotiated and drawn up by the managers and employees in France. Local advertising programs were developed and monitored by employees in France. French employees acted to third parties as employees of the Irish company. Customers did not distinguish between the Irish and the French company. However, the Administrative Court found that none of these factors established that employees in France had been ... Read more

Apple has paid an additional £136m taxes in a settlement with the UK. The settlement is revealed in Apple Europe’s 2017 accounts. “Following an extensive audit by Her Majesty’s Revenue and Customs (HMRC) the Company agreed to pay a corporate income tax adjustment of £136m covering prior years up to September 26, 2015. This payment of additional tax and interest reflects the Company’s increased activity and is recognized in the current financial period which ended on 1 April 2017. As a result of this adjustment the Company’s corporate income tax payments will increase going forward.” Most likely, the HMRC has found that the UK subsidiary had not received a large enough sales- and marketing commission from the Irish Apple sales hub ... Read more

Most Sub Saharan African jurisdictions see the area of mineral transfers/sales as the main transfer pricing risk, but only few have systems in place to check if prices applied to minerals transferred to related parties comply with the arm’s length principle. Studies highlights a strong need for capacity strengthening in the area of transfer pricing throughout the African continent and for enhancing the knowledge of mining industry within tax authorities. South Africa has, for many years, been the leader in transfer pricing audits among the African countries. But emerging countries such as Nigeria, Ghana, Kenya, Tanzania, Mozambique, are now making a concerted effort to develop transfer pricing capability. In Tanzania, for example, the Acasia Mining Plc. was recently  issued a USD 190 billion tax bill. The assessment demonstrates a strong political will in Africa to address transfer pricing non-compliance. A paper commissioned by the World Bank highlights transfer pricing issues within the African Mining industry. Not surprisingly, it seems that most of the transfer pricing problems relates ... Read more

Mutual-fund seller AGF Management Ltd. has settled a federal tax case over income shifted from Canada to an overseas subsidiary. The company has recently disclosed that the Canada Revenue Agency sought a total of $71.9-million in back taxes, interest and penalties related to the period spanning 2005-10. An agreement has since been reached, but the terms were not disclosed. In its latest quarterly report, AGF said the disagreement over taxes owed relates to transfer pricing with a foreign jurisdiction. The AGF disclosures do not mention whether the issues relate to operations in Ireland or Singapore. AGF is one of the largest independent investment managers in Canada with approximately $37-billion in total assets under management ... Read more

Google Ireland licenses Google AdWords technology to its subsidiary in India and several other countries across the world. The Tax Tribunal in India found that despite the duty of Google India to withhold tax at the time of payment to Google Ireland, no tax was withheld. This was considered tax evasion, and Google was ordered to pay USD 224 million. The case has now been appealed by Google to the Supreme Court of India ... Read more

In a public hearing held 22 August 2017 in Sydney Australia by the Economics References Committee, tech companies IBM, Microsoft, and Apple were called to the witnesses stand to explain about tax avoidance schemes – use of “regional headquarters” in low tax jurisdictions (Singapore, Ireland and the Netherlands) to avoid or reduce taxes. Follow the ongoing Australian hearings into corporate tax avoidance on this site: http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/Corporatetax45th Transcript from the hearing: ... Read more