Tag: Lack of substance

Denmark vs. Codan Forsikring A/S, August 2022, Eastern High Court, Case no BS-11370/2020

Denmark vs. Codan Forsikring A/S, August 2022, Eastern High Court, Case no BS-11370/2020

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. Judgement of the Eastern High Court The High Court upheld the decision of the Tax Court and set aside the assessment of ... Read more
McDonald’s has agreed to pay €1.25bn to settle a dispute with French authorities over excessive royalty payments to Luxembourg

McDonald’s has agreed to pay €1.25bn to settle a dispute with French authorities over excessive royalty payments to Luxembourg

On 16 June 2022 McDonald’s France entered into an settlement agreement according to which it will pay €1.245 billion in back taxes and fines to the French tax authorities. The settlement agreement resulted from investigations carried out by the French tax authorities in regards to abnormally high royalties transferred from McDonald’s France to McDonald’s Luxembourg following an intra group restructuring in 2009. McDonald’s France doubled its royalty payments from 5% to 10% of restaurant turnover, and instead of paying these royalties to McDonald’s HQ in the United States, going forward they paid them to a Swiss PE of a group company in Luxembourg, which was not taxable of the amounts. During the investigations it was discovered that McDonald’s royalty fees could vary substantially from one McDonald’s branch to the next without any justification other than tax savings for the group. This conclusion was further supported by statements of the managers of the various subsidiaries as well as documentation seized which ... Read more
TPG2022 Chapter VI Annex I example 1

TPG2022 Chapter VI Annex I example 1

1. Premiere is the parent company of an MNE group. Company S is a wholly owned subsidiary of Premiere and a member of the Premiere group. Premiere funds R&D and performs ongoing R&D functions in support of its business operations. When its R&D functions result in patentable inventions, it is the practice of the Premiere group that all rights in such inventions be assigned to Company S in order to centralise and simplify global patent administration. All patent registrations are held and maintained in the name of Company S. 2. Company S employs three lawyers to perform its patent administration work and has no other employees. Company S does not conduct or control any of the R&D activities of the Premiere group. Company S has no technical R&D personnel, nor does it incur any of the Premiere group’s R&D expense. Key decisions related to defending the patents are made by Premiere management, after taking advice from employees of Company S ... Read more

TPG2022 Chapter X paragraph 10.212

When the captive insurance does not have access to the appropriate skills, expertise and resources and, therefore, the captive insurance is not found to exercise control functions related to the risks associated to the underwriting, an analysis under Chapter I, based on facts and circumstances, may conclude that the risk has not been assumed by the captive insurance or that another MNE is exercising these control functions. In this latter case, the return derived from the investment of the premiums would be allocated to the member(s) of the MNE group that are assuming the risk associated with the underwriting in accordance with the guidance in Chapter I ... Read more
Greece vs "VSR Inc", December 2019, Court, Case No A 2631/2019

Greece vs “VSR Inc”, December 2019, Court, Case No A 2631/2019

At issue was the transfer of taxable assets from a shareholder to a 100% owned company, “VSR Inc”. This transfer of resulted in an understatement of profits in a controlled sale of vehicle scrapping rights. Following an audit, the tax authority concluded that the rights had been acquired in the previous quarter from the one transferred and that a sale value below cost could not be justified. According to the tax authorities the arrangement lacked economic or commercial substance. The sole purpose had been to lower the overall taxation. An revised tax assessment – and a substantial fine – was issued by the tax authorities. VSR filed an appeal. Judgement of the Court The court dismissed the appeal and decided in favor of the tax authorities. “Since it is apparent from the above that the above transactions were intended to transfer taxable material from the applicant’s sole proprietorship to the associated company under the name of ” “, TIN and ... Read more
Switzerland vs "Pharma X SA", December 2018, Federal Supreme Court, Case No 2C_11/2018

Switzerland vs “Pharma X SA”, December 2018, Federal Supreme Court, Case No 2C_11/2018

A Swiss company manufactured and distributed pharmaceutical and chemical products. The Swiss company was held by a Dutch parent that held another company in France. R&D activities were delegated by the Dutch parent to its French subsidiary and compensated with cost plus 15%. On that basis the Swiss company had to pay a royalty to its Dutch parent of 2.5% of its turnover for using the IP developed. Following an audit the Swiss tax authorities concluded that the Dutch parent did not contribute to the development of IP. In 2006 and 2007, no employees were employed, and in 2010 and 2011 there were only three employees. Hence the royalty agreement was disregarded and an assessment issued where the royalty payments were denied. Instead the R&D agreement between the Dutch parent and the French subsidiary was regarded as having been concluded between the Swiss and French companies Judgement of the Supreme Court The Court agreed with the decision of the tax ... Read more
Austria vs. "Sports Data GmbH", November 2018, Bundesfinanzgericht, Case No RV/2100386/2017

Austria vs. “Sports Data GmbH”, November 2018, Bundesfinanzgericht, Case No RV/2100386/2017

A GmbH (“Sport Data GmbH”) was founded in 2006 as a wholly-owned subsidiary of A Holding AG, which had been founded shortly before and had its registered office in Switzerland. A AG, Switzerland was also founded as a sister company of A GmbH. A AG is A GmbH´s only customer. The business of A GmbH is the development and support of software for A AG, the maintenance of hardware, the training of employees and the forwarding of information. A AG, Switzerland sells the information provided by A GmbH. For these services A GmbH receives a remuneration from A AG determined as actual costs plus a profit surcharge of 5 %. The tax authorities noted that A AG did not initially have any active business activities. Against this background, the tax office had doubts about the arm’s length nature of the transfer prices. The tax authorities concluded, there were also no “simple services” by A GmbH for which, according to international ... Read more
Nederlands vs "Paper Trading B.V.", October 2011, Supreme Court, Case No 11/00762, ECLI:NL:HR:2011:BT8777

Nederlands vs “Paper Trading B.V.”, October 2011, Supreme Court, Case No 11/00762, ECLI:NL:HR:2011:BT8777

“Paper Trading B.V.” was active in the business of buying and selling paper. The paper was purchased (mostly) in Finland, and sold in the Netherlands, Belgium, France, and Germany. The purchasing and selling activities were carried out by the director of Paper Trading B.V. “Mr. O” who was also the owner of all shares in the company. In 1994, Mr. O set up a company in Switzerland “Paper Trader A.G”. The appointed director of “Paper Trader A.G” was a certified tax advisor, accountant, and trustee, who also acted as director of various other companies registered at the same address. The Swiss director took care of administration, correspondence, invoicing and corporate tax compliance. A couple of years later, part of the purchasing and selling of the paper was now carried out through “Paper Trader A.G”. However, Mr. O proved to be highly involved in activities on behalf of “Paper Trader A.G”, and the purchase and sale of its paper. Mr. O ... Read more
US vs. Sherwin-Williams Company, March 2011, Massachusetts Appeals Court Decisions, Case No 79 Mass. App. Ct. 159

US vs. Sherwin-Williams Company, March 2011, Massachusetts Appeals Court Decisions, Case No 79 Mass. App. Ct. 159

In the case of Talbots Inc, the Massachusetts Appeals Court Decisions found that the Appellate Tax Board correctly affirmed the denial by the Commissioner of Revenue (commissioner) of a taxpayer’s request to abate corporate excise taxes that were assessed against the taxpayer on the basis of disallowed deductions for royalty payments the taxpayer made to a wholly owned subsidiary for the use of intellectual property, where sufficient evidence supported the board’s finding that the commissioner properly disregarded, under the “sham transaction doctrine,” the transfer and licensing of the intellectual property between the taxpayer and the subsidiary; further, the board correctly affirmed the commissioner’s reattribution of the royalty and interest income earned by the subsidiary to the taxpayer, where the taxpayer controlled the intellectual property from which the income was generated, and in fact received substantially all of the income. US vs Talbots 2011 ... Read more
Spain vs X SL, June 2009, TEAC, Case No Rec. 656/2007

Spain vs X SL, June 2009, TEAC, Case No Rec. 656/2007

A holding company of an international Group was established in Spain and in it and in the Group’s operating entity, which was made dependent on it and with which it was fiscally consolidated, intra group loans were requested, for the acquisition of shares in other Group companies, which were mere asset relocations without any economic or business substance, with the sole objective of reducing taxation in Spain: Both in the Spanish holding company and in the operating entity, financial expenses were deducted as a result of that indebtedness, which lead to a drastic reduction in profits in the operating company and losses in the holding company, with the final result that this income remains untaxed. On this background an assessment was issued by the tax authorities where the financial expenses were disallowed under Spanish “fraud by law” provisions. As stated in Article 6.4 of the Civil Code: “Acts carried out under the protection of the text of a rule which ... Read more
US vs. Sherwin-Williams Company, October 2002, Massachusetts Supreme Judicial Court, Case No 438 Mass. 71

US vs. Sherwin-Williams Company, October 2002, Massachusetts Supreme Judicial Court, Case No 438 Mass. 71

Sherwin-Williams is an Ohio corporation, headquartered in Cleveland, and is engaged in the manufacture, distribution and sale of paints and paint-related products. In 1991, it formed two subsidiaries under Delaware law to hold certain tradenames, trademarks and service marks that it had developed. Sherwin-Williams and the subsidiaries teen entered into nonexclusive licensing agreements for the right to use these various intangibles. In filing its 1991 state income tax return, Sherwin-Williams deducted all royalty and interest expenses accrued under the agreement, in computing taxable income. Following an audit, the Department of Revenue disallowed the deductions and assessed additional tax, because the transfer and license back of the marks was a “sham” disallowed under the “sham-transaction doctrine”. According to the Department of Revenue the royalty payments were not deductible, because the transactions had no valid business purpose and transactions were not at “arm’s-length.” On appeal, the Appellate Tax Board upheld the assessment of the tax authorities. Judgement for the Court The Supreme ... Read more