Tag: Loan agreement

Netherlands vs B.V, July 2018, Hoge Raad Case No 17/04930 17/05713 17/05714

Netherlands vs B.V, July 2018, Hoge Raad Case No 17/04930 17/05713 17/05714

It follows from various Supreme Court judgments in the Netherlands that a loan is commercially irrational if no interest can be determined under which an independent third party would have been willing to grant the same loan. The consequence of a loan beeing deemed commercially irrational is that a loss is not deductible. This case addresses the implications of the Umbrella Judgement, in particular the question of how that judgment relates to case laws on unsecured loans and guarantees. The Advocate General concludes that the Umbrella Judgment is not applicable in this case and that the tax authorities has failed to demonstrate that an independent third party would not have been willing to enter a similar loan agreement. Click here for translation Nederland July 2018 ECLI NL PHR 2018 737 ... Continue to full case
UK vs CJ Wildbird Foods Limited, June 2018, First-tier Tribunal, case no. UKFTT0341 (TC06556)

UK vs CJ Wildbird Foods Limited, June 2018, First-tier Tribunal, case no. UKFTT0341 (TC06556)

In the transfer pricing case of C J Wildbird Foods Limited the issue was whether a related party loan should be treated as such for tax purposes. There was a loan agreement between the parties and the agreement specified that there was an obligation to repay the loan and interest. However, no interest had actually been paid and a tax deduction had also been claimed by the tax payer on the basis that the debt was unlikely to be repaid. The tax authorities argued that the loan did not have the characteristics of a loan. The borrower was loss making  and did not have the financial capacity to pay any interest. The tribunal found that there was a legal obligation to repay the loan and interest. Whether the loan or interest was actually repaid was irrelevant. “The modern business world has many famous examples of companies, especially in the technology sector, with no cash and no immediate prospect of generating ... 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
South Africa vs Crookes Brothers LTD, May 2018, High Court, Case no 14179/2017

South Africa vs Crookes Brothers LTD, May 2018, High Court, Case no 14179/2017

Agricultural group Crookes Brothers Ltd issued loans to its Mozambican subsidiary and in accordance with the terms of the loan, the group made transfer pricing adjustments to its taxable income. Later on, Crookes Brothers Ltd requested the tax administration to issue a reduced assessments, claiming that the adjustments were made in error. They argued, that the terms of the loan were aligned with the requirements of section 31(7) of the Income Tax Act No. 58 of 1962 (the Act), which would exempt the loan from application of transfer pricing rules. To support the claim, Crookes Brothers Ltd provided the tax administration with the loan agreements. The tax administrations  concluded that the terms of the loan agreements were not aligned with the requirements of section 31(7) of the Income Tax Act No. 58 of 1962 (the Act). The loan agreement had a clause that accelerated the debt in the event of bankruptcy, liquidation, business rescue or judgment against MML. This clause was the ... 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
Germany vs C-GmbH, December 2014, Bundesfinanzhof, Case No I R 23/13

Germany vs C-GmbH, December 2014, Bundesfinanzhof, Case No I R 23/13

C-GmbH was the sole shareholder of the I-GmbH. In 2000, I-GmbH, together with another company, set up a US company for the development of the US market, H-Inc., In which the I-GmbH held 60 per cent of the shares. H-Inc. had recived equity from the two shareholders and also received a bank loan of approx. $ 1.5 million (USD), which the shareholders secured through guarantees. As of December 31, 2003, the balance sheet of H-Inc. showed a deficit not covered by equity of approx. 950,000 USD. On June 30 , 2004,  I-GmbH became the sole shareholder of H-Inc. Then the bank put the H-Inc. granted loans due. Since H-Inc. was not able to serve the bank loan, C-GmbH paid the bank. As of December 31, 2004, the balance sheet of H-Inc. showed a deficit not covered by equity of approx. $ 450,000 , which at December 31 , 2005 amounted to approx. $ 1.6 million, as at 31 December 2006 $ ... Continue to full case