Following an audit, the tax authorities concluded that the payments received by Hyatt under the Strategic Oversight Services Agreements (SOSAs) constituted royalties under Article 12 of the India–UAE Double Tax Agreement (DTA), or alternatively, business profits attributable to a permanent establishment (PE) in India. The Income Tax Appellate Tribunal found that Hyatt had a PE in India, after which Hyatt filed an appeal with the High Court. The High Court examined both issues. Regarding royalties, the High Court ruled against the tax authorities. The Court held that the payments did not constitute “royalty” for the use of intellectual property, know-how, or technical services, as defined in the Indian Income Tax Act or Article 12 of the DTA. However, regarding the PE, the High Court ruled that Hyatt did have a fixed-place PE in India under Article 5, due to its continuous and significant involvement in the operations of the Indian hotels under the SOSA. This meant that the payments could ... Read more

“Supermarket BV” is a company in the Netherlands. It conducts some of its business through a permanent establishment (PE) in Belgium. In 1999, the company formed a reinvestment reserve from the proceeds of selling a leasehold interest in a Dutch supermarket. In 2003, the company used this reserve to acquire the right to use a dwelling located in Belgium, which was included in the assets of its Belgian PE. From 2004 to 2013, “Supermarket BV” incorrectly calculated depreciation relating to the Belgian asset by using a lower initial book value due to the inappropriate deduction of the reinvestment reserve. Consequently, the exempt profits attributable to the Belgian PE were overstated, resulting in excessive exemption from Dutch taxation. In 2013, the tax authorities detected the error and corrected it by adjusting the taxable profit for that year, applying the ‘error correction doctrine’ and making a one-time adjustment to correct the accumulated errors from 2004 to 2012. “Supermarket BV” filed an appeal, ... Read more

The transaction concerned a Danish insurance company with its registered office and management in Denmark, which planned to employ individuals residing in Poland to perform administrative support tasks under employment contracts. The work was to be carried out remotely in a home office model, with employees free to choose their place of work and without any office space or other premises being made available or controlled by the company in Poland. The Polish employees were to perform back office, financial support, and data analysis tasks exclusively in support of insurance activities carried out in Denmark and Sweden, using IT systems provided by the company and supervised remotely from abroad. The tax authorities issued an individual interpretation taking the view that the planned employment of staff working remotely from Poland could lead to the creation of a permanent establishment in Poland under domestic law and the Poland Denmark tax treaty. They considered that the continuous performance of work by employees located ... Read more

A UK PE of the Royal Bank of Canada had (through its Canadian head office) advanced loans of CAD $540 million in the early 1980s to Sulpetro Limited (“Sulpetro”), a Canadian company, to help fund the exploitation by its group of companies of rights to drill for oil, largely in the Buchan field of the North Sea. The Sulpetro group sold its interest in the Buchan oil field to the BP group in 1986, in exchange for various sums including an entitlement to contingent royalty payments on production from the oil field (linked to the excess of the market price of the oil in question above a benchmark level) (“the Payments”). Sulpetro was already in financial difficulties at the time of the sale to BP and ultimately went into receivership in 1993, by which time some Payments had started to be made due to the rise in oil prices. After the remainder of its assets were realised, Sulpetro still owed ... Read more

A Swiss pharmaceutical company held marketing and distribution rights for certain medicines and operated in Portugal through a wholly owned Portuguese subsidiary. In 2009, the Portuguese company acted under a commission agreement for one product and as a limited risk distributor for another. The Swiss company was registered for VAT purposes in Portugal but had no fixed place of business. The Portuguese subsidiary sold the products in its own name to Portuguese hospitals, following pricing and commercial instructions set by the Swiss principal, with the principal bearing the main commercial and inventory risks. Following a tax audit, the Portuguese Tax Authority concluded that the Swiss company had a permanent establishment in Portugal through a dependent agent. It argued that the Portuguese subsidiary acted under detailed instructions, lacked legal and economic independence, bore no significant business risks, and operated exclusively for the Swiss principal. On that basis, the Authority attributed to the alleged permanent establishment the profits arising from the sales ... Read more

A Hungarian company had a permanent establishment (PE) in Germany. The PE provided installation and assembly services to third parties in Germany. Following an audit of the German PE for FY 2017 the German tax authorities issued an assessment of additional taxabel income calculated based on the cost-plus method, cf. section 32 of the BsGaV (German ordinance on allocation of profits to permanent establishments). Not satisfied with the assessment a complaint was filed by the taxpayer with the Tax Court, which later decided in favour of the PE and set aside the tax assessment. An appeal was then filed by the tax authorities with the Federal Tax Court. Judgment The Federal Tax Court upheld the decision of the Tax Court and ruled in favour of the PE. Excerpt in English “1. It already follows from the wording of Section 1(5) sentence 1 of the Foreign Tax Act (AStG), according to which paragraphs 1, 3 and 4 on the ‘correction of ... Read more

A Hungarian company had a permanent establishment (PE) in Germany. The PE carried out meat cutting work on the basis of work contracts dated 23 February 2017 with the Hungarian company Z Kft. The PE concluded a service agreement with A Kft. in which A Kft. undertook to provide administrative services in the area of support for employees in Germany and was to receive a fee calculated as a percentage of net sales in return. Following an audit of the PE the German tax authorities issued an assessment of additional taxabel income based on the German ordinance on allocation of profits to permanent establishments. In the assessment the service fee was instead determined using the cost plus method. Not satisfied with the assessment a complaint was filed by the PE with the Tax Court. In its complaint the PE argued that the tax authorities corrected all of the PE’s sales in Germany without a corresponding legal basis. Contrary to the ... Read more

A German taxpayer had established a partnership in London in September 2007 to conduct commercial gold trading. The partnership rented office space with two workstations, used business centre services and entered into financing arrangements with a Swiss bank. It also carried out a series of physical and securitised gold transactions, as well as hedging and currency transactions. Trading activity began at the end of October 2007 and had largely ceased by mid-January 2008. The business was sold in October 2008, after which the partnership was dissolved. The tax authorities took the position that the income from the gold trading activity was not attributable to a permanent establishment in the United Kingdom. They argued that, although office premises had been rented and business activities had been carried out there, the temporal requirement for a permanent establishment under the Germany-United Kingdom tax treaty had not been met. Consequently, the income could not be treated as exempt foreign business income under the treaty ... Read more

The case concerned a tax dispute for the period 2011–2016 that arose from the disallowance of expenses incurred by an Ugandan branch of an Australian engineering consultancy firm. These expenses were related to head office cost allocation, overhead recharges and regional office charges from affiliated entities abroad. SMEC International argued that these expenses were legitimate intercompany charges for services such as legal, commercial and tax support, and that they were incurred in the production of income under Section 22 of the Income Tax Act. They also claimed that the tax authorities had previously audited part of the same period (2009–2012) and that this had resulted in a consent judgment resolving the matter. SMEC also argued that part of the assessment was time-barred under Section 25(2)(b) of the Tax Procedures Code Act, which limits assessments to a three-year period. Furthermore, SMEC claimed that it had a verified withholding tax (WHT) credit of over UGX 1.3 billion which had never been refunded ... Read more

The question to be decided by the Full Bench of the High Court was whether a permanent establishment (PE) could have positive income notwithstanding losses incurred by the company – of which it is part – in other jurisdictions. This issue was left unresolved in the High Court’s December 2023 judgment, as the Division Bench questioned the view expressed in previous case law that attribution of profits to a PE would only be justified if the company as a whole, and the PE being merely a part of it, had made profits. Hyatt International, on the other hand, argued that if the company had suffered a loss in the relevant assessment year, no profit or income attribution would be warranted as far as the PE was concerned. Judgment The Full Bench of the High Court rejected Hyatt International’s contention and held that the cautious view expressed by the Division Bench of the High Court and the doubts expressed with respect ... Read more

The factual circumstances of the case revolve around a dispute between “A IGF s.a.r.l.”, a Luxembourg entity, and the tax authorities regarding the existence and recognition of a permanent establishment (PE) in the United States. “A IGF s.a.r.l.” contended that it had a fixed place of business in the USA, which qualified as a PE under Article 5 of the tax convention between Luxembourg and the USA. This recognition would affect the taxation of certain financial activities, potentially allowing for adjustments to taxable income in Luxembourg. The tax authorities disagreed. Judgment The court analyzed whether the activities carried out by “A IGF s.a.r.l.”’s “USA branch” met the criteria for a PE, which requires not only a fixed place of business but also real and effective activity. Despite providing evidence of a physical location and certain management activities, the court found that the proof of genuine and substantial activity through the branch was lacking. Thus, the court sided with the tax ... Read more

“Consulting GmbH” sold consulting services in Russia and Romania, where it also had fixed places of business. The income from these permanent establishments was declared as exempt under the double tax treaties with Russia and Romania. The tax authority, did not grant the tax relief under the exemption method. It found that German activity reservations applied to the income, due to the involvement of a person with unlimited tax liability in Germany in the activities of the PE’s. An appeal was filed with the Administrative Court, which later ruled in favour of the tax authorities. Judgment The Supreme Administrative Court confirmed the decision of the Administrative Court and upheld the decision of the tax authorities. Click here for English translation Click here for other translation ... Read more

“X-IP AB” was part of an international group. In 2012 and 2013, a major restructuring was carried out within the group, including a decision to centralise and streamline the group’s management and development of intangible assets in Luxembourg. In 2012, the company registered a branch in Luxembourg, which was given responsibility for managing and developing the intangible assets held by the company. The branch employed staff with expertise in the field and the intangible assets were allocated to the branch at a book value of EUR 1. In the second half of 2013, a company was incorporated in Luxembourg (hereafter LUX). In September 2013, the branch transferred the intangible assets to LUX through a business disposal for a market consideration in the form of shares in LUX. In its tax return for 2013, “X-IP AB” claimed a deduction of notional tax in Luxembourg of just over SEK 660 million, i.e. tax that would have been paid in Luxembourg if there ... Read more

A sales, marketing and management service agreement entered into in 1993 between Asian Hotels Limited and Hyatt International-Southwest Asia Limited had been replaced by various separate agreements – a Strategic Oversight Services Agreements, a Technical Services Agreement, a Hotel Operation Agreement with Hyatt India, and trademark license agreements pursuant to which Asian Hotels Limited was permitted to use Hyatt’s trademark in connection with the hotel’s operation. In 2012, the tax authorities issued assessment orders for FY 2009-2010 to FY 2017-2018, qualifying a portion of the service payments received by Hyatt as royalty and finding that Hyatt had a PE in India. Hyatt appealed the assessment orders to the Income Tax Appellate Tribunal, which later upheld the order of the tax authorities. Aggrieved with the decision, Hyatt filed appeals before the High Court. Judgment of the High Court The High Court set aside in part and upheld in part the decision of the Tribunal. The court set aside the decision of ... Read more

In 2013 “A” SARL requested a tax ruling confirming that its US branch had sufficient substance to qualify as a permanent establishment. The tax authorities issued the ruling conferming this to be the case, but only premised on the information provided by “A” SARL. The ruling would not be valid if the facts or circumstances described therein were incomplete or inaccurate. In 2016, “A” SARL filed an amended tax return for 2013 in which it had effectively allocated a dividend in kind to the US branch. Despite of the above mentioned tax ruling, the tax authorities disallowed the amendments to the tax return, finding that the US branch did not have sufficient substance to qualify as a permanent establishment. Not satisfied with the decision “A” SARL filed an appeal with the Administrative Court. Judgment of the Administrative Tribunal The Court decided in favour of the tax authorities and denied the recognition of US permanent establishment. Excerpt (in English) “In view ... Read more

A Hungarian company had a permanent establishment (PE) in Germany. The PE carried out meat cutting work on the basis of work contracts dated 23 February 2017 with the Hungarian company Z Kft. The PE had concluded a service agreement with A Kft. in which A Kft. undertook to provide administrative services in the area of support for employees posted to Germany and was to receive a fee calculated as a percentage of net sales in return. Following an audit of the PE the German tax authorities issued an assessment of additional taxabel income based on the German ordinance on allocation of profits to permanent establishments. Not satisfied with the assessment a complaint was filed by the PE with the Tax Court. In its complaint the PE argued that the tax authorities corrected all of the PE’s sales in Germany without a corresponding legal basis. Contrary to the opinion of the tax authorities, the BsGaV does not constitute a legal ... Read more

Travelport Inc. provides electronic global distribution services to airlines via a computerised reservation system (CRS). This system is connected to airline servers, with data continuously sent and obtained regarding flight schedules, seat availability, and so on. Travelport earns USD/EUR 3 for each booking made in India for providing CRS services. Travelport entered into a distribution agreement with an Indian entity to market and distribute those CRS services to travel agents in India. For this service, Travelport paid an amount ranging from 33.33% to 60% of its total earnings to the Indian entity. Following an audit, the tax authorities concluded that the income earned by Travelport Inc. from the CRS services was earned through the hardware installed at the travel agents’ premises in India, and that Travelport Inc. was liable for tax on the total income of USD/EUR 3 in India. However, Travelport Inc. filed complaints, and the Tribunal ruled that, once the revenue had been apportioned, no further income was ... 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 2009 a British company – Bupa Insurance Limited – absorbed the Danish company International Health Insurance, whose shares it had acquired in 2005 and which had had a French branch since 1993. Following an audit for FY 2009 and 2010, the tax authorities considered that the French branch had passed on to Bupa Insurance Limited, free of charge, the customers associated with its insurance business in France, and considered this transaction to be an indirect transfer of profits within the meaning of Article 57 of the General Tax Code. The Administrative Court of Appeal set aside the assessment and an appeal was then filed with the Conseil d’État by the tax authorities. Judgment of the Supreme Administrative Court The Supreme Administrative Court upheld the decision from the CAA and dismissed the appeal of the tax authorities. Excerpts “3. It is clear from the statements in the judgment under appeal that the Marseille Administrative Court of Appeal held that the ... Read more

A Hungarian company had a permanent establishment (PE) in Germany. The PE provided installation and assembly services to third parties in Germany. Following an audit of the German PE for FY 2017 the German tax authorities issued an assessment of additional taxabel income calculated based on the cost-plus method, cf. section 32 of the BsGaV (German ordinance on allocation of profits to permanent establishments). Not satisfied with the assessment a complaint was filed with the Tax Court. Judgment of the Tax Court The Court decided in favour of the PE and set aside the tax assessment. Excerpt (English translation) “Pursuant to Section 1 para. 1 sentence 1 AStG, the following applies: If a taxpayer’s income from a business relationship abroad with a related party is reduced by the fact that the taxpayer bases its income calculation on different conditions, in particular prices (transfer prices), than would have been agreed between independent third parties under the same or comparable circumstances (arm’s length ... Read more

July 1 2022 the State Secretary of Finance has issued updated guidance on the profit allocation to permanent establishments – Decree no. 16683. The purpose of the guidance is to clarify the way in which the Tax and Customs Administration assesses the profit allocation to permanent establishments. Attention is paid to the introduction of the object exemption in the Corporate Income Tax Act 1969 (Corporate Tax Act 1969) in 2012, a number of editorial changes have been made and references to other decrees and documents have been updated. Click here for Unofficial English translation Click here for other translation ... Read more

In 2016 Fertilizer BV had been issued a tax assessment for FY 2012 in which the tax authorities had imposed additional taxable income of €133,076,615. In November 2019 the district court ruled predominantly in favor of the tax authorities but reduced the adjustment to €78.294.312. An appel was filed by Fertilizer BV with the Court of Appeal. Judgment of the Court of Appeal Various issues related to the assessment was disputed before the Court. Dispute 1: Allocation of debt and equity capital to a permanent establishment in Libya in connection with the application of the object exemption. More specifically, the dispute is whether the creditworthiness of the head office was correctly taken as a starting point and a sufficient adjustment was made for the increased risk profile of the permanent establishment. The Court of Appeal answered this question in the affirmative, referring to the capital allocation approach that is regarded as the preferred method for the application of Article 7 ... Read more

A Permanent Establishment (PE) in Kenya of MAN Diesel and Turbo SE Germany (MAN) entered into a consortium with a firm called MPG Services to engineer, procure and construct an 87 MW generating capacity thermal power plant on behalf of Thika Power Ltd. The role of MAN’s Kenyan PE in the project was mobilization, engineering and design, reservation of the diesel sets, and steam turbine and other start-up costs associated with its part of the works which included supervision of the assembly and installation of engines and commissioning the engines. MAN Germany was to provide for the materials up to the port of export and the PE was to assist in the onshore part which included supervision of the assembly and installation work as well as commissioning the work but did not include supply of equipment. In 2015, the tax authorities initiated an audit which resulted in a final tax assessment issued in 2017. According to the assessment MAN’s Kenyan ... Read more

The case concerned a complex financing structure within the General Electric Group. The taxpayer, GE Financial Investments Ltd (GEFI Ltd), a UK resident company was the limited partner in a Delaware limited partnership, of which, GE Financial Investments Inc (GEFI Inc) a Delaware corporation was the general partner. GEFI Ltd filed UK company tax returns for FY 2003-2008 in which the company claimed a foreign tax credit for US federal income tax. In total, US federal income taxes amounted to $ 303 millions and exceeded the amount of tax due in the UK. The tax authorities opened an enquiry into each of GEFI’s company tax returns for the relevant period, and subsequently issued an assessment where the claims for foreign tax credits was denied in their entirety. Judgment of the Tax Tribunal The tribunal dismissed the appeal of GEFI Ltd and ruled that the UK company did not carry on business in the US. Hence GEFI Ltd was not entitled ... 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

S GmbH was an Austrian trading company of a group. In the course of business restructuring, the real estate division of the Austrian-based company was initially separated from the “trading operations/brands” division on the demerger date of 31 March 2007. The trademark rights remained with the previous trading company, which was the parent company of the group, now M GmbH. On 25 September 2007, M GmbH transferred all trademark rights to a permanent establishment in Malta, which was set up in the same year, to which it also moved its place of management on 15 January 2008. Licence agreements were concluded between S GmbH and M GmbH, which entitle S GmbH to use the trademarks of M GmbH for advertising and marketing measures in connection with its business operations in return for a (turnover-dependent) licence fee. The tax authorities (re)assessed the corporate income tax for the years 2008 and 2009. The audit had shown that the licence fees were to ... Read more

A Swiss company, Ashland Industries Europe GmbH, had not declared a presence in Spain for VAT purposes and did not charge VAT for local sales. However, the Swiss company used the resources of its Spanish subsidiary when performing these local sales of goods in Spain. On that basis, the Spanish tax authorities found that the company had a permanent establishment for in Spain for VAT purposes and issued an assessment. An appeal was filed by Ashland Industries, but the appeal was dismissed by the courts. The Spanish Supreme Court concluded that: “First. To determine whether a permanent establishment can be deemed to exist in the Spanish territory of application of VAT where the only transactions carried out subject to that tax are supplies of goods other than supplies of gas, electricity, heat or refrigeration. Second. If the answer to the previous question is in the affirmative, what conditions are necessary to establish that a Spanish subsidiary constitutes a permanent establishment ... Read more

The Italian Revenue Agency had notified to Gulf Shipping & Trading Corporation Ltd Inc. several notices of assessment, relating to the tax years 1999 to 2006, contesting undeclared taxable income, having ascertained that the aforesaid company had a permanent establishment in Italy through which it traded in construction materials. The company had lodged separate appeals against the above tax assessments, which were partially upheld by the Tax Commission, which, in particular, had partially recalculated the taxable income in relation solely to transactions involving the sale of stone materials to Italian clients The tax authorities appealed the sentence of the court of first instance. According to the Revenue Agency in regards to “permanent establishment”, what needs to be verified is the fact that, through the fixed place of business, the company based abroad carries out its activity in the Italian territory, i.e. an economically relevant activity for the subject to which it is referable, to be understood, however, in a broad ... Read more

AFRICAN BARRICK GOLD PLC (now Acacia Mining Plc), the largest mining company operating in Tanzania, was issued a tax bill for unpaid taxes, interest and penalties for alleged under-declared export revenues. As a tax resident in Tanzania, AFRICAN BARRICK GOLD was asked to remit withholding taxes on dividend payments amounting to USD 81,843,127 which the company allegedly made for the years 2010, 2011, 2012 and 2013 (this sum was subsequently reduced to USD 41,250,426). AFRICAN BARRICK GOLD was also required to remit withholding taxes on payments which the mining entities in Tanzania had paid to the parent, together with payments which was made to other non-resident persons (its shareholders) for the service rendered between 2010 up to September 2013. AFRICAN BARRICK GOLD argued that, being a holding company incorporated in the United Kingdom, it was neither a resident company in Tanzania, nor did it conduct any business in Tanzania to attract the income tax demanded according to the tax assessment ... Read more

This case concerned deductibility of notional interest paid in 2003-7 by two permanent establishments in the UK to their Irish HQs. The loans – and thus interest expenses – had been allocated to the PEs as if they were separate entities. The UK tax authorities held that interest deductibility was restricted by UK tax law, which prescribed that PE’s has such equity and loan capital as it could reasonably be expected to have as a separate entity. The UK taxpayers, refered to  Article 8 of the UK-Ireland tax treaty. Article 8 applied the “distinct and separate enterprise” principle found in Article 7 of the 1963 OECD Model Tax Convention, which used the language used in section 11AA(2). Yet nothing was said in the treaty about assumed levels of equity and debt funding for the PE. In 2017, the First-tier Tribunal found in favour of the tax authority, and in October 2019 the Upper Tribunal also dismissed the taxpayers’ appeals. Judgment ... Read more

Two Swiss companies, A GmbH und B GmbH, belonged to a multinational group under a Dutch parent. The group provided food and fuel to military troops and civilian in areas of crises and armed conflicts. A group company located in the United Arab Emirates provided services to the Swiss companies primarily in relation to activities in Afghanistan. A GmbH und B GmbH had a permanent establishment in Afghanistan. As there are no tax treaties between Switzerland and Afghanistan, for Swiss tax purposes the allocation of income between the two companies and the permanent establishment in Afghanistan was governed by Swiss domestic law. A tax assessment was issued by the authorities which was brought to the Swiss courts by the companies. In 2018 the case ended up in the Swiss Supreme Court. The Supreme Court ruled that according to Swiss law, the profit allocation has to start from the total global income of the companies. Hence, the assessment was partially incorrect, ... Read more

At issue was if the activities carried out by Samsung Heavy Industries’ Mumbai project office constituted a permanent establishment or if the activities were of a preparatory and auxiliary nature. The Indian Supreme Court decided in favor of Samsung Heavy Industries. Under the Tax Treaty, the condition for application of Article 5(1) of the Tax Treaty and there by constituting PE is that there should be a place ‘through which the business of an enterprise’ is wholly or partly carried on, and furthermore that these activities are not of a preparatory and auxiliary nature, cf. Article 5(4)(e). Board Resolution documents showed that the Mumbai project office was established to coordinate and execute “delivery documents in connection with construction of offshore platform modification of existing facilities for Oil and Natural Gas Corporation”. The office was not involved in the core activity of execution of the Project. No expenditure was incurred by the office in India – only 2 employees. The burden ... Read more

East African Breweries International Ltd (applicant) is a wholly owned subsidiary of East African Breweries Limited, and is incorporated in Kenya. East African Breweries International Ltd was involved in developing the markets of the companies in countries that did not have manufacturing operations. The company did not carry out marketing services in Uganda but was marketing Ugandan products outside Uganda. After sourcing customers, they pay to the applicant. A portion is remitted to Uganda Breweries Limited and East African Breweries International Ltd then adds a markup on the products obtained from Uganda Breweries Limited sold to customers in other countries. East African Breweries International Ltd would pay a markup of 7.5 % to Uganda Breweries and then sell the items at a markup of 70 to 90%. In July 2015 the tax authorities (respondent) audited Uganda Breweries Limited, also a subsidiary of East African Breweries Limited, and found information relating to transactions with the East African Breweries International Ltd for ... Read more

A UK PE of the Royal Bank of Canada had (through its Canadian head office) advanced loans of CAD $540 million in the early 1980s to Sulpetro Limited (“Sulpetro”), a Canadian company, to help fund the exploitation by its group of companies of rights to drill for oil, largely in the Buchan field of the North Sea. The Sulpetro group sold its interest in the Buchan oil field to the BP group in 1986, in exchange for various sums including an entitlement to contingent royalty payments on production from the oil field (linked to the excess of the market price of the oil in question above a benchmark level) (“the Payments”). Sulpetro was already in financial difficulties at the time of the sale to BP and ultimately went into receivership in 1993, by which time some Payments had started to be made due to the rise in oil prices. After the remainder of its assets were realised, Sulpetro still owed ... Read more

US Citybank was performing activities in Italy by means of a branch/permanent establishment. The Italian PE granted loan agreements to its Italian clients. Later on, the bank decided to sell these agreements to a third party which generated losses attributed to the PE’s profit and loss accounts. Following an audit of the branch concerning FY 2003 in which the sale of the loan agreements took place, a tax assessment was issued where the tax authorities denied deduction for the losses related to the transfer of the agreements. The tax authorities held that the losses should have been attributed to the U.S. parent due to lack of financial capacity to assume the risk in the Italien PE. First Citybank appealed the assessment to the Provincial Tax Court which ruled in favor of the bank. This decision was then appealed by the tax authorities to the Regional Tax Court which ruled in favor of the tax authorities. Finally Citybank appealed this decision ... Read more

In 2012, Flir Commercial Systems AB sold intangible assets from a branch in Belgium and subsequently claimed a tax relief of more than SEK 2 billion in fictitious Belgian tax due to the sale. The Swedish Tax Agency decided not to allow relief for the Belgian “tax”, and issued a tax assessment where the relief of approximately SEK 2 billion was denied and a surcharge of approximately SEK 800 million was added. The Administrative Court concluded that the Swedish Tax Agency was correct in not allowing relief for the fictitious Belgian tax. A double taxation agreement applies between Sweden and Belgium. In the opinion of the Administrative Court, the agreement prevents Belgium from taxing the assets. Consequently, any fictitious tax cannot be deducted. The Administrative Court also considers that the Swedish Tax Agency was correct in imposing a tax surcharge and that there is no reason to reduce the surcharge. The company’s appeal is therefore rejected. Click here for translation ... Read more

For the purpose of determining whether a Swiss Corporation had effectively been managed from the Netherlands or had a permanent establishment in the Netherlands, the Dutch tax authorities send a request for information. The Swiss Corp was not willing to answer the request and argued that the request was disproportionate and that the concepts of “documents concerning decision-making with regard to important decisions” and “e-mail files” was and did not fit into the powers that an inspector has under Article 47 of the AWR. Judgment of the Court The court ruled in favor of the tax authorities. The court did not find the tax authorities’ request for information disproportionate. Article 47 of the Awr requires the provision of factual information and information that may be relevant to taxation with respect to the taxpayer (cf. Supreme Court October 20, 2017, ECLI: NL: HR: 2017: 2654). In the opinion of the court, the defendant remained within those limits with his request to ... Read more

In 2016 Fertilizer BV had been issued a tax assessment for FY 2012 in which the tax authorities had imposed additional taxable income of €162,506,660. Fertilizer BV is the parent company of a fiscal unity for corporation tax (hereinafter: FU). It is a limited partner in a limited partnership under Dutch law, which operates a factory in [Country 1]. The interested party borrowed the money for the capital contribution to the limited partnership from a wholly-owned subsidiary. The share in profits from the limited partnership was expressed as profit from a permanent establishment. In dispute was the amount of interest attributable to the permanent establishment. The court followed the inspector in allocating – in connection with the [circumstances] in [Country 1] – 75% equity and 25% loan capital to the PE. Furthermore, the FU had deposits and loans in USD. These positions were partly hedged by forward exchange contracts. Fertilizer BV valued these deposits and loans at the historical acquisition ... Read more

The Swedish Branch of Yazaki Europe Ltd had been heavily lossmaking for more than five years. The Branch only had a limited number of customers in Sweden and where it acted as a simple information exchange provider. The branch had limited risks, as all risk related to R&D functions were located outside Sweden. Excerpt from the Judgment of the Court “…the District Court finds that the branch has had limited opportunities to influence the costs of the products, the choice of suppliers and service providers regarding the development of the products in the projects run in collaboration with the Swedish customers, and price to the customer. Furthermore, the branch has been referred to make purchases in the currencies that result from the group structure. The branch states that…the work done by the branch has been of such scope and importance that significant people functions are to be considered in the branch for virtually all risks that can be associated with ... Read more

This case concerned deductibility of notional interest paid in 2003-7 by two permanent establishments in the UK to their Irish HQs. The loans – and thus interest expenses – had been allocated to the PEs as if they were separate entities. The UK tax authorities held that interest deductibility was restricted by UK tax law, which prescribed that PE’s has such equity and loan capital as it could reasonably be expected to have as a separate entity. The UK taxpayers, refered to  Article 8 of the UK-Ireland tax treaty. Article 8 applied the “distinct and separate enterprise” principle found in Article 7 of the 1963 OECD Model Tax Convention, which used the language used in section 11AA(2). Yet nothing was said in the treaty about assumed levels of equity and debt funding for the PE. In 2017, the First-tier Tribunal found in favour of the tax authority, and in October 2019 the Upper Tribunal also dismissed the taxpayers’ appeals ... Read more

The Swedish branch of Technology Partners International Europe Ltd. was loss-making. The branch had no significant people functions but only two employees performing low value-added services. From the Judgment of the Court of Appeal “The distribution of revenue and costs between a British company and its Swedish branch is regulated for the current tax years in Article 7 of the 1983 double taxation agreement with the United Kingdom. Further guidance on the application of this issue can be obtained in the 2008 OECD report on profit allocation. A two-step test according to the so-called functional separate entity approach, as described in the administrative law, must be done. The Court of Appeal agrees, in light of the information provided by the branch during the Swedish Tax Agency’s investigation and because the Nordic manager cannot be linked to the branch, in the administrative court’s assessment that the branch has in the current years lacked so-called significant people functions. Nor has the branch ... Read more

HBP is a company resident in the United Kingdom, which also carries on banking business in Italy through its Milan branch (‘HSBC Milano’), which, for income tax purposes, qualifies as a permanent establishment (‘PE’ or ‘branch’) and grants credit facilities to Italian companies and industrial groups, including (from 1996) Parmalat Spa. HBP brought separate actions before the Milan Provincial Tax Commission challenging two notices of assessment for IRPEG and IRAP for 2003 and for IRES and IRAP for 2004, which taxed interest expense (147,634 euros for 2003 and 143,302 euros for 2004) on loans to Parmalat Spa. (€ 147,634, for 2003; € 143,302, for 2004) on loans from the ‘parent company’ in favour of the ‘PE’, and losses on receivables (€ 9,609,545, for 2003, and € 3,330,382, for 2004), as negative components unduly deducted by the permanent establishment, even though they related to revenues and activities attributable to the ‘parent company’. According to the Office, the PE is considered, from ... 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

The Kering group – owner of Gucci, Bottega Veneta, Saint Laurent and Pomellato –  has settled a case with the Italian tax agency for an amount of euro 1.250 billion in taxes and penalties relating to fiscal years 2011-2017. The case was started by the Italian tax police in 2017 and resulted in a recommendation to charge the president and chief executive officer of the Italian company Guccio Gucci S.p.A. with the crimes of tax evasion and failure to file Italian income tax return. Guccio Gucci S.p.A., the Italian operating company of the group and owner of the GUCCI brand, had licensed the brand to a Swiss affiliate company, Luxury Goods International S.A., together with the rights to exploit and manage the brand for the purpose of the global marketing, commercialization and sale of GUCCI products in Italy and worldwide. However, most of the marketing activities for the distribution and sale of the GUCCI products actually took place at the ... 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 a publication of preliminary results for 2018 mining giant Glencore reports a major tax assessment issued by HMRC in December 2018. “UK Tax Audit In December 2018, HMRC issued formal transfer pricing, permanent establishment and diverted profits tax assessments for the 2008 – 2017 tax years, amounting to $680 million. The Group intends to appeal and vigorously contest these assessments, following, over the years, various legal opinions received and detailed analysis conducted, supporting its positions and policies applied, and therefore the Group has not provided for the amount assessed. Management does not anticipate a significant risk of material changes in estimates in this matter in the next financial year.“ ... Read more

The case concerned a UK-based aircraft engineer who performed aircraft maintenance work in Germany as a subcontractor between 2008 and 2010. He carried out this work in a hangar rented by the main contractor at a German airport, where he was provided with a locker for storing the tools he was contractually required to supply himself. Remuneration was paid in connection with this maintenance activity. However, the tax authorities treated the remuneration as income attributable to a fixed base in Germany. They took the view that the engineer had a permanent establishment in Germany, as defined in the Germany-United Kingdom tax treaty, because he had a place permanently available to him for business purposes: the locker used exclusively to store his work equipment. The taxpayer challenged this, arguing that only third-party premises was used and that a locker used to store tools could not constitute a permanent establishment. The taxpayer also sought permission to appeal against the judgment of the ... Read more

The European Commission found that Luxembourg did not grant illegal State aid to McDonald’s as a consequence of the exemption of income attributed to a US branch. ...it is not established that the Luxembourg tax authorities misapplied the Luxembourg – US double taxation treaty. Therefore, on the basis of the doubts raised in the Opening Decision and taking into account its definition of the reference system, the Commission cannot establish that the contested rulings granted a selective advantage to McD Europe by misapplying the Luxembourg – US double taxation treaty ... Read more

The issue in this case was attribution of profits to a permanent establishment in the Netherlands. Click here for translation ... Read more

The Danish company Bevola had a PE in Finland. The PE incurred a loss when it was closed in 2009 that could not be utilized in Finland. Instead, Bevola claimed a tax deduction in its Danish tax return for 2009 for the loss suffered in Finland. A deduction of the loss was disallowed by the tax authorities because section 8(2) of the Danish Corporate Tax Act stipulates that the taxable income does not include profits and losses of foreign PEs (territoriality principle). Bevola would only be entitled to claim a tax deduction for the Finnish loss in the Danish tax return by making an election of international joint taxation under section 31 A. However, such an election means that all foreign entities must be included in the Danish tax return and the election is binding for a period of 10 years. The decision of the tax authorities was confirmed by the National Tax Tribunal on 20 January 2014. The taxpayer ... Read more