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. Various issues related to the assessment was disputed before the Court of Appeal. 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 of the OECD Model Convention. Dispute 2: Should all claims and liabilities denominated in dollars be valued in conjunction? The mere fact that claims and debts are denominated in the same currency is insufficient to conclude ... 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. Judgement 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. Judgement ... 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

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. Judgement 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

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 Judgement 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. Irish_Nationwide_Building_Society_and_anor_v_HMRC ... 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 Judgement 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