Tag: Permanent establishment

Term used in double taxation agreement (although it may also be used in national tax legislation) to refer to a situation where a non-resident entrepreneur is taxable in a country; that is, an enterprise in one country will not be liable to the income tax of the other country unless it has a “permanent establishment” thorough which it conducts business in that other country. Even if it has a PE, the income to be taxed will only be to the extent that it is ‘attributable’ to the PE. See article 7 of the OECD double tax treaty

France vs Valueclick Ltd. Dec 2020, Supreme Administrative Court (CAA), Case No 420174

France vs Valueclick Ltd. Dec 2020, Supreme Administrative Court (CAA), Case No 420174

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 ... Continue to full case
Spain vs. VAT PE of Ashland Industries Europe GMBH, November 2020, Supreme Court, Case no 1.500/2020

Spain vs. VAT PE of Ashland Industries Europe GMBH, November 2020, Supreme Court, Case no 1.500/2020

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 ... Continue to full case
India vs Samsung Heavy Industries, July 2020, Supreme Court, Case No 12183 OF 2016

India vs Samsung Heavy Industries, July 2020, Supreme Court, Case No 12183 OF 2016

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 ... Continue to full case
Italy vs Citybank, April 2020, Supreme Court, Case No 7801/2020

Italy vs Citybank, April 2020, Supreme Court, Case No 7801/2020

Citybank is resident in the U.S. and is performing activity in Italy by means of a PE. The Italian PE granted loan agreements to its Italian clients. The bank decided to sell to a third party these agreements and generated losses which were 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 ... Continue to full case

Sweden vs Flir Commercial Systems AB, March 2020, Stockholm Administrative Court, Case No 28256-18

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 ... Continue to full case
Netherlands vs. Swiss Corp, November 2019, Rechtbank Noord-Nederland, Case No. 2019:1492

Netherlands vs. Swiss Corp, November 2019, Rechtbank Noord-Nederland, Case No. 2019:1492

For the purpose of determining whether a Swiss Corporation had effektivly 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 answere 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. 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 claimant to provide access ... Continue to full case
Sweden vs Branch of Yazaki Europe Ltd, October 2019, Court of Appeal, Case No 2552–2555-17, 2557–2558-17, 3422-18

Sweden vs Branch of Yazaki Europe Ltd, October 2019, Court of Appeal, Case No 2552–2555-17, 2557–2558-17, 3422-18

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 ... Continue to full case
UK vs Irish Bank Resolution Corporation Limited and Irish Nationwide Building Society, October 2019, UK Upper Tribunal, UKUT 0277 (TCC)

UK vs Irish Bank Resolution Corporation Limited and Irish Nationwide Building Society, October 2019, UK Upper Tribunal, UKUT 0277 (TCC)

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 ... Continue to full case
Sweden vs Branch of Technology Partners International Europe Ltd, October 2019, Court of Appeal, Case No 3701-18

Sweden vs Branch of Technology Partners International Europe Ltd, October 2019, Court of Appeal, Case No 3701-18

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 ... Continue to full case
France vs Google, September 2019, Court approval of CJIP Agreement - Google agrees to pay EUR 1 billion in fines and taxes to end Supreme Court Case

France vs Google, September 2019, Court approval of CJIP Agreement – Google agrees to pay EUR 1 billion in fines and taxes to end Supreme Court Case

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, ... Continue to full case
The Kering Group - owner of Gucci, Bottega Veneta, Saint Laurent and Pomellato - has settled an Italian Tax Case for an Amount of 1.250 Billion Euro

The Kering Group – owner of Gucci, Bottega Veneta, Saint Laurent and Pomellato – has settled an Italian Tax Case for an Amount of 1.250 Billion Euro

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 ... Continue to full case
France vs. Google, April 2019, Administrative Court of Appeal, Case N° 17PA03065

France vs. Google, April 2019, Administrative Court of Appeal, Case N° 17PA03065

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 i 2019 by the Administrative court of appeal. Click here for translation France vs Google April 2019, No 17PA03065, ... Continue to full case
Glencore in $680 million Transfer Pricing Dispute with HMRC

Glencore in $680 million Transfer Pricing Dispute with HMRC

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.“ ... Continue to full case
European Commission vs McDonald, December 2018, European Commission Case no. SA.38945

European Commission vs McDonald, December 2018, European Commission Case no. SA.38945

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 ... Continue to full case
Netherlands vs NL PE, October 2018, Amsterdam Court of Appeal, case no. 17/00407 to 17/00410

Netherlands vs NL PE, October 2018, Amsterdam Court of Appeal, case no. 17/00407 to 17/00410

The issue in this case was attribution of profits to a permanent establishment in the Netherlands. Click here for translation ECLI_NL_GHAMS_2018_2438, Gerechtshof Amsterdam, 17_00407 tm 17_00410N ... Continue to full case
Denmark vs Bevola, June 2018, European Court of Justice, Case No C-650/16

Denmark vs Bevola, June 2018, European Court of Justice, Case No C-650/16

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 ... Continue to full case
India vs Mastercard, June 2018, AAR No 1573 of 2014

India vs Mastercard, June 2018, AAR No 1573 of 2014

The issue was whether Mastercard Asien Pasific Ltd has a permanent establishment in India as regards the use of a global network and infrastructure to process card payment transactions for customers in India and as regards other related activities. India’s Authority for Advance Rulings found that that Mastercard’s activities in India created a permanent establishment under several different theories. The AAR also concluded that processing fees paid to Mastercard’s regional headquarters in Singapore by Indian banks and other financial institutions were royalty income, but would be taxable as business profits in India under Article 7 in the DTT between India and Singapore for being effectively connected with a PE of Mastercard Asia Pacific in India. AAR ruling: India-vs-Mastercard-asia-pacific-ltd-6-June-2018-AAR-No-1573-of-2014 ... Continue to full case
Nokia paid 202 million euro to settle a long running dispute with the tax authorities in India

Nokia paid 202 million euro to settle a long running dispute with the tax authorities in India

Under the Mutual Agreement Procedure (MAP), Finland and India have settled a long running tax dispute involving Nokia. The tax authorities in India issued a tax assessment to Nokia for violating withholding tax regulations in India while making royalty payments to its parent company in Finland. An additional assessment was then issued by the tax authorities in India to the parent company in Finland for the same transaction as – according to the tax authorities – the company had a permanent establishment in India. According to the MAP settlement Nokia will pay 102 million euro in addition to the 100 million euro already paid in India during 2013-2015 ... Continue to full case
France vs PetO Ferrymasters Ltd. April 2018, Conseil d’État N° 399884

France vs PetO Ferrymasters Ltd. April 2018, Conseil d’État N° 399884

The French Supreme Court issued a decision on 4 April 2018, concluding that a permanent establishment (PE) existed in France for purposes of determining nonresident companies’ exposure to French VAT in a case involving a transport commissionaire arrangement. The decisions clarify the criteria for determining whether a service provider will be considered to have sufficient substance in France to enable the services to be performed in an independent manner, and thus constitute a PE. A UK sea carriage commissionaire signed a client assignment contract with a French company carrying out the same activity, as well as a contract for the French company to organize and provide transport services. The UK company was required to approve any new clients or suppliers. The UK company also managed the reservation systems for clients to book the transport and communicated with the clients regarding the transport and the insurance linked to the business. The French company was responsible for the overall development of the ... Continue to full case
Additional guidance on the attribution of profits to permanent establishments

Additional guidance on the attribution of profits to permanent establishments

The OECD has released additional guidance on the attribution of profits to permanent establishments. This additional guidance sets out high-level general principles for the attribution of profits to permanent establishments arising under Article 5(5), in accordance with applicable treaty provisions, and includes examples of a commissionnaire structure for the sale of goods, an online advertising sales structure, and a procurement structure. It also includes additional guidance related to permanent establishments created as a result of the changes to Article 5(4), and provides an example on the attribution of profits to permanent establishments arising from the anti-fragmentation rule included in Article 5(4.1). See also the 2008 Guidance and 2010 Guidance. additional-guidance-attribution-of-profits-to-permanent-establishments-BEPS-action-7 ... Continue to full case