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
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
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)
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
This case is about a loss-making Swedish branch of Technology Partners International Europe Ltd. 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 ... 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
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 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
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
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
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
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
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
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
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
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
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
France vs Valueclick Ltd. March 2018, CAA, Case no 17PA01538
The issue in the case before the Administrative Court of Appeal of Paris 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. However, the Administrative Court found that none of these factors established that employees in France had been ... Continue to full case
France vs. Google, July 2017, Administrative Court
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. 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. (more…) ... Continue to full case
Indonesia vs Google, June 2017, Settlement PE
In June 2017, the Indonesian government announced that it had settled a lengthy tax dispute with Google for 2016. While the settlement sum has not been disclosed, it is perceived as setting a new tone in the interpretation of permanent establishment status for tech companies ... Continue to full case
Sweden vs S BV, 16 June 2017, Administrative Court, case number 2385-2390-16
S BV was not granted deductions in its Swedish PE for interest on debt relating to the acquisition of subsidiaries. The Court of Appeal considers that it is clear that key personnel regarding acquisition, financing and divestment of the shares in the subsidiary and the associated risks have not existed in the PE. It is also very likely that the holding of the shares has not been necessary for and conditioned by the PE’s operations. Therefore, there is no support for allocating the shares and the related debt to the PE. Click here for translation Sweden vs Corp 30 June 2017 KRNS, mål nr 2385—2390-16 ... Continue to full case
India vs Formula One World Championship Ltd, April 2017, India’s Supreme Court
India’s Supreme Court found that Formula One World Championship which conducts Formula One racing events, has a permanent establishment (PE) for its business in India and income accruing from it is taxable. “We are of the opinion that the test laid down by the Andhra Pradesh High Court in Visakhapatnam Port Trust case fully stands satisfied. Not only the Buddh International Circuit is a fixed place where the commercial/economic activity of conducting F-1 Championship was carried out, one could clearly discern that it was a virtual projection of the foreign enterprise, namely, Formula-1 (i.e. FOWC) on the soil of this country. It is already noted above that as per Philip Baker, a PE must have three characteristics: stability, productivity and dependence. All characteristics are present in this case. Fixed place of business in the form of physical location, i.e. Buddh International Circuit, was at the disposal of FOWC through which it conducted business. Aesthetics of law and taxation jurisprudence leave no doubt ... Continue to full case
