Tag: Related-party loan

Germany vs "HQ Lender GmbH", Januar 2022, Bundesfinanzhof, Case No IR 15/21

Germany vs “HQ Lender GmbH”, Januar 2022, Bundesfinanzhof, Case No IR 15/21

“HQ Lender GmbH” is the sole shareholder and at the same time the controlling company of A GmbH. The latter held 99.98% of the shares in B N.V., a corporation with its seat in Belgium. The remaining shares in B N.V. were held by HQ Lender GmbH itself. A GmbH maintained a clearing account for B N.V., which bore interest at 6% p.a. from 1 January 2004. No collateralisation was agreed in regards of the loan. In the year in dispute (2005), the interest rate on a working capital loan granted to the plaintiff by a bank was 3.14%. On 30 September 2005, A GmbH and B N.V. concluded a contract on a debt waiver against a debtor warrant (… €). The amount corresponded to the worthless part of the claims against B N.V. from the clearing account in the opinion of the parties to the contract. Although it was deducted from the balance sheet of A GmbH to reduce ... Read more
Liechtenstein vs "A-Geothermal Finance AG", December 2021, Administrative Court, Case No VGH 2021/085

Liechtenstein vs “A-Geothermal Finance AG”, December 2021, Administrative Court, Case No VGH 2021/085

“A-Geothermal Finance AG” (A AG) financed geothermal projects developed by the E GmbH. The sole shareholder is af A AG. Since 2012, B has also been the sole shareholder of C AG. C AG holds as a subsidiary E GmbH with developed two geothermal projects. These projects were financed by A AG, namely with loans to E GmbH, which forwarded the loan amounts to F S.p.a. In the period from November 2010 to March 2017, A AG granted a large number of loans ranging from EUR 10,000.00 to EUR 270,000.00. At the end of 2017, loans receivable (including interest in arrears on the loan) from E GmbH, amounted to CHF 9,397,427.00. A AG made value adjustments on this amount, namely in 2016 in the amount of CHF 7,676,057.00 and in 2017 in the amount of CHF 1,721,370.00. The tax administration did not recognize these value adjustments as tax deductible business-related operating expenses, essentially with the argument that the granting of ... Read more
Germany vs Lender GmbH, June 2021, Bundesfinanzhof, Case No IR 4/17

Germany vs Lender GmbH, June 2021, Bundesfinanzhof, Case No IR 4/17

Applicable method for determining the arm’s length price in the case of a loan granted by a sister corporation domiciled abroad: (1) Are the three recognised methods for determining arm’s length prices (price comparison method, resale method and cost plus method) equally applicable? (2) Should the price comparison method be used if a comparable price can be determined on the basis of identical service relationships and conditions, and the cost-plus method if there are no comparable service relationships within or outside the group? (3) is an estimate of the appropriate transfer pricing to be made if the domestic borrower which receives a loan from the foreign sister corporation, in breach of its obligations to cooperate under section 90(2) sentence 1 AO, is unable to provide all the evidence necessary to determine a transfer pricing in accordance with arm’s length principles? Background In the specific facts of the case (I R 4/17), a domestic limited liability company (plaintiff) is held by ... Read more
Germany vs A... GmbH, March 2021, BUNDESVERFASSUNGSGERICHT, Case No 2 BvR 1161/19

Germany vs A… GmbH, March 2021, BUNDESVERFASSUNGSGERICHT, Case No 2 BvR 1161/19

A GmbH provided funding in the form of a clearing account to its Belgian subsidiary. The account was unsecured and carried an interest of 6% p.a. In 2005, A GmbH and the Belgian company agreed on a debt write-off which was deducted for tax purposes. The tax authorities issued an assessment where the write-off was denied as a tax deductible expense. According to the tax authorities, independent third parties would have agreed on some kind of security. The lack thereof was a violation of the arm’s length principle. A GmbH brought the assessment to court. The Federal Fiscal Court (I R 73/16) found the assessment of the tax authorities to be lawful. This decision was then appealed to the Constitutional Court by  A GmbH, alleging violation of the general principle of equality as well as a violation of its fundamental procedural right to the lawful judge. Decision of the Constitutional Court The Federal Constitutional Court decided in favour of A ... Read more
Luxembourg vs Lender Societe, July 2019, Cour Administratif, Case No 42083

Luxembourg vs Lender Societe, July 2019, Cour Administratif, Case No 42083

Lender Societe had acquired real estate in 2008 for EUR 26 million. The acquisition had been financed by a bank loan of EUR 20 million and a shareholder loan of EUR 6 million. The interest rate on the shareholder loan was set at 12%. The Tax Authorities found that the “excessive” part of the interest paid on the shareholder loan was as a hidden distribution of profit subject to dividend withholding tax. The hidden profit distribution was calculated as the difference between an arm’s length interest rate set at approximately 3% and the interest rate according to the loan agreement of 12%. Lender Societe disagreed with the assessment and brought the case before the Tribunal Administratif. The Tribunal agreed with the Tax Authorities and qualified the excessive interest payments as a hidden profit distribution subject to a 15% dividend withholding tax. The decision of the Tax Tribunal is affirmed by the Cour Administratif. Click here for translation Luxembourg vs S.A 17 July 2019 Case No 42043C ... Read more
Germany vs "G-Lender GmbH", February 2019, Bundesfinanzhof, Case No IR 81/17

Germany vs “G-Lender GmbH”, February 2019, Bundesfinanzhof, Case No IR 81/17

G-Lender GmbH, owned 50% of Austrian company A GmbH. The remaining 50% of the shares in A GmbH were held by non related shareholders, who at the same time acted as managing directors of A GmbH. G-Lender GmbH granted A GmbH a total of five loans. These loans each carried an interest rate of  5.5% pa. Assets owned by A GmbH  were assigned as collateral. On 22 January 2002 and 16 June 2002, A GmbH made a partial payments on the loans to G-Lender. By a contract dated 9 April 2003, G-Lender GmbH provided a guarantee to an independent bank for a EUR 800,000 loan to A GmbH and at the same time declared subordination of its loan claims against A GmbH. Due to negative development in A GmbH, G-Lender GmbH on 31 December 2003, booked a partial depreciation on the loan in the amount of EUR 312.972. In December 2004 bankruptcy proceedings had been opened on A GmbH and ... Read more
Germany vs "Waiver KG", February 2019, Bundesfinanzhof, Case No I R 51/17

Germany vs “Waiver KG”, February 2019, Bundesfinanzhof, Case No I R 51/17

Waiver KG had an outstanding (non-interest-bearing and unsecured) trade receivable of EUR 2,560,000 from a wholly-owned subsidiary in China related to deliveries made in FY 2004 and 2005. Waiver KG had first issued a partial waiver (EUR 560,000) on the receivable and then a complete waiver in December 2008, after a partial write-down had previously been made in the commercial balance sheet. The initial partial write-down had not been given effect to the taxable income, but in the course of a tax audit Waiver AG requested that the partial write-off be taken into account for tax purposes as well. The tax office refused to do so and instead applied an interest rate of 3% on the outstanding receivable. A complaint was then filed by Waiver KG to the tax court. The tax court issued a decision in favour of Waiver KG with reference to German jurisprudence on the blocking effect of Art. 9 OECD-MA. However, at the same time, the tax ... Read more
Liechtenstein vs A Trust, February 2019, Constitutional Court (Staatsgerichtshof), Case No 2018/042

Liechtenstein vs A Trust, February 2019, Constitutional Court (Staatsgerichtshof), Case No 2018/042

A Trust submitted a tax return for 2014 in which an asset loan to the C Trust in the amount of USD 5,393,695 (GBP 3,459,175) and a liability loan to the D Foundation in the amount of USD 7,715,134 (GBP 4,948,000) had been declared. Neither interest income nor interest expense was recognised or declared in respect of the loans, which were interest-free. A Trust reported a net loss of USD 112,870. The tax administration issued an assessment in the amount of USD 241,172, which resulted in taxable net income of USD 188,423 and income taxes of CHF 23,403, in addition to other tax adjustments. The adjustment of USD 241,172 was justified by the fact that the interest-free loan to C was subject to interest of 4.5% under the application of the arm’s length principle. According to Lichtenstein’s arm’s length guidance, in the case of non-interest-bearing or low-interest-bearing loans to related parties, a minimum interest rate is set out in an ... Read more
Luxembourg vs Lender Societe, November 2018, Tribunal Administratif, Case No 40348

Luxembourg vs Lender Societe, November 2018, Tribunal Administratif, Case No 40348

Lender Societe had acquired real estate in 2008 for EUR 26 million. The acquisition had been financed by a bank loan of EUR 20 million and a shareholder loan of EUR 6 million. The interest rate on the shareholder loan was set at 12%. The Tax Authorities found that the “excessive” part of the interest paid on the shareholder loan was as a hidden distribution of profit subject to dividend withholding tax. The hidden profit distribution was calculated as the difference between an arm’s length interest rate set at approximately 3% and the interest rate according to the loan agreement of 12%. Lender Societe disagreed with the assessment and brought the case before the Tribunal Administratif. The Tribunal agreed with the Tax Authorities and qualified the excessive interest payments as a hidden profit distribution subject to a 15% dividend withholding tax. Click here for translation Luxembourg vs Societe 071018 tribunal administratif du Luxembourg No 40348 ... Read more
Liechtenstein vs A Trust, February 2018, Administrative Court, Case No VGH 2017/126

Liechtenstein vs A Trust, February 2018, Administrative Court, Case No VGH 2017/126

A Trust submitted a tax return for 2014 in which an asset loan to C Trust in the amount of USD 5,393,695 (GBP 3,459,175) and a liability loan to the D Trust in the amount of USD 7,715,134 (GBP 4,948,000) had been declared. Neither interest income nor interest expense was recognised or declared in respect of the loans, which were interest-free. A Trust reported a net loss of USD 112,870. The tax administration issued an assessment in the amount of USD 241,172, which resulted in taxable net income of USD 188,423 and income taxes of CHF 23,403, in addition to other tax adjustments. The adjustment of USD 241,172 was justified by the fact that the interest-free loan to C was subject to interest of 4.5% under the application of the arm’s length principle. According to Lichtenstein’s arm’s length guidance, in the case of non-interest-bearing or low-interest-bearing loans to related parties, a minimum interest rate is set out in an information ... Read more
Liechtenstein vs A c/o B AG, October 2017, Constitutional Court, Case No StGH 2017/079

Liechtenstein vs A c/o B AG, October 2017, Constitutional Court, Case No StGH 2017/079

In the tax return for FY 2014, A c/o B AG declared a asset loans to related parties (holding company C) in the amount of USD 67,322,417.76 and liability loans to related parties (shareholder) in the amount of USD 110,051,410.39. Furthermore, interest income of USD 1,917,825.02 and interest expenses of USD 1,894,410.39 were declared in the tax return. A c/o B AG reported a net loss of USD 16,803.00. An assessment was issued 10 September 2015 by the tax administration. The tax administration adjusted the taxable net income/loss by an additional income of USD 1,024,661.00 and further tax adjustments of USD 1,224.00. The adjustment of USD 1,024,661.00 was justified because interest of 3.5% (USD 1,024,661.00) had been paid on the outstanding interest claims amounting to USD 29,276,021.00, although it had been agreed in the loan agreement of 28 December 2002 that the interest was to be paid quarterly. The granting of insufficiently interest-bearing advances to related companies constituted a pecuniary ... Read more
Liechtenstein BF AG, June 2017, Administrative Court, Case No VGH 2017/008

Liechtenstein BF AG, June 2017, Administrative Court, Case No VGH 2017/008

In the tax return for FY 2014, BF AG declared a asset loans to related parties (holding company C) in the amount of USD 67,322,417.76 and liability loans to related parties (shareholder) in the amount of USD 110,051,410.39. Furthermore, interest income of USD 1,917,825.02 and interest expenses of USD 1,894,410.39 were declared in the tax return. BF AG reported a net loss of USD 16,803.00. An assessment was issued 10 September 2015 by the tax administration. The tax administration adjusted the taxable net income/loss by an additional income of USD 1,024,661.00 and further tax adjustments of USD 1,224.00. The adjustment of USD 1,024,661.00 was justified because interest of 3.5% (USD 1,024,661.00) had been paid on the outstanding interest claims amounting to USD 29,276,021.00, although it had been agreed in the loan agreement of 28 December 2002 that the interest was to be paid quarterly. The granting of insufficiently interest-bearing advances to related companies constituted a pecuniary benefit in accordance with ... Read more
France vs. SOCIETE D'ACQUISITIONS IMMOBILIERES, Jan 2010, CE, No. 313868

France vs. SOCIETE D’ACQUISITIONS IMMOBILIERES, Jan 2010, CE, No. 313868

In the Société d’acquisitions immobilières case the interest rate charged to a subsidiary was considered comparable with the interest rate the French entity would receive from a third party bank for an investment similar in terms and risk. The Court decided that the cash advance granted by a sub-subsidiary to its ultimate parent with which it had no business relations could constitute an “abnormal act of management” if the amount lent is clearly disproportionate to the creditworthiness of the borrowing company. Click here for translation France vs SOCIETE D'ACQUISITIONS IMMOBILIERES 22 Jan 2010 CE no 313868 ... Read more
France vs SA Andritz, December 2003, Conseil d_État, Case No 233894

France vs SA Andritz, December 2003, Conseil d_État, Case No 233894

In this case the French Supreme Court states that the provisions of article 57 of the general tax code (arm’s length principle) do not have the object or effect of authorising the tax authorities to assess the normal nature of the choice made by a foreign company to finance by granting a loan, in preference to a contribution of own funds, the activity of a French company that it owns or controls and to draw, if necessary, any tax consequences from this. Excerpt “Considering, secondly, that the Minister for the Economy, Finance and Industry maintains, in the last part of his pleadings, that the disputed taxes can be legally based on the provisions of the first paragraph of Article 57 of the General Tax Code, under the terms of which : For the purpose of determining the income tax due by companies which are dependent on or control companies located outside France, the profits indirectly transferred to the latter, either ... Read more