In a sale and leaseback transaction, the owner of property will sell it to a buyer who then leases it back to the original owner. This method is sometimes used to release the value of capital assets for use in a business.
The case was about a sale and lease back arrangement characterizised as a loan by the US tax authorities referring to “substance over form”. The Court agreed with the tax authorities. “We have held that all of the test transactions failed the substance over form inquiry because petitioner did not acquire the benefits and burdens of ownership in the assets involved in the test transactions. We have also concluded that the test transactions are more similar to loans made by petitioner to CPS and MEAG because petitioner’s return on its investment was predetermined at the time petitioner entered into the test transactions. Accordingly, in 1999 petitioner exchanged the Powerton and Collins power plants for an interest in financial instruments. Such an exchange fails to meet the “like kind” requirement outlined in the Code and the regulations. Thus, petitioner must recognize the gain it received in 1999 on the sale of the Powerton and Collins plants under section 1001.” US-vs-Exelon-Corp-September-2016-US-Tax-Court ... Continue to full case
/ Business rationale, Business reasons, Business Restructuring, Commercially Irrational Transactions, Delineation - Substance over Form, Disregarding the transaction, Dutch Antilles, HTVI, Intangibles - Goodwill Know-how Patents, No control over risk, Non-Recognition and Recharacterisation, Roundtrip arrangement, Royalty and License Payments, Sale-and-leaseback, Trademark
This case is about a IP sale-and-license-back arrangement. The taxpayer acquired the shares in BV Z (holding). BV Z owns the shares in BV A and BV B (the three BVs form a fiscal unity under the CITA). BV A produces and sells shoes. In 1993, under a self-proclaimed protection clause, BV A sells the trademark of the shoes to BV C, which is also part of the fiscal unity. The protection clause was supposedly intended to protect the trademark in case of default of BV A. Taxpayer had created BV C prior to the sale of the trademark. In 1994, the taxpayer entered into a licensing agreement with BV C: the taxpayer pays NLG 2 to BV C per pair of shoes sold. Next, BV C is then moved to the Netherlands Antilles, which results in the end of the fiscal unity as of January 1, 1994. The roundtrip arrangement, the sale of an intangible and the subsequent payment of ... Continue to full case