Tag: Sham transactions

A transaction without substance, which will be ignored for tax purposes.

Netherlands - Crop Tax Advisers, January 2022, Court of Appeal, Case No. 200.192.332/01, ECLI:NL:GHARL:2022:343

Netherlands – Crop Tax Advisers, January 2022, Court of Appeal, Case No. 200.192.332/01, ECLI:NL:GHARL:2022:343

The question at issue was whether a Crop tax adviser had acted in accordance with the requirements of a reasonably competent and reasonably acting adviser when advising on the so-called royalty routing and its implementation. Judgement of the Court of Appeal “Crop is liable for the damages arising from the shortcoming. For the assessment of that damage, the case must be referred to the Statement of Damages, as the District Court has already decided. To answer the question of whether the likelihood of damage resulting from the shortcomings is plausible, a comparison must be made between the current situation and the situation in which business rates would have been applied. For the hypothetical situation, the rates to be recommended by the expert should be used. For the current situation, the Tax Authorities have agreed to adjusted pricing. The question whether and to what extent [the respondents] et al. can be blamed for insufficiently limiting their loss in the negotiations with ... Read more
Canada vs Cameco Corp., February 2021, Supreme Court, Case No 39368.

Canada vs Cameco Corp., February 2021, Supreme Court, Case No 39368.

Cameco, together with its subsidiaries, is a large uranium producer and supplier of the services that convert one form of uranium into another form. Cameco had uranium mines in Saskatchewan and uranium refining and processing (conversion) facilities in Ontario. Cameco also had subsidiaries in the United States that owned uranium mines in the United States. The Canadian Revenue Agency found that transactions between Cameco Corp and the Swiss subsidiary constituted a sham arrangement resulting in improper profit shifting. Hence, a tax assessment was issued for FY 2003, 2005, and 2006. Cameco disagreed with the Agency and brought the case to the Canadian Tax Court. In 2018 the Tax Court ruled in favor of Cameco and dismissed the assessment. This decision was appealed by the tax authorities to the Federal Court of Appeal. The Federal Court of Appeal in 2020 dismissed the appeal and also ruled in favor of Cameco A application for leave to appeal from the judgment of the ... Read more
Canada vs AgraCity Ltd. and Saskatchewan Ltd. August 2020, Tax Court, 2020 TCC 91

Canada vs AgraCity Ltd. and Saskatchewan Ltd. August 2020, Tax Court, 2020 TCC 91

AgraCity Canada had entered into a Services Agreement with a group company, NewAgco Barbados, in connection with the sale by NewAgco Barbados directly to Canadian farmer-users of a glyphosate-based herbicide (“ClearOut”) a generic version of Bayer-Monsanto’s RoundUp. In reassessing the taxable income of AgraCity for 2007 and 2008 the Canada Revenue Agency relied upon the transfer pricing rules in paragraphs 247(2)(a) and (c) of the Income Tax Act (the “Act”) and re-allocated an amount equal to all of NewAgco Barbados’ profits from these sales activities to the income of AgraCity. According to the Canadian Revenue Agency the value created by the parties to the transactions did not align with what was credited to AgraCity and NewAgco Barbados. Hence, 100% of the net sales profits realized from the ClearOut sales by NewAgco Barbados to FNA members – according to the Revenue Agency – should have been AgraCity’s and none of those profits would have been NewAgco’s had they been dealing at ... Read more
Canada vs Cameco Corp., June 2020, Federal Court of Appeal, Case No 2020 FCA 112.

Canada vs Cameco Corp., June 2020, Federal Court of Appeal, Case No 2020 FCA 112.

Cameco, together with its subsidiaries, is a large uranium producer and supplier of the services that convert one form of uranium into another form. Cameco had uranium mines in Saskatchewan and uranium refining and processing (conversion) facilities in Ontario. Cameco also had subsidiaries in the United States that owned uranium mines in the United States. In 1993, the United States and Russian governments executed an agreement that provided the means by which Russia could sell uranium formerly used in its nuclear arsenal. The net result of this agreement was that a certain quantity of uranium would be offered for sale in the market. Cameco initially attempted to secure this source of uranium on its own but later took the lead in negotiating an agreement for the purchase of this uranium by a consortium of companies. When the final agreement was signed in 1999, Cameco designated its Luxembourg subsidiary, Cameco Europe S.A. (CESA), to be the signatory to this agreement. The ... Read more
Netherlands vs Hunkemöller B.V., January 2020, AG opinion - before the Supreme Court, Case No ECLI:NL:PHR:2020:102

Netherlands vs Hunkemöller B.V., January 2020, AG opinion – before the Supreme Court, Case No ECLI:NL:PHR:2020:102

To acquire companies and resell them with capital gains a French Investment Fund distributed the capital of its investors (€ 5.4 billion in equity) between a French Fund Commun de Placement à Risques (FCPRs) and British Ltds managed by the French Investment Fund. For the purpose of acquiring the [X] group (the target), the French Investment Fund set up three legal entities in the Netherlands, [Y] UA, [B] BV, and [C] BV (the acquisition holding company). These three joint taxed entities are shown as Fiscal unit [A] below. The capital to be used for the acquisition of [X] group was divided into four FCPRs that held 30%, 30%, 30% and 10% in [Y] respectively. To get the full amount needed for the acquisition, [Y] members provided from their equity to [Y]: (i) member capital (€ 74.69 million by the FCPRs, € 1.96 million by the Fund Management, € 1.38 million by [D]) and (ii) investment in convertible instruments (hybrid loan ... Read more
Canada vs Cameco Corp., October 2018, Tax Court of Canada, Case No 2018 TCC 195

Canada vs Cameco Corp., October 2018, Tax Court of Canada, Case No 2018 TCC 195

Canadian mining company, Cameco Corp., sells uranium to a wholly owned trading hub, Cameco Europe Ltd., registred in low tax jurisdiction, Switzerland, which then re-sells the uranium to independent buyers. The parties had entered into a series of controlled transactions related to this activity and as a result the Swiss trading hub, Cameco Europe Ltd., was highly profitable. Following an audit, the Canadian tax authorities issued a transfer pricing tax assessment covering years 2003, 2005, 2006, and later tax assessments for subsequent tax years, adding up to a total of approximately US 1.5 bn in taxes, interest and penalties. The tax authorities first position was that the controlled purchase and sale agreements should be disregarded as a sham as all important functions and decisions were in fact made by Cameco Corp. in Canada. As a second and third position the tax authorities held that the Canadian transfer pricing rules applied to either recharacterise or reprice the transactions. The Tax Court concluded that the ... Read more
US vs Santander Holding USA Inc, May 2017, Supreme Court, Case No. 16-1130

US vs Santander Holding USA Inc, May 2017, Supreme Court, Case No. 16-1130

Santander Holding USA is a financial-services company that used a tax strategy called Structured Trust Advantaged Repackaged Securities (STARS) to generate more than $400 million in foreign tax credits. The scheme was developed and promoted to several U.S. banks by Barclays Bank PLC, a U.K. financial-services company, and the accounting firm KPMG, LLC. The Internal Revenue Service (IRS) ultimately concluded that the STARS transaction was a sham, and that the economic-substance doctrine therefore prohibited petitioner from claiming the foreign tax credits. The STARS-scheme was designed to transform the foreign tax credit into economic profit, at the expense of the U.S. Treasury. STARS involved an arrangement whereby the U.S. taxpayer paid tax to the United Kingdom, claimed a foreign tax credit for that U.K. tax, and simultaneously recouped a substantial portion of its U.K. tax. Instead of the typical one-to-one correlation of credits claimed to taxes paid, the taxpayer thus received one dollar in U.S. tax credits for substantially less than ... Read more
US vs. Sherwin-Williams Company, March 2011, Massachusetts Appeals Court Decisions, Case No 79 Mass. App. Ct. 159

US vs. Sherwin-Williams Company, March 2011, Massachusetts Appeals Court Decisions, Case No 79 Mass. App. Ct. 159

In the case of Talbots Inc, the Massachusetts Appeals Court Decisions found that the Appellate Tax Board correctly affirmed the denial by the Commissioner of Revenue (commissioner) of a taxpayer’s request to abate corporate excise taxes that were assessed against the taxpayer on the basis of disallowed deductions for royalty payments the taxpayer made to a wholly owned subsidiary for the use of intellectual property, where sufficient evidence supported the board’s finding that the commissioner properly disregarded, under the “sham transaction doctrine,” the transfer and licensing of the intellectual property between the taxpayer and the subsidiary; further, the board correctly affirmed the commissioner’s reattribution of the royalty and interest income earned by the subsidiary to the taxpayer, where the taxpayer controlled the intellectual property from which the income was generated, and in fact received substantially all of the income. US vs Talbots 2011 ... Read more
India vs Azadi Bachao Andolan, 2003, Supreme Court

India vs Azadi Bachao Andolan, 2003, Supreme Court

In this case the Court held that while a “colourable device” could result in the transaction being considered a sham, that did not mean that tax planning within the law will not be permitted. India vs Azadi-Bachao-Andolan ... Read more
US vs. Sherwin-Williams Company, October 2002, Massachusetts Supreme Judicial Court, Case No 438 Mass. 71

US vs. Sherwin-Williams Company, October 2002, Massachusetts Supreme Judicial Court, Case No 438 Mass. 71

Sherwin-Williams is an Ohio corporation, headquartered in Cleveland, and is engaged in the manufacture, distribution and sale of paints and paint-related products. In 1991, it formed two subsidiaries under Delaware law to hold certain tradenames, trademarks and service marks that it had developed. Sherwin-Williams and the subsidiaries teen entered into nonexclusive licensing agreements for the right to use these various intangibles. In filing its 1991 state income tax return, Sherwin-Williams deducted all royalty and interest expenses accrued under the agreement, in computing taxable income. Following an audit, the Department of Revenue disallowed the deductions and assessed additional tax, because the transfer and license back of the marks was a “sham” disallowed under the “sham-transaction doctrine”. According to the Department of Revenue the royalty payments were not deductible, because the transactions had no valid business purpose and transactions were not at “arm’s-length.” On appeal, the Appellate Tax Board upheld the assessment of the tax authorities. Judgement for the Court The Supreme ... Read more
Australia vs San Remo Macaroni Co , August 1980, FEDERAL COURT OF AUSTRALIA, Case No. [1999] FCA 1468

Australia vs San Remo Macaroni Co , August 1980, FEDERAL COURT OF AUSTRALIA, Case No. [1999] FCA 1468

This case is about an Australian distributor of pasta – San Remo Macaroni Co – which imported pasta products from an independent manufacturer in Italy. In 1985 a Swiss company – Bigalle – was established by the Australian distributor which going forward purchased the pasta from the independent manufacturer in Italy and resold it to the Australian distributor at a mark-up which varied from 40% to 50%. Following an audit, an assessment was issued by the tax authorities, where the prices paid by the Australian distributor to the Swiss company was adjusted based on the price paid to the Italian manufacturer. Judgement of the Federal Court The Court upheld the assessment issued by the tax authorities. “ (…) 61 Be that as it may, the real substance of the argument was that Mr Read improperly formed the view that the arrangement with Bigalle was merely a reinvoicing arrangement and then “manipulated” the information he obtained as to pasta prices to ... Read more