The case concerned the valuation of intangible assets transferred from a Danish company to an affiliated foreign company. The Tax Tribunal basically agreed with the valuation of the expert appraisers according to the DCF model, but corrected the assumptions with regard to revenue growth in the budget period and the value of the tax advantage. Finally, the Tax Tribunal found that the value of product Y should be included in the valuation, as all rights to product Y were covered by the intra-group transfer. Excerpts “It was the judges’ view that the turnover growth for the budget period should be set in accordance with Company H’s own budgets prepared prior to the transfer. This was in accordance with TPG 2017 paragraphs 6.163 and 6.164 and SKM2020.30.LSR.” “With reference to OECD TPG section 6.178 on adjustment for tax consequences for the buyer and seller and SKM2020.30.LSR, the National Tax Tribunal ruled that the full value of the buyer’s tax asset should ... Read more

On 30 November 2012, X sold its trademarks to subsidiary C which in turn sold the trademarks to subsidiary D. X and D then entered into a trademark license agreement according to which X would pay license fees to D. These license fees were deducted by X in its 2013 tax return. The tax authorities claimed that X had understated its taxabel income as the license fees paid by X to D for the use of trademarks were not related to obtaining or securing a source of revenue. The decision stated that in the light of the principles of logic and experience, the actions taken by the taxpayer made no sense and were not aimed at achieving the revenue in question, but instead at generating costs artificially – only for tax purposes. An appeal was filed by X. Judgement of the Administrative Court The court set aside the assessment of the tax authorities and decided in favor of X. According ... Read more

Narcea Producciones y Promociones, S.L. (Narcea S.L.) had as shareholders Mr. Emiliano and Mrs. Filomena and their son, Mr. Ismael, a professional footballer, who had an employment relationship with the football club Hércules CF SAD of Alicante. Narcea S.L. purportedly managed the economic rights, the representation fees and the image and TV rights of Mr. Ismael. In relation to the image and TV rights of Mr. Ismael, the tax authorities considered that there had been a related party transaction between Narcea S.L. and Mr. Ismael where these rights had been transferred. In consideration for the transfer, the football club Hercules had paid 40,000 euros in 2010 and 80,000 euros in 2011 to Narcea S.L. According to the tax authorities these payments should instead have been made directly to Mr. Ismael without the intermediation of Narcea S.L. Furthermore, the arrangement had resulted in a fiscal advantage since the CIT rate was much lower than the personal income tax rate. The tax ... Read more

Since 2005, Belgium has applied a system of exemptions for the excess profit of Belgian entities which form part of multinational corporate groups. Those entities were able to obtain a tax ruling from the Belgian tax authorities, if they could demonstrate the existence of a new situation, such as a reorganisation leading to the relocation of the central entrepreneur to Belgium, the creation of jobs, or investments. In that context, profits regarded as being ‘excess’, in that they exceeded the profit that would have been made by comparable stand-alone entities operating in similar circumstances, were exempted from corporate income tax. In 2016, the Commission found that that system of excess profit exemptions constituted a State aid scheme that was unlawful and incompatible with the internal market and ordered the recovery of the aid thus granted from 55 beneficiaries, including the company Magnetrol International. Belgium and Magnetrol International brought an action before the General Court of the European Union seeking the ... Read more

In a decision of 30 August 2016 the European Commission concluded that Ireland’s tax benefits to Apple were illegal under EU State aid rules, because it allowed Apple to pay substantially less tax than other businesses. The decision of the Commission concerned two tax rulings issued by Ireland to Apple, which determined the taxable profit of two Irish Apple subsidiaries, Apple Sales International and Apple Operations Europe, between 1991 and 2015. As a result of the rulings, in 2011, for example, Apple’s Irish subsidiary recorded European profits of US$ 22 billion (c.a. €16 billion) but under the terms of the tax ruling only around €50 million were considered taxable in Ireland. Ireland appealed the Commission’s decision to the European Court of Justice. The Judgement of the European Court of Justice The General Court annuls the Commission’s decision that Ireland granted illegal State aid to Apple through selective tax breaks because the Commission did not succeed in showing to the requisite ... Read more

On 3 September 2012, the Luxembourg tax authorities issued a tax ruling in favour of Fiat Chrysler Finance Europe (‘FFT’), an undertaking in the Fiat group that provided treasury and financing services to the group companies established in Europe. The tax ruling at issue endorsed a method for determining FFT’s remuneration for these services, which enabled FFT to determine its taxable profit on a yearly basis for corporate income tax in the Grand Duchy of Luxembourg. In 2015, the Commission concluded that the tax ruling constituted State aid under Article 107 TFEU and that it was operating aid that was incompatible with the internal market. It also noted that the Grand Duchy of Luxembourg had not notified it of the proposed tax ruling and had not complied with the standstill obligation. The Commission found that the Grand Duchy of Luxembourg was required to recover the unlawful and incompatible aid from FFT. The Grand Duchy of Luxembourg and FFT each brought ... Read more

In 2008, the Netherlands tax authorities concluded an advance pricing arrangement (APA) with Starbucks Manufacturing EMEA BV (Starbucks BV), part of the Starbucks group, which, inter alia, roasts coffees. The objective of that arrangement was to determine Starbucks BV’s remuneration for its production and distribution activities within the group. Thereafter, Starbucks BV’s remuneration served to determine annually its taxable profit on the basis of Netherlands corporate income tax. In addition, the APA endorsed the amount of the royalty paid by Starbucks BV to Alki, another entity of the same group, for the use of Starbucks’ roasting IP. More specifically, the APA provided that the amount of the royalty to be paid to Alki corresponded to Starbucks BV’s residual profit. The amount was determined by deducting Starbucks BV’s remuneration, calculated in accordance with the APA, from Starbucks BV’s operating profit. In 2015, the Commission found that the APA constituted aid incompatible with the internal market and ordered the recovery of that ... Read more

In January 2016 the European Commission concluded that Belgium’s excess profits tax exemption scheme was incompatible with the internal market and unlawful and ordering recovery of the aid granted . Belgium’s excess profits tax exemption In the first step, the arm’s length prices charged in transactions between the Belgian entity of a group and the companies with which it is associated were fixed based on a transfer pricing report provided by the taxpayer. Those transfer prices were determined by applying the transactional net margin method (TNMM). A residual or arm’s length profit was thus established, which corresponded to the profit actually recorded by the Belgian entity. In the second step the Belgian entity’s adjusted arm’s length profit was established by determining the profit that a comparable standalone company would have made in comparable circumstances. The difference between the profit arrived at following the first and second steps (namely the residual profit minus the adjusted arm’s length profit) constituted the amount of ... Read more

The European Commission’s investigation on granting of selective tax advantages to Starbucks BV, cf. EU state aid rules ... Read more

Ensco Gerudi provided offshore drilling services to the petroleum industry in Malaysia. The company did not own any drilling rigs, but entered into leasing agreements with a rig owner within the Ensco Group. One of the rig owners in the group incorporated a Labuan company to facilitate easier business dealings for the taxpayer. Ensco Gerudi entered into a leasing agreement with the Labuan company for the rigs. Unlike previous transactions, the leasing payments made to the Labuan company did not attract withholding tax. The tax authorities found the Labuan company had no economic or commercial substance and that the purpose of the transaction had only been to benefit from the tax reduction. The High Court decided in favour of the taxpayer. The Court held that there was nothing artificial about the payments and that the transactions were within the meaning and scope of the arrangements contemplated by the government in openly offering incentives. The High Court ruled that taxpayers have ... Read more