Tag: Tax avoidance

Denmark vs NetApp Denmark ApS and TDC A/S, January 2023, Supreme Court, Cases 69/2021, 79/2021 and 70/2021

Denmark vs NetApp Denmark ApS and TDC A/S, January 2023, Supreme Court, Cases 69/2021, 79/2021 and 70/2021

The issue in the Danish beneficial ownership cases of NetApp Denmark ApS and TDC A/S was whether the companies were obliged to withhold dividend tax on distributions to foreign parent companies. The first case – NetApp Denmark ApS – concerned two dividend distributions of approximately DKK 566 million and DKK 92 million made in 2005 and 2006 to an intermediate parent company in Cyprus – and then on to NETAPP Bermuda. The second case – TDC A/S – concerned the distribution of dividends of approximately DKK 1.05 billion in 2011 to an intermediate parent company in Luxembourg – and then on to owner companies in the Cayman Islands. In both cases, the tax authorities took the view that the intermediate parent companies were so-called “flow-through companies” which were not the real recipients of the dividends, and that the real recipients (beneficial owners) were resident in countries not covered by the EU Parent-Subsidiary Directive (Bermuda and Cayman respectively). Therefore, withholding taxes ... Read more
US Supreme Court denies Whirlpool's request for judicial review of the 2021 judgement from the Court of Appeal.

US Supreme Court denies Whirlpool’s request for judicial review of the 2021 judgement from the Court of Appeal.

21 November 2022 the US Supreme Court denied Whirlpool its request for judicial review of the December 2021 judgement of the Court of Appeal (Sixth Circuit). 10 August 2022 Whirlpool filed a “petition for writ” with the Supreme Court of the United States. “Petitioners Whirlpool Financial Corporation & Consolidated Subsidiaries and Whirlpool International Holdings S.à.r.l. & Consolidated Subsidiaries collectively, “Whirlpool”) respectfully petition this Court for a writ of certiorari to review the judgment of the United States Court of Appeals for the Sixth Circuit in this case.” The case revolves around a tax arrangement setup by the Whirlpool group, where a subsidiary in Luxembourg with one part-time employee (and subject to US CFC provisions) owned a Mexican manufacturing entity. The Mexican entity manufactured products for the Luxembourg subsidiary under a manufacturing services arrangement. According to the contractual setup, the subsidiary in Luxembourg owned all the raw materials, work-in-process, finished goods, machinery and equipment in Mexico. The products produced in Mexico ... Read more
Credit Suisse enters EUR 238 million settlement agreement in France

Credit Suisse enters EUR 238 million settlement agreement in France

A settlement agreement between the French Financial Public Prosecutor and Credit Suisse was announced in the Paris Court of Appeal 24 October 2022. The “CJIP” agreement brings an end to investigations in France over whether the Swiss bank facilitated and aided clients in tax avoidance. (English translation of the press release from the French Public Prosecutor) On 24 October 2022, the President of the Paris Judicial Court validated the judicial public interest agreement (CJIP) concluded on 21 October 2022 between the Financial Public Prosecutor (PRF) and CREDIT SUISSE AG pursuant to Article 41-1-2 of the Criminal Procedure Code. Under the terms of the CJIP, CREDIT SUISSE AG undertakes to pay the Treasury a public interest fine totaling EUR 123,000,000. In addition, CREDIT SUISSE AG undertakes to pay to the Treasury the sum of €115,000,000 in damages owed to the State. As a result, the public interest fine and the damages amount to the total sum of €238,000,000. Subject to the ... Read more
New Zealand vs Frucor Suntory, September 2022, Supreme Court, Case No [2022] NZSC 113

New Zealand vs Frucor Suntory, September 2022, Supreme Court, Case No [2022] NZSC 113

Frucor Suntory (FHNZ) had deducted purported interest expenses that had arisen in the context of a tax scheme involving, among other steps, its issue of a Convertible Note to Deutsche Bank, New Zealand Branch (DBNZ), and a forward purchase of the shares DBNZ could call for under the Note by FHNZ’s Singapore based parent Danone Asia Pte Ltd (DAP). The Convertible Note had a face value of $204,421,565 and carried interest at a rate of 6.5 per cent per annum. Over its five-year life, FHNZ paid DBNZ approximately $66 million which FHNZ characterised as interest and deducted for income tax purposes. The tax authorities issued an assessment where deductions of interest expenses in the amount of $10,827,606 and $11,665,323 were disallowed in FY 2006 and 2007 under New Zealand´s general anti-avoidance rule in s BG 1 of the Income Tax Act 2004. In addition, penalties of $1,786,555 and $1,924,779 for those years were imposed. The tax authorities found that, although ... Read more

§ 1.482-1(f)(1)(i) Intent to evade or avoid tax not a prerequisite.

In making allocations under section 482, the district director is not restricted to the case of improper accounting, to the case of a fraudulent, colorable, or sham transaction, or to the case of a device designed to reduce or avoid tax by shifting or distorting income, deductions, credits, or allowances ... Read more
Uber-files - Tax Avoidance promoted by the Netherlands

Uber-files – Tax Avoidance promoted by the Netherlands

Uber files – confidential documents, leaked to The Guardian newspaper shows that Uber in 2015 sought to deflect attention from its Dutch conduits and Caribbean tax shelters by helping tax authorities collect taxes from its drivers. At that time, Uber’s Dutch subsidiary received payments from customers hiring cars in cities around the world (except US and China), and after paying the drivers, profits were routed on as royalty fees to Bermuda, thus avoiding corporate income tax. In 2019, Uber took the first steps to close its Caribbean tax shelters. To that end, a Dutch subsidiary purchased the IP that was previously held by the Bermudan subsidiary, using a $16 billion loan it had received from Uber’s Singapore holding company. The new setup was also tax driven. Tax depreciations on the IP acquired from Bermuda and interest on the loan from Singapore will significantly reduce Uber’s effective tax rate in years to come. Centre for International Corporate Tax Accountability and Research ... Read more

Australian Treasury issues Consultation Paper on Multinational Tax Integrity and Tax Transparency

As part of a multinational tax integrity package aimed to address the tax avoidance practices of multinational enterprises (MNEs) and improve transparency through better public reporting of MNEs’ tax information, the Australian Treasury issued a Consultation Paper in August 2022. This paper seeks to consult on the implementation of proposals to: amend Australia’s existing thin capitalisation rules to limit interest deductions for MNEs in line with the Organisation for Economic Cooperation and Development (OECD)’s recommended approach under Action 4 of the Base Erosion and Profit Shifting (BEPS) program (Part 1); introduce a new rule limiting MNEs’ ability to claim tax deductions for payments relating to intangibles and royalties that lead to insufficient tax paid (Part 2); and ensure enhanced tax transparency by MNEs (Part 3), through measures such as public reporting of certain tax information on a country‑by‑country basis; mandatory reporting of material tax risks to shareholders; and requiring tenderers for Australian government contracts to disclose their country of tax ... Read more
Rio Tinto has agreed to pay AUS$ 1 billion to settle a dispute with Australian Taxation Office over its Singapore Marketing Hub

Rio Tinto has agreed to pay AUS$ 1 billion to settle a dispute with Australian Taxation Office over its Singapore Marketing Hub

On 20 July 2022 Australian mining group Rio Tinto issued a press release announcing that a A$ 1 billion settlement had been reached with the Australian Taxation Office. “The agreement resolves the disagreement relating to interest on an isolated borrowing used to pay an intragroup dividend in 2015. It also separately resolves the pricing of certain transactions between Rio Tinto entities based in Australia and the Group’s commercial centre in Singapore from 2010-2021 and provides certainty for a further five-year period. Rio Tinto has also reached agreement with the Inland Revenue Authority of Singapore (IRAS) in relation to transfer pricing for the same periods. Reaching agreement with both tax authorities ensures Rio Tinto is not subject to double taxation. As part of this agreement, Rio Tinto will pay to the ATO additional tax of A$613m for the twelve historical years (2010 to 2021). This is in addition to the A$378m of tax paid in respect of the original amended assessments ... Read more
McDonald’s has agreed to pay €1.25bn to settle a dispute with French authorities over excessive royalty payments to Luxembourg

McDonald’s has agreed to pay €1.25bn to settle a dispute with French authorities over excessive royalty payments to Luxembourg

On 16 June 2022 McDonald’s France entered into an settlement agreement according to which it will pay €1.245 billion in back taxes and fines to the French tax authorities. The settlement agreement resulted from investigations carried out by the French tax authorities in regards to abnormally high royalties transferred from McDonald’s France to McDonald’s Luxembourg following an intra group restructuring in 2009. McDonald’s France doubled its royalty payments from 5% to 10% of restaurant turnover, and instead of paying these royalties to McDonald’s HQ in the United States, going forward they paid them to a Swiss PE of a group company in Luxembourg, which was not taxable of the amounts. During the investigations it was discovered that McDonald’s royalty fees could vary substantially from one McDonald’s branch to the next without any justification other than tax savings for the group. This conclusion was further supported by statements of the managers of the various subsidiaries as well as documentation seized which ... Read more
Japan vs Universal Music Corp, April 2022, Supreme Court, Case No 令和2(行ヒ)303

Japan vs Universal Music Corp, April 2022, Supreme Court, Case No 令和2(行ヒ)303

An intercompany loan in the form of a so-called international debt pushdown had been issued to Universal Music Japan to acquire the shares of another Japanese group company. The tax authority found that the loan transaction had been entered for the principal purpose of reducing the tax burden in Japan and issued an assessment where deductions of the interest payments on the loan had been disallowed for tax purposes. The Tokyo District Court decided in favour of Universal Music Japan and set aside the assessment. The Court held that the loan did not have the principle purpose of reducing taxes because the overall restructuring was conducted for valid business purposes. Therefore, the tax authorities could not invoke the Japanese anti-avoidance provisions to deny the interest deductions. In 2020 the decision of the district court was upheld by the Tokyo High Court. The tax authorities then filed an appeal with the Supreme Court Decision of the Court The Supreme Court dismissed ... Read more
Denmark vs Heavy Transport Holding Denmark ApS, March 2021, High Court, Cases B-721-13

Denmark vs Heavy Transport Holding Denmark ApS, March 2021, High Court, Cases B-721-13

Heavy Transport Holding Denmark ApS, a subsidiary in the Heerema group, paid dividends to a parent company in Luxembourg which in turn paid the dividends to two group companies in Panama. The tax authorities found that the company in Luxembourg was not the beneficial owner of the dividends and thus the dividends were not covered by the tax exemption rules of the EU Parent/Subsidiary Directive or the Double Taxation Convention between Denmark and Luxembourg. On that basis an assessment was issued regarding payment of withholding tax on the dividends. An appeal was filed by Heavy Transport Holding Denmark ApS with the High Court. Judgement of the Eastern High Court The court dismissed the appeal of Heavy Transport Holding Denmark ApS and decided in favor of the tax authorities. The parent company in Luxembourg was a so-called “flow-through” company which was not the beneficial owner of the dividend and thus not covered by the tax exemption rules of the Parent/Subsidiary Directive ... Read more

TPG2022 Chapter IV paragraph 4.23

Civil monetary penalties for tax understatement are frequently triggered by one or more of the following: an understatement of tax liability exceeding a threshold amount, negligence of the taxpayer, or wilful intent to evade tax (and also fraud, although fraud can trigger much more serious criminal penalties). Many OECD member countries impose civil monetary penalties for negligence or willful intent, while only a few countries penalise “no-fault” understatements of tax liability ... Read more

TPG2022 Chapter I paragraph 1.23

Even if some countries were willing to accept global formulary apportionment, there would be disagreements because each country may want to emphasize or include different factors in the formula based on the activities or factors that predominate in its jurisdiction. Each country would have a strong incentive to devise formulae or formula weights that would maximise that country’s own revenue. In addition, tax administrations would have to consider jointly how to address the potential for artificially shifting the production factors used in the formula (e.g. sales, capital) to low tax countries. There could be tax avoidance to the extent that the components of the relevant formula can be manipulated, e.g. by entering into unnecessary financial transactions, by the deliberate location of mobile assets, by requiring that particular companies within an MNE group maintain inventory levels in excess of what normally would be encountered in an uncontrolled company of that type, and so on ... Read more

TPG2022 Chapter I paragraph 1.2

When independent enterprises transact with each other, the conditions of their commercial and financial relations (e.g. the price of goods transferred or services provided and the conditions of the transfer or provision) ordinarily are determined by market forces. When associated enterprises transact with each other, their commercial and financial relations may not be directly affected by external market forces in the same way, although associated enterprises often seek to replicate the dynamics of market forces in their transactions with each other, as discussed in paragraph 1.5 below. Tax administrations should not automatically assume that associated enterprises have sought to manipulate their profits. There may be a genuine difficulty in accurately determining a market price in the absence of market forces or when adopting a particular commercial strategy. It is important to bear in mind that the need to make adjustments to approximate arm’s length conditions arises irrespective of any contractual obligation undertaken by the parties to pay a particular price ... Read more
Zimbabwe vs Delta Beverages Ltd., Supreme Court, Judgement No. SC 3/22

Zimbabwe vs Delta Beverages Ltd., Supreme Court, Judgement No. SC 3/22

Delta Beverages Ltd, a subsidiary of Delta Corporation, had been issued a tax assessment for FY 2009, 2010, 2011, 2012, 2013 and 2014 where various fees for service, technology license of trademarks, technology and know-how paid to a group company in the Netherlands (SAB Miller Management BV) had been disallowed by the tax authorities (Zimra) of Zimbabwe resulting in additional taxes of US$42 million which was later reduced to US$30 million. An appeal was filed with the Special Court (for Income Tax Appeals) where, in a judgment dated 11 October 2019, parts of the assessment was set aside. Not satisfied with the result, an appeal (Delta Beverages) and cross-appeal (tax authorities) was filed with the Supreme Court. Judgement of the Supreme Court. The Supreme Court set aside the judgement of the Special Court (for Income Tax Appeals) and remanded the case for reconsiderations in relation to the issue of tax avoidance. Excerpts from the Supreme Court judgement regarding deductions for ... Read more
Canada vs Alta Energy Luxembourg S.A.R.L., November 2021, Supreme Court, Case No 2021 SCC 49 - 2021-11-26

Canada vs Alta Energy Luxembourg S.A.R.L., November 2021, Supreme Court, Case No 2021 SCC 49 – 2021-11-26

ALTA Energy, a resident of Luxembourg, claimed an exemption from Canadian income tax under Article 13(5) of the Canada-Luxembourg Income Tax Treaty in respect of a large capital gain arising from the sale of shares of ALTA Canada, its wholly-owned Canadian subsidiary. At that time, Alta Canada carried on an unconventional shale oil business in the Duvernay shale oil formation situated in Northern Alberta. Alta Canada was granted the right to explore, drill and extract hydrocarbons from an area of the Duvernay formation designated under licenses granted by the government of Alberta. The Canadian tax authorities denied that the exemption applied and assessed ALTA Energy accordingly. Article 13(5) of the Canada-Luxembourg Tax Treaty is a distributive rule of last application. It applies only in the case where the capital gain is not otherwise taxable under paragraphs (1) to (4) of Article 13 of the Treaty. Article 13(4) is relevant to the outcome of this appeal. Under that provision, Canada has ... Read more
Denmark vs Takeda A/S and NTC Parent S.a.r.l., November 2021, High Court, Cases B-2942-12 and B-171-13

Denmark vs Takeda A/S and NTC Parent S.a.r.l., November 2021, High Court, Cases B-2942-12 and B-171-13

The issue in these two cases is whether withholding tax was payable on interest paid to foreign group companies considered “beneficial owners” via conduit companies covered by the EU Interest/Royalties Directive and DTA’s exempting the payments from withholding taxes. The first case concerned interest accruals totalling approximately DKK 1,476 million made by a Danish company in the period 2007-2009 in favour of its parent company in Sweden in connection with an intra-group loan. The Danish Tax Authorities (SKAT) subsequently ruled that the recipients of the interest were subject to the tax liability in Section 2(1)(d) of the Corporation Tax Act and that the Danish company was therefore obliged to withhold and pay withholding tax on a total of approximately DKK 369 million. The Danish company brought the case before the courts, claiming principally that it was not obliged to withhold the amount collected by SKAT, as it disputed the tax liability of the recipients of the interest attributions. The second ... Read more
ATO and Singtel in Court over Intra-company Financing Arrangement

ATO and Singtel in Court over Intra-company Financing Arrangement

In 2001, Singtel, through its wholly owned Australian subsidiary, Singapore Telecom Australia Investments Pty Limited (Singtel Au), acquired the majority of the shares in Cable & Wireless Optus for $17.2 billion. The tax consequences of this acqusition was decided by the Federal Court in Cable & Wireless Australia & Pacific Holding BV (in liquiatie) v Commissioner of Taxation [2017] FCAFC 71. Cable & Wireless argued that part of the price paid under a share buy-back was not dividends and that withholding tax should therefor be refunded. The ATO and the Court disagreed. ATO and Singtel is now in a new dispute  – this time over tax consequences associated with the intra-group financing of the takeover. This case was heard in the Federal Court in August 2021. At issue is a tax assessments for FY 2011, 2012 and 2013 resulting in additional taxes in an amount $268 million. In the assessment interest deductions claimed in Australia on notes issued under a ... Read more
Malaysia vs Ensco Gerudi Malaysia SDN. BHD., July 2021, Juridical Review, High Court, Case No. WA-25-233-08-2020

Malaysia vs Ensco Gerudi Malaysia SDN. BHD., July 2021, Juridical Review, High Court, Case No. WA-25-233-08-2020

Ensco Gerudi provided offshore drilling services to the petroleum industry in Malaysia, including leasing drilling rigs, to oil and gas operators in Malaysia. In order to provide these services, the Ensco entered into a Master Charter Agreement dated 21.9.2006 (amended on 17.8.2011) (“Master Charter Agreement”) with Ensco Labuan Limited (“ELL”), a third-party contractor, to lease drilling rigs from ELL. Ensco then rents out the drilling rigs to its own customers. As part of the Master Charter Agreement, Ensco agreed to pay ELL a percentage of the applicable day rate that Ensco earns from its drilling contracts with its customers for the drilling rigs. By way of a letter dated 12.10.2018, the tax authorities initiated its audit for FY 2015 to 2017. The tax authorities issued its first audit findings letter on 23.10.2019 where it took the position that the pricing of the leasing transactions between the Applicant and ELL are not at arm’s length pursuant to s 140A of the ... Read more
European Commission vs. Amazon and Luxembourg, May 2021, State Aid - European General Court, Case No T-816/17 and T-318/18

European Commission vs. Amazon and Luxembourg, May 2021, State Aid – European General Court, Case No T-816/17 and T-318/18

In 2017 the European Commission concluded that Luxembourg granted undue tax benefits to Amazon of around €250 million.  Following an in-depth investigation the Commission concluded that a tax ruling issued by Luxembourg in 2003, and prolonged in 2011, lowered the tax paid by Amazon in Luxembourg without any valid justification. The tax ruling enabled Amazon to shift the vast majority of its profits from an Amazon group company that is subject to tax in Luxembourg (Amazon EU) to a company which is not subject to tax (Amazon Europe Holding Technologies). In particular, the tax ruling endorsed the payment of a royalty from Amazon EU to Amazon Europe Holding Technologies, which significantly reduced Amazon EU’s taxable profits. This decision was brought before the European Court of Justice by Luxembourg and Amazon. Judgement of the EU Court  The European General Court found that Luxembourg’s tax treatment of Amazon was not illegal under EU State aid rules. According to a press release ” The ... Read more
Denmark vs NETAPP ApS and TDC A/S, May 2021, High Court, Cases B-1980-12 and B-2173-12

Denmark vs NETAPP ApS and TDC A/S, May 2021, High Court, Cases B-1980-12 and B-2173-12

On 3 May 2021, the Danish High Court ruled in two “beneficial owner” cases concerning the question of whether withholding tax must be paid on dividends distributed by Danish subsidiaries to foreign parent companies. The first case – NETAPP Denmark ApS – concerned two dividend distributions of approx. 566 million DKK and approx. 92 million made in 2005 and 2006 by a Danish company to its parent company in Cyprus. The National Tax Court had upheld the Danish company in that the dividends were exempt from withholding tax pursuant to the Corporation Tax Act, section 2, subsection. 1, letter c, so that the company was not obliged to pay withholding tax. The Ministry of Taxation brought the case before the courts, claiming that the Danish company should include – and thus pay – withholding tax of a total of approx. 184 million kr. The second case – TDC A/S – concerned the National Tax Tribunal’s binding answer to two questions ... Read more
St. Vincent & the Grenadines vs Unicomer (St. Vincent) Ltd., April 2021, Supreme Court, Case No SVGHCV2019/0001

St. Vincent & the Grenadines vs Unicomer (St. Vincent) Ltd., April 2021, Supreme Court, Case No SVGHCV2019/0001

Unicomer (St. Vincent) Ltd. is engaged in the business of selling household furniture and appliances. In FY 2013 and 2014 Unicomer entered into an “insurance arrangement” involving an unrelated party, United insurance, and a related party, Canterbury. According to the tax authorities United Insurance had been used as an intermediate/conduit to funnel money from the Unicomer to Canterbury, thereby avoiding taxes in St. Vincent. In 2017 the Inland Revenue Department issued an assessments of additional tax in the sum of $12,666,798.23 inclusive of interest and penalties. The basis of the assessment centered on Unicomer’s treatment of (1) credit protection premiums (hereinafter referred to as “CPI”) under the insurance arrangement, (2) tax deferral of hire-purchase profits and (3) deductions for royalty payments. Unicomer appealed the assessment to the Appeal Commission where a decision was rendered in 2018. The Appeal Commission held that the CPI payments were rightfully disallowed by the tax authorities and that withholding tax was chargeable on these payments; ... Read more
US Senate Committee request records related to tax schemes involving Caterpillar and Renaissance Technologies

US Senate Committee request records related to tax schemes involving Caterpillar and Renaissance Technologies

In a letter dated 28. April 2021 the US Senate Committee on Finance has request records related to tax schemes involving Caterpillar and Renaissance Technologies. “In 2015, Caterpillar disclosed that a federal grand jury in Illinois had begun investigating an alleged tax scheme involving the company’s Swiss subsidiary. This investigation led to raids by federal agents on three different Caterpillar offices in March 2017. 4 Days after the raids, Caterpillar announced it retained Mr. Barr “to take a fresh look at Caterpillar’s disputes with the government, get all the facts, and then help us bring these matters to proper resolution based on the merits.” Since January 2018, the IRS has sought to recover $2.3 billion in unpaid taxes and penalties from Caterpillar in connection with the alleged tax practices. Alarmingly, just six days after Mr. Barr was nominated to serve as Attorney General, an inspector general agent at the U.S. Federal Deposit Insurance Corporation was reportedly instructed by the DOJ ... Read more
Bristol-Myers Squibb in Dispute with IRS over "Abusive Offshore Scheme"

Bristol-Myers Squibb in Dispute with IRS over “Abusive Offshore Scheme”

According to the IRS, Bristol-Myers Squibb reduces its U.S. taxes by holding valuable intangibles in an Irish subsidiary. In a legal analysis, the IRS concluded that the Irish scheme saves Bristol-Myers Squibb up to $1.38 billion in US taxes. From Bristol-Myers Squibb’s 2019 10-K form, “Note 7. Income Taxes” “BMS is currently under examination by a number of tax authorities which have proposed or are considering proposing material adjustments to tax positions for issues such as transfer pricing, certain tax credits and the deductibility of certain expenses. It is reasonably possible that new issues will be raised by tax authorities which may require adjustments to the amount of unrecognized tax benefits; however, an estimate of such adjustments cannot reasonably be made at this time. It is also reasonably possible that the total amount of unrecognized tax benefits at December 31, 2019 could decrease in the range of approximately $290 million to $330 million in the next twelve months as a ... Read more
Spain vs DIGITEX INFORMÁTICA S.L., February 2021, National Court, Case No 2021:629

Spain vs DIGITEX INFORMÁTICA S.L., February 2021, National Court, Case No 2021:629

DIGITEX INFORMATICA S.L. had entered into a substantial service contract with an unrelated party in Latin America, Telefonica, according to which the DIGITEX group would provide certain services for Telefonica. The contract originally entered by DIGITEX INFORMATICA S.L. was later transferred to DIGITEX’s Latin American subsidiaries. But after the transfer, cost and amortizations related to the contract were still paid – and deducted for tax purposes – by DIGITEX in Spain. The tax authorities found that costs (amortizations, interest payments etc.) related to the Telefonica contract – after the contract had been transferred to the subsidiaries – should have been reinvoiced to the subsidiaries, and an assessment was issued to DIGITEX for FY 2010 and 2011 where these deductions had been disallowed. DIGITEX on its side argued that by not re-invoicing the costs to the subsidiaries the income received from the subsidiaries increased. According to the intercompany contract, DIGITEX would invoice related entities 1% of the turnover of its own ... Read more
AXA S.A. issued an income assessment of EUR 130 million by the French tax authorities

AXA S.A. issued an income assessment of EUR 130 million by the French tax authorities

Insurance group AXA S.A. is now paying back millions of euros in taxes after French tax authorities found that a Luxembourg-based structure had been used by the group for tax avoidance. According to the French tax authorities AXE S.A. had undeclared taxable profits of at least 130 million in FY 2005 and 2010.    The scheme involved use of a group entity in Luxembourg granting loans to AXA’s foreign subsidiaries. The entity in Luxembourg benefited from a tax ruling issued by Luxembourg’s authorities that allowed it to be tax-exempt. According to AXA the tax laws of France and Luxembourg were fully respected and the group is confident regarding the outcome of this process and will keep collaborating with fiscal authorities to assert its rights ... Read more
Colombia vs Taxpayer, November 2020, The Constitutional Court, Sentencia No. C-486/20

Colombia vs Taxpayer, November 2020, The Constitutional Court, Sentencia No. C-486/20

A Colombian taxpayer had filed an unconstitutionality complaint against Article 70 (partial) of Law 1819 of 2016, “Whereby a structural tax reform is adopted, mechanisms for the fight against tax evasion and avoidance are strengthened, and other provisions are enacted.” The Constitutional Court ruled that the Colombian GAAR legislation was not unconstitutional. Click here for English translation Click here for other translation (1) Corte Constitucional - Sentencia C-480 del 19 de noviembre de 2020 ... Read more
Allegations of tax avoidance in Dutch Pharma Group Qiagen

Allegations of tax avoidance in Dutch Pharma Group Qiagen

According to investigations by SOMO – an independent center for Research on Multinational Corporations – the annual accounts of Pharma Group Qiagen shows that the group has avoided tax on profits by passing internal loans through an elaborate network of letterbox companies in European tax havens including Ireland, Luxembourg and Malta. It is estimated that, since 2010, the group has avoided at least  €93 million in taxes and has accumulated tax deduction in an amount of €49 million ... Read more
European Commission vs. Ireland and Apple, September 2020, Appeal of the Judgement of the General Court on the Apple tax State aid case in Ireland

European Commission vs. Ireland and Apple, September 2020, Appeal of the Judgement of the General Court on the Apple tax State aid case in Ireland

The European Commission has decided to appeal the decision of the EU General Court in the State Aid case of Apple and Ireland. According to the European Commission Ireland gave illegal tax benefits to Apple worth up to €13 billion, because it allowed Apple to pay substantially less tax than other businesses. In a decision issued july 2020 the General Court held in favor of Apple and Ireland. This decision will now be reviewed by the European Court of Justice. “Statement by Executive Vice-President Margrethe Vestager on the Commission’s decision to appeal the General Court’s judgment on the Apple tax State aid case in Ireland Brussels, 25 September 2020 “The Commission has decided to appeal before the European Court of Justice the General Court’s judgment of July 2020 on the Apple State aid case in Ireland, which annulled the Commission’s decision of August 2016 finding that Ireland granted illegal State aid to Apple through selective tax breaks. The General Court ... Read more
New Zealand vs Frucor Suntory, September 2020, Court of appeal, Case No [2020] NZCA 383

New Zealand vs Frucor Suntory, September 2020, Court of appeal, Case No [2020] NZCA 383

Frucor Suntory (FHNZ) had deducted purported interest expenses that had arisen in the context of a tax scheme involving, among other steps, its issue of a Convertible Note to Deutsche Bank, New Zealand Branch (DBNZ), and a forward purchase of the shares DBNZ could call for under the Note by FHNZ’s Singapore based parent Danone Asia Pte Ltd (DAP). The Convertible Note had a face value of $204,421,565 and carried interest at a rate of 6.5 per cent per annum. Over its five-year life, FHNZ paid DBNZ approximately $66 million which FHNZ characterised as interest and deducted for income tax purposes. The tax authorities issued an assessment where deductions of interest expenses in the amount of $10,827,606 and $11,665,323 were disallowed in FY 2006 and 2007 under New Zealand´s general anti-avoidance rule in s BG 1 of the Income Tax Act 2004. In addition, penalties of $1,786,555 and $1,924,779 for those years were imposed. The tax authorities found that, although ... Read more
Tanzania vs African Barrick Gold PLC, August 2020, Court of Appeal, Case No. 144 of 2018, [2020] TZCA 1754

Tanzania vs African Barrick Gold PLC, August 2020, Court of Appeal, Case No. 144 of 2018, [2020] TZCA 1754

AFRICAN BARRICK GOLD PLC (now Acacia Mining Plc), the largest mining company operating in Tanzania, was issued a tax bill for unpaid taxes, interest and penalties for alleged under-declared export revenues. As a tax resident in Tanzania, AFRICAN BARRICK GOLD was asked to remit withholding taxes on dividend payments amounting to USD 81,843,127 which the company allegedly made for the years 2010, 2011, 2012 and 2013 (this sum was subsequently reduced to USD 41,250,426). AFRICAN BARRICK GOLD was also required to remit withholding taxes on payments which the mining entities in Tanzania had paid to the parent, together with payments which was made to other non-resident persons (its shareholders) for the service rendered between 2010 up to September 2013. AFRICAN BARRICK GOLD argued that, being a holding company incorporated in the United Kingdom, it was neither a resident company in Tanzania, nor did it conduct any business in Tanzania to attract the income tax demanded according to the tax assessment ... Read more
UK vs Bluecrest Capital Management, July 2020, First-Tier Tribunal - Tax Chamber, Case No TC07782

UK vs Bluecrest Capital Management, July 2020, First-Tier Tribunal – Tax Chamber, Case No TC07782

In the case of BlueCrest Capital Management Cayman Limited (& others), the key issues involved partnership profit/loss allocations for mixed member partnerships and the associated anti-avoidance legislation – limitation on tax relief for interest on unallowable purpose loans and the sale of occupational income provisions. Judgement The Tribunal found that the sale of occupational income rules could apply to charge Income tax on partnership capital contributions. Although the arrangements  did have a commercial purpose (retention and incentivization of partners), they also had as a main object the avoidance or reduction of liability to pay income tax. The test for application of the occupational income rules was therefore met. UK-vs-Bluecrest-Capital-Management-TC07782-1 ... Read more
Switzerland vs Coffee Machine Group, April 2020, Federal Supreme Court, Case No 2C_354/2018

Switzerland vs Coffee Machine Group, April 2020, Federal Supreme Court, Case No 2C_354/2018

Coffee Machine Ltd. was founded in Ireland and responsible for the trademark and patent administration as well as the management of the research and development activities of the A group, the world’s largest manufacturer of coffee machines. A Swiss subsidiary of the A group reported payments of dividend to the the Irish company and the group claimed that the payments were exempt from withholding tax under the DTA and issued a claim for a refund. Tax authorities found that the Irish company was not the beneficial owner of the dividend and on that basis denied the companies claim for refund. The lower Swiss court upheld the decision of the tax authorities. Judgement of the Supreme Court The Supreme Court upheld the decision of the lower court and supplemented its findings with the argument, that the arrangement was also abusive because of the connection between the share transfer in 2006 and the distribution of pre-acquisition reserves in 2007 and the total ... Read more
Finland vs A Group, April 2020, Supreme Administrative Court, Case No. KHO:2020:35

Finland vs A Group, April 2020, Supreme Administrative Court, Case No. KHO:2020:35

In 2008, the A Group had reorganized its internal financing function so that the Group’s parent company, A Oyj, had established A Finance NV in Belgium. Thereafter, A Oyj had transferred to intra-group long-term loan receivables of approximately EUR 223,500,000 to A Finance NV. In return, A Oyj had received shares in A Finance NV. The intra-group loan receivables transferred in kind had been unsecured and the interest income on the loan receivables had been transferred to A Finance NV on the same day. A Finance NV had entered the receivables in its balance sheet as assets. In addition, A Oyj and A Finance NV had agreed that target limits would be set for the return on investment achieved by A Finance NV through its operations. A Finance NV has reimbursed A Oyj for income that has exceeded the target limit or, alternatively, invoiced A Oyj for income that falls below the target limit. Based on the functional analysis prepared ... Read more
UK vs Smith & Nephew, March 2020, Court of Appeal, Case No A3/2019/0521

UK vs Smith & Nephew, March 2020, Court of Appeal, Case No A3/2019/0521

In the case of HMRC v Smith & Nephew Overseas Ltd, consideration was given to the “fairly represent” requirement in the loan relationship code. The dispute concerns each of the Smith & Nephew’s entitlement to set off foreign exchange losses against their liability to corporation tax. The exchanges loss arose as a result of Smith & Nephews changing their functional accounting currencies from sterling to US dollars on 23 December 2008 at a time when the only asset on their balance sheets was a very substantial inter-company debt owed to them by their parent company. The debts were denominated in sterling but then had to be converted into dollars when the companies’ accounts were restated in dollars. The next day, the debts were disposed of as part of a group restructuring. The exchange losses arose from Smith & Nephew’s ‘loan relationships’ as that term is used in Chapter 2 of Part IV of the Finance Act 1996 (‘Chapter 2’). Section ... Read more
Zimbabwe vs Delta Beverages LTD, Special Court (for Income Tax Appeals), Case No HH664-19

Zimbabwe vs Delta Beverages LTD, Special Court (for Income Tax Appeals), Case No HH664-19

Delta Beverages LTD had been issued a tax assessment where various fees for service, technology license of trademarks, technology and know-how had been disallowed by the tax authorities (Zimra) of Zimbabwe. Among the issues contented by the tax authorities were technical service fees calculated as 1.5 %  of turnover. “The sole witness confirmed the advice proffered to the holding company’s board of directors in the minutes of 17 May 2002 that such an approach was common place across the world. This was confirmed by the approvals granted by exchange control authority to these charges. It was further confirmed by the very detailed 19 page Internal Comparable Analysis Report dated 5 October 2010 conducted by a reputable international firm of chartered  accountants, which was commissioned by the Dutch Company to assess internal compliance with the arm’s length principles in its transfer pricing policy for trademark royalties of its cross border brands. The commissioned firm looked at 20 comparative agreements, which were ... Read more
France, Public Statement related to deduction of interest payments to a Belgian group company, BOI-RES-000041-20190904

France, Public Statement related to deduction of interest payments to a Belgian group company, BOI-RES-000041-20190904

In a public statement the French General Directorate of Public Finance clarified that tax treatment of interest deductions taken by a French company on interest payments to a related Belgian company that benefits from the Belgian notional interest rate scheme. According to French Law, interest paid to foreign group companies is only deductible if a minimum rate of tax applies to the relevant income abroad. Click here for translation BOI-RES-000041-20190904 ... Read more
Japan vs. Universal Music Corp, June 2019, Tokyo District Court, Case No 平成27(行ウ)468

Japan vs. Universal Music Corp, June 2019, Tokyo District Court, Case No 平成27(行ウ)468

An intercompany loan in the form of a so-called international debt pushdown had been issued to Universal Music Japan to acquire the shares of another Japanese group company. The tax authority found that the loan transaction had been entered for the principal purpose of reducing the tax burden in Japan and issued an assessment where deductions of the interest payments on the loan had been disallowed for tax purposes. Decision of the Court The Tokyo District Court decided in favour of Universal Music Japan and set aside the assessment. The Court held that the loan did not have the principle purpose of reducing taxes because the overall restructuring was conducted for valid business purposes. Therefore, the tax authorities could not invoke the Japanese anti-avoidance provisions to deny the interest deductions. The case is now pending at the Tokyo High Court awaiting a final decision. Click here for English Translation Jap UM 2019 ... Read more
Perrigo facing billion dollar tax assessments in both Ireland and the US

Perrigo facing billion dollar tax assessments in both Ireland and the US

In July 2013 the Irish pharma company Elan was acquired by the US based Perrigo group for $8.6 billion (£5.6 billion). Ireland’s corporation tax rate was one of the main attractions for Perrigo and the deal was said to give Perrigo substantial tax savings due to a corporate tax inversion. The Irish 12.5 % corporate tax rate compared US rate of 30 % was further augmented by the trading losses built up over a number of years by Elan in its business as a drug development group. That meant that even with a $3.25 billion transaction like Elan’s sale of the rights to the multiple sclerosis drug Tysabri the company would still not have to pay any tax. The low-tax scenario envisioned by Perrigo did not last for long. First Perrigo was issued a $1.9 billion tax bill (excluding interest and penalties) by the Irish tax authorities for incorrect transfer pricing related to its sale of a 50% interest in Tysabri ... Read more
New Zealand vs Cullen Group Limited, March 2019, New Zealand High Court, Case No [2019] NZHC 404

New Zealand vs Cullen Group Limited, March 2019, New Zealand High Court, Case No [2019] NZHC 404

In moving to the United Kingdom, a New Zealand citizen, Mr. Eric Watson, restructured a significant shareholding into debt owed by a New Zealand company, Cullen Group Ltd, to two Cayman Island conduit companies, all of which he still controlled to a high degree. This allowed Cullen Group Ltd to pay an Approved Issuer Levy (AIL) totalling $8 million, rather than Non-Resident Withholding Tax of $59.5 million. The steps in the arrangement were as follows: (a) Mr Watson sold his shares in Cullen Investments Ltd to Cullen Group, at a (rounded) value of $193 million, being $291 million less his previous $98 million shareholder advances. The sale was conditional on Cullen Investments Ltd selling its shares in Medical Holdings Ltd to Mr Watson and on Cullen Investments Ltd selling its shares in Vonelle Holdings Ltd to Maintenance Ltd which was owned by Mr Watson. (b) Cullen Group’s purchase of the Cullen Investments Ltd shares from Mr Watson was funded by a vendor loan from Mr Watson of ... Read more
Denmark vs T and Y Denmark, February 2019, European Court of Justice, Cases C-116/16 and C-117/16

Denmark vs T and Y Denmark, February 2019, European Court of Justice, Cases C-116/16 and C-117/16

The cases of T Danmark (C-116/16) and Y Denmark Aps (C-117/16) adresses questions related to interpretation of the EU-Parent-Subsidary-Directive The issue is withholding taxes levied by the Danish tax authorities in situations where dividend payments are made to conduit companies located in treaty countries but were the beneficial owners of these payments are located in non-treaty countries. During the proceedings in the Danish court system the European Court of Justice was asked a number of questions related to the conditions under which exemption from withholding tax can be denied on dividend payments to related parties. The European Court of Justice has now answered these questions in favor of the Danish Tax Ministry; Benefits granted under the Parent-Subsidiary Directive can be denied where fraudulent or abusive tax avoidance is involved. Quotations from cases C-116/16 and C-117/16: “The general principle of EU law that EU law cannot be relied on for abusive or fraudulent ends must be interpreted as meaning that, where ... Read more
Denmark vs N, X, C, and Z Denmark, February 2019, European Court of Justice, Cases C-115/16, C-118/16, C-119/16 and C-299/16

Denmark vs N, X, C, and Z Denmark, February 2019, European Court of Justice, Cases C-115/16, C-118/16, C-119/16 and C-299/16

The cases of N Luxembourg 1 (C-115/16), X Denmark A/S (C-118/16), C Danmark I (C-119/16) and Z Denmark ApS (C-299/16), adresses questions related to the interpretation of the EU Interest and Royalty Directive. The issue in these cases is withholding taxes levied by the Danish tax authorities in situations where interest payments are made to conduit companies located in treaty countries but were the beneficial owners of these payments are located in non-treaty countries. During the proceedings in the Danish court system the European Court of Justice was asked a number of questions related to the conditions under which exemption from withholding tax can be denied on interest payments to related parties. The European Court of Justice has now answered these questions in favor of the Danish Tax Ministry; Benefits granted under the Interest and Royalty Directive can be denied where fraudulent or abusive tax avoidance is involved. Quotations from cases C-115/16, C-118/16, C-119/16 and C-299/16: “The concept of ‘beneficial ... Read more
Italy vs Dolce & Gabbana, December 2018, Supreme Court, Case no 33234/2018

Italy vs Dolce & Gabbana, December 2018, Supreme Court, Case no 33234/2018

Italien fashion group, Dolce & Gabbana, had moved ownership of valuable intangibles to a subsidiary established for that purpose in Luxembourg. The Italian Revenue Agency found the arrangement to be wholly artificial and set up only to avoid Italien taxes and to benefit from the privileged tax treatment in Luxembourg. The Revenue Agency argued that all decision related to the intangibles was in fact taken at the Italian headquarters of Dolce & Gabbana in Milan, and not in Luxembourg, where there were no administrative structure and only one employee with mere secretarial duties. Dolce & Gabbana disagreed with these findings and brought the case to court. In the first and second instance the courts ruled in favor of the Italian Revenue Agency, but the Italian Supreme Court ruled in favor of Dolce & Gabbana. According to the Supreme Court, the fact that a company is established in another EU Member State to benefit from more advantageous tax legislation does not ... Read more
New Zealand vs Frucor Suntory, November 2018, High Court, Case No NZHC 2860

New Zealand vs Frucor Suntory, November 2018, High Court, Case No NZHC 2860

This case concerns application of the general anti-avoidance rule in s BG 1 of the Income Tax Act 2004. The tax authorities issued an assessment where deductions of $10,827,606 and $11,665,323 were disallowed in the 2006 and 2007 income tax years respectively. In addition, penalties of $1,786,555 and $1,924,779 for those years were imposed. The claimed deductions arose in the context of an arrangement entered into by Frucor Holdings Ltd (FHNZ) involving, among other steps, its issue of a Convertible Note to Deutsche Bank, New Zealand Branch (DBNZ) and a forward purchase of the shares DBNZ could call for under the Note by FHNZ’s Singapore based parent Danone Asia Pte Ltd (DAP). The Note had a face value of $204,421,5654 and carried interest at a rate of 6.5 per cent per annum. Over its five-year life, FHNZ paid DBNZ approximately $66 million which FHNZ characterised as interest and deducted for income tax purposes. The tax authorities said that, although such ... Read more
Pharma and Tax Avoidance, Report from Oxfam

Pharma and Tax Avoidance, Report from Oxfam

New Oxfam research shows that four pharmaceutical corporations — Abbott, Johnson & Johnson, Merck, and Pfizer — systematically allocate super profits in overseas tax havens. In eight advanced economies, pharmaceutical profits averaged 7 percent, while in seven developing countries they averaged 5 percent. In comparison, profits margins averaged 31 percent in countries with low or no corporate tax rates – Belgium, Ireland, Netherlands and Singapore. The report exposes how pharmaceutical corporations uses sophisticated tax planning to avoid taxes. cr-prescription-for-poverty-pharma-180918-en ... Read more
Canada vs Loblaw Companies Ltd., September 2018, Canadian tax court, Case No 2018 TCC 182

Canada vs Loblaw Companies Ltd., September 2018, Canadian tax court, Case No 2018 TCC 182

The Canada Revenue Agency had issued a reassessments related to Loblaw’s Barbadian banking subsidiary, Glenhuron, for tax years 2001 – 2010. The tax authorities had determined that Glenhuron did not meet the requirements to be considered a foreign bank under Canadian law, and therefore was not exempt from paying Canadian taxes. “Loblaw took steps to make Glenhuron look like a bank in order to avoid paying tax. Government lawyers said Glenhuron did not qualify because, among other things, it largely invested the grocery giant’s own funds and was “playing with its own money.“ Tax Court found the transactions entered into by Loblaw regarding Glenhuron did result in a tax benefit but “were entered primarily for purposes other than to obtain the tax benefit and consequently were not avoidance transactions.” The Tax Court concludes as follows: “I do not see any extending the scope of paragraph 95(2)(l) of the Act. No, had there been any avoidance transactions the Appellant would not ... Read more
Tax avoidance in Australia

Tax avoidance in Australia

In May 2018 the final report on corporate tax avoidance in Australia was published by the Australian Senate. The report contains the findings, conclusions and recommendations based on 4 years of hearings and investigations into tax avoidance practices by multinationals in Australia. Australian-final-report-on-tax-avoidance ... Read more
Zimbabwe vs CRS (Pvt) Ltd, October 2017, High Court, HH 728-17 FA 20/2014

Zimbabwe vs CRS (Pvt) Ltd, October 2017, High Court, HH 728-17 FA 20/2014

The issue in this case was whether tax administration could tax a “non-existent income” through the “deeming provisions” of s 98 of Zimbabwe’s Income Tax Act. A lease agreement and a separate logistical agreement had been entered by CRS Ltd and a related South African company, for the lease of its mechanical trucks, trailers and tankers for a fixed rental. The tax payer contended that the rentals in the agreements were fair and reasonable. The tax administration contended that they were outrageously low so as to constitute under invoicing and tax avoidance. The court ruled in favor of the tax administration. Excerps from the Judgement: “Where any transaction, operation or scheme (including a transaction, operation or scheme involving the alienation of property) has been entered into or carried out, which has the effect of avoiding or postponing liability for any tax or of reducing the amount of such liability, and which in the opinion of the Commissioner, having regard to the circumstances ... Read more
Canada vs Univar Holdco, October 2017, Federal Court of Appeal, Case No 2017 FCA 207

Canada vs Univar Holdco, October 2017, Federal Court of Appeal, Case No 2017 FCA 207

In the case of Univar Holdco the Canadian tax authorities had applied Canadian Anti-Avoidance Rules to a serie of transactions undertaken by the Univar Group following the acquisition of the group’s Dutch parent. The (only) purpose of these transactions was to increase the amount of retained earnings that could be taken out of Canada without incurring withholding tax. The Federal Court of Appeal overturned the prior decision of the Tax Court and came to the conclusion that it had not been proved that the transactions were abusive tax avoidance – abuse of the Act. The Court also noted that subsequent amendments and commentary to the Act do not confirm that transactions caught by the subsequent amendments are abusive before the amendments are enacted. The 2017 decision of the Federal Court of Appeal Canada vs Univar Holdco 13102017 The 2016 decision of the Tax Court Canada vs Univar Holdco June 2016tcc159 ... Read more
European Commission vs. Amazon and Luxembourg, October 2017, State Aid - Comissions decision, SA.38944 

European Commission vs. Amazon and Luxembourg, October 2017, State Aid – Comissions decision, SA.38944 

Luxembourg gave illegal tax benefits to Amazon worth around €250 million The European Commission has concluded that Luxembourg granted undue tax benefits to Amazon of around €250 million.  Following an in-depth investigation launched in October 2014, the Commission has concluded that a tax ruling issued by Luxembourg in 2003, and prolonged in 2011, lowered the tax paid by Amazon in Luxembourg without any valid justification. The tax ruling enabled Amazon to shift the vast majority of its profits from an Amazon group company that is subject to tax in Luxembourg (Amazon EU) to a company which is not subject to tax (Amazon Europe Holding Technologies). In particular, the tax ruling endorsed the payment of a royalty from Amazon EU to Amazon Europe Holding Technologies, which significantly reduced Amazon EU’s taxable profits. The Commission’s investigation showed that the level of the royalty payments, endorsed by the tax ruling, was inflated and did not reflect economic reality. On this basis, the Commission ... Read more