Tag: Tax avoidance

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
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
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
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
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
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
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
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
Loading...