Tag: Terretoriality Principle
Term used to connote the principle of levying tax only within the territorial jurisdiction of a sovereign tax authority or country, which is adopted by some countries. Residents are not taxed on any foreign-source income.
In 2013, Snowy Owl Energy Inc entered into a Consultancy Agreement (Subconsultant Services Agreement) with Rolenergy Inc. – a Hong Kong-based corporation organized and registered in the British Virgin Islands. Based on the Agreement, Rolenergy would serve as Snowy Owl Energy Inc’s sub-consultant. The tax authorities issued an assessment for deficiency income tax (IT), final withholding tax (FWT) and compromise penalty in relation to the sub-consultant fees it paid for taxable year 2013. Judgement of the Tax Court The Court decided in favour of Snowy Owl Energy Inc. Section 23(F)36 in relation to Section 42(C)(3)37 of the NIRC of 1997, as amended, provides that a non-resident foreign corporation is taxable only for income from sources within the Philippines, and does not include income for services performed outside the Philippines. Excerpts: “Indubitably, the payments made in exchange for the services rendered in Hong Kong are income derived from sources outside of the Philippines, thus not subject to IT and consequently to ... Continue to full case
The French company SMAP carries out activities in the area of advertising management and organisation of trade fairs. Following an audit of the company for FY 2008 to 2011 and assessment was issued where deduction of costs for certain intra group “services” had been denied, resulting in additional value added tax, corporate income tax surcharges, apprenticeship tax and business value added tax. The company held that the tax administration had disregarded fiscal procedures, and that the reality of the services – and deductibility of the costs – cannot be disregarded on mere presumptions. Decision of the Court The Appeal of SARL SMAP was rejected by the Court. “Firstly, the administration notes that by virtue of a Lebanese legislative decree n° 46 of 24th June 1983, companies governed by Lebanese law … carrying out their essential activities outside the national territory are considered as offshore companies and as such benefit from a privileged tax regime. In particular, Article 4 of this ... Continue to full case
“AC S.A” is engaged in sale of ventilation, heating and cooling equipment in Panama. AC S.A pays royalties for use of IP owned by the parent company of the AC Group. Following a audit carried out by the Tax Administration in Panama it was concluded that the profits of AC S.A 2.04% was below the arm’s length range determined by application of a TNM-method. After removing non-comparables from the benchmark study provided by the company, the interquartile range had a lower quartile of 6.15% and a median of 8.41%. Hence an assessment of additional taxable income was issued for FY 2014, bringing the profits of AC S.A up to the median (8.41%) of the adjusted benchmark. AC Corp disagreed with the assessment and brought the case before the Administrative Tribunal. The Administrative Tribunal decided in favor of the tax authorities, but made adjustment to the benchmark resulting in a lower quartile of 3.16% and a median of 6.2%. The adjustment ... Continue to full case
“Oil Export S.A” Panama, was issued a fine of $ 1 mill. for not filing Transfer Pricing Report – Form 930 – for the fiscal year 2012. Article 762-I of the Tax Code in Panama establishes that “Failure to submit the report shall be sanctioned with a fine equivalent to 1% of the total amount of the operations with related parties. For the calculation of the fine, the gross amount of the operations shall be considered, regardless of whether they are representative of income, costs, or deductions.” The fine referred to in the paragraph shall not exceed one million balboas (B/.1,000,000.00). The decision of the Court “Consequently, since it has been demonstrated that —[“Oil Export S.A”]— did not comply with the formal obligation to submit the Transfer Pricing Report contained in Article 762-I of the Tax Code, the Tax Administration considers that it is appropriate to confirm Resolution No. 201-1429 of 24 October 2014 and its confirmation act.” Click here ... Continue to full case
Back in 2017 the European Commission opened an in-depth probe into a UK scheme that exempts certain transactions by multinational groups from the application of UK rules targeting tax avoidance. The EU commission concluded its investigations in a decision issued 2 April 2019. According to the decision the UK “Group Financing Exemption” is in breach of EU State aid rules. Under the Scheme foreign multinationals would benefit from tax exemption of profits related to payments of interest on intragroup loans. “In conclusion, the Commission finds that the United Kingdom has unlawfully implemented the contested measure to the benefit of certain UK resident companies in breach of Article 108(3) of the Treaty. The Commission also finds that the Group Financing Exemption constitutes State aid that is incompatible with the internal market within the meaning of Article 107(1) of the Treaty, in as far as it applies to non-trading finance profits from qualifying loan relationships, which profits fall within Section 371EB (UK ... Continue to full case