“H Borrower and Lender A/S”, a Danish subsidiary in the H Group, had placed deposits at and received loans from a group treasury company, H4, where the interest rate paid on the loans was substantially higher than the interest rate received on the deposits. Due to insufficient transfer pricing documentation, the tax authorities (SKAT) issued a discretionary assessment of taxable income where the interest rate on the loans had been adjusted based on the rate received on the deposits. Decision of the Tax Tribunal The National Tax Tribunal stated that the documentation was deficient to such an extent that it could be equated with a lack of documentation. The tax authorities had therefore been entitled to make a discretionary assessment. The National Tax Tribunal referred, among other things, to the fact that the company’s transfer pricing documentation lacked a basic functional analysis of the group treasury company with which the company had controlled transactions. “The National Tax Tribunal finds that ... Read more

A GmbH, based in Zurich, was a subsidiary of the D group operating mainly in the field of consumer electronics worldwide, headquartered in country E. A GmbH was primarily responsible for acquiring exploitation rights to … and other related activities. The D Group also owned company F in Land H, which was responsible for the global treasury and cash pooling of the Group. On December 1 2008 A GmbH had entered into an agreement with Company F for the short-term deposit of excess capital and short-term borrowing. Under the terms of the agreement, if the balance was in A GmbH’s favor, A GmbH would be credited interest based on the one-month London Interbank Bid Rate (LIBID) minus 6.25 basis points, but not less than 0.05%. Following an audit in relation to the tax periods of 1.4.2009-31.3.2010 and 1.4.2010-31.3.2011, the tax authorities took the view that the cash pool credit contains a proportion of long-term loans to company F and insofar ... Read more

The distinction between cash pool receivables and long-term loans. A GmbH is a group company of the global A-group. The A Group also includes company F Ltd, which is responsible for the global treasury and cash pooling of the A Group. In 2008, A GmbH entered into an agreement with F Ltd on the short-term deposit of excess liquidity and short-term borrowing (cash pool). Under the terms of the agreement, if the balance were in A GmbH’s favor, recievables would be credited interest based on the one-month London Interbank Bid Rate (LIBID) less 6 , 25 basis points, but at least 0.05%. The Swiss tax administration argued that a portion of the cash pool receivable had to be treated as a long-term loan bearing higher interest rates. The long-term loan was set to the minimum cash pool receivable balance of each fiscal year. The interest rate on the long-term loan was set to the Swiss „Safe Habor Rates“ according to ... Read more

In the Nestlé Finance case, a cash pool/treasury activity was transferred to a related Swiss entity. The function had been purely administrative and carried out exclusively for the benefit of parties related to the French company. The French company did not receive any compensation for the transfer of the cash pooling activity. The tax authorities issued an assessment where profit for the transfer of the activity had been determined under article 57 – the French arm’s length provision. Administrative Court concluded that the transfer of an internal administrative function to a foreign entity – even if the function only involved other affiliated companies ‘captive clientele’ – required the payment of arm’s-length compensation. Not satisfied with the decision, Nestlé filed an appeal with the Court of Appeals. Judgement of the Court of Appeals The decision of the Administrative Court was overturned by the Administrative Court of Appeal. The Court found that the tax authorities had failed to use a valid comparable, ... Read more