Tag: Treaty Abuse

Argentina vs Molinos Río de la Plata S.A., September 2021, Supreme Court, Case No CAF 1351/2014/1/RH1

Argentina vs Molinos Río de la Plata S.A., September 2021, Supreme Court, Case No CAF 1351/2014/1/RH1

In 2003 Molinos Argentina had incorporated Molinos Chile under the modality of an “investment platform company” regulated by Article 41 D of the Chilean Income Tax Law. Molinos Argentina owned 99.99% of the shares issued by Molinos Chile, and had integrated the share capital of the latter through the transfer of the majority shareholdings of three Uruguayan companies and one Peruvian company. Molinos Argentina declared the dividends originating from the shares of the three Uruguayan companies and the Peruvian company controlled by Molinos Chile as non-taxable income by application of article 11 of the DTA between Argentina and Chile. On that factual basis, the tax authorities applied the principle of economic reality established in article 2 of Law 11.683 (t.o. 1998 and its amendments) and considered that Molinos Argentina had abused the DTA by using the Chilean holding company as a “conduit company” to divert the collection of dividends from the shares of the Uruguayan and Peruvian companies to Chilean ... Read more
South Africa vs ABSA bank, March 2021, High Court, Case No 2019/21825

South Africa vs ABSA bank, March 2021, High Court, Case No 2019/21825

During FY 2014 – 2018 a South African company, ABSA, on four occasions bought tranches of preference shares in another South African company, PSIC 3. This entitled ABSA to dividends. The dividends received from PSIC 3 by ABSA were declared as tax free. The income in PSIC 3 was based on dividend payments on preference shares it owned in another South African company, PSIC 4. The income in PSIC 4 was from a capital outlay to an off shore trust, D1 Trust. The trust then lent money to MSSA, a South African subsidiary of the Macquarie Group, by means of subscribing for floating rate notes. The D1 Trust made investments by way of the purchase of Brazilian Government bonds. It then derived interest thereon. In turn, PSIC 4 received interest on its capital investment in D1 Trust. The South African Revenue Service held that ABSA had been a party to a tax avoidance scheme covered by local anti-avoidance provisions and ... Read more
Korea vs "Lux corp", 16 January 2020, Supreme Court Case no. 2016두35854

Korea vs “Lux corp”, 16 January 2020, Supreme Court Case no. 2016두35854

In this case the Korean Supreme Court held that Luxembourg SICAV and SICAF are entitled to reduced withholding tax rate on interest and dividend income under the Korea–Luxembourg Tax Treaty. Meaning of “residents of Luxembourg,” which is subject to the “Convention between the Government of the Republic of Korea and the Government of the Grand Duchy of Luxembourg for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital” (held: any person who, under the laws of Luxembourg, is liable to pay tax therein), and in a case where tax is not imposed in accordance with the benefit of tax exemption, etc. for which legal requirements has been fulfilled, whether it may be considered that the tax liability does not exist (negative). Standard for determining whether one qualifies as the “beneficial owner” as prescribed in Article 10(2) Item (b) or 11(2) of the “Convention between the Government of the Republic ... Read more
The EU Anti Tax Avoidance Package - Anti Tax Avoidance Directives (ATAD I & II) and Other Measures

The EU Anti Tax Avoidance Package – Anti Tax Avoidance Directives (ATAD I & II) and Other Measures

Anti Tax Avoidance measures are now beeing implemented across the EU with effect as of 1 January 2019. The EU Anti Tax Avoidance Package (ATAP) was issued by the European Commission in 2016 to counter tax avoidance behavior of MNEs in the EU and to align tax payments with value creation. The package includes the Anti-Tax Avoidance Directive, an amending Directive as regards hybrid mismatches with third countries, and four Other measures. ATAD I The Anti-Tax Avoidance Directive (ATAD), COUNCIL DIRECTIVE (EU) 2016/1164 of 12 July 2016, introduces five anti-abuse measures, against tax avoidance practices that directly affect the functioning of the internal market. 1) Interest Limitation Rule  – Reduce profitshifting via exessive interest payments (Article 4) 2) Exit Taxation – Prevent tax motivated movement of valuable business assets (eg. intangibles) across borders (Article 5) 3) General Anti-Avoidance Rule (GAAR) – Discourage Artificial Arrangements (Article 6) 4) Controlled Foreign Company (CFC) – Reduce profits shifting to low tax jurisdictions (Article 7, 8) 5) Hybrid Mismatch Rule – ... Read more

Korea vs Company A, November 29, 2018, Supreme Court Case no. 2018Du38376

The issue in this case was the meaning of and standard for determining what constitutes “beneficial owner” as prescribed by Article 10(2)(a) of the Convention between the Government of the Republic of Korea and the Government of the Hungarian People’s Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income. Whether a tax treaty may be deemed inapplicable in the event that treaty abuse is acknowledged according to the principle of substantial taxation under the Framework Act on National Taxes even if constituting a beneficial owner of dividend income (affirmative) In a case where: (a) Company A, in paying dividends on six occasions to Hungary-based Company B that owns 50% of its shares, paid the withheld corporate tax based on the limited tax rate of 5% as prescribed by Article 10(2)(a) of the Convention between the Government of the Republic of Korea and the Government of the Hungarian People’s Republic for ... Read more
Korea vs CJ E&M Co., Ltd. , November 2018, Supreme Court Case no. 2017두33008

Korea vs CJ E&M Co., Ltd. , November 2018, Supreme Court Case no. 2017두33008

In 2011, a Korean company, CJ E&M Co., Ltd concluded a license agreement relating to the domestic distribution of Paramount films, etc. with Hungary-based entity Viacom International Hungary Kft (hereinafter “VIH”), which is affiliated with the global entertainment content group Viacom that owns the film producing company Paramount and music channel MTV. From around that time to December 2013, the Plaintiff paid VIH royalties amounting to roughly KRW 13.5 billion (hereinafter “pertinent royalty income”). CJ E&M Co., Ltd did not withhold the corporate tax regarding the pertinent royalty income according to Article 12(1) of the Convention between the Government of the Republic of Korea and the Government of the Hungarian People’s Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (hereinafter “Korea-Hungary Tax Treaty”). The Hungarian company was interposed between the Korean entertainment company and a Dutch company which previously licensed the rights to the Korean entertainment company. The Korean ... Read more