30 August 2024 the Inland Revenue of New Zealand issued Commissioner’s Statement CS 24/02. The Statement that sets out the Commissioner’s position in relation to the withholding tax obligations that may arise from transactions that constitute a transfer pricing arrangement ... Read more

“Lender SA” had received funds from related parties abroad which were classified as equity and therefore no interest was paid. The tax authorities classified the funds as loans and a notice of assessment was issued where interest on the loan had been determined using the CUP method and where withholding taxes on the interest had been determined. Decision of the Tax Court . The Tax Court agreed that the funds were loans and that the most appropriate method of determining the arm’s length interest rate was the CUP method. However, the court overturned the adjustment due to the lack of a sufficient comparability analysis. Excerpt in English “That in relation to the determination of the market value, numeral 5.14 states that “… the tax administration will have to arrive at an arm’s length transfer price even when the available information is incomplete, highlighting the importance of having documentation that supports both the transaction under analysis and the comparable ones. That ... Read more

Hargreaves Property Holdings Ltd paid interest on certain loans between 2010 and 2015. HMRC formed the view that Hargreaves should have deducted and accounted for withholding tax on the interest. Hargreaves disagreed and appealed to the First-tier Tribunal on four grounds. All four grounds were rejected ([2021] UKFTT 390 (TC). Hargreaves then appealed on similar grounds to the Upper Tribunal. Hargreaves’ appeal was dismissed ([2023] UKUT 120 (TCC)). An appeal was filed with the Court of Appeal where two of the four grounds were pursued: whether interest payments made from 2012 onwards to a UK tax resident company, Houmet Trading Limited (“Houmet”), fell within the exception from withholding tax in s.933 Income Tax Act 2007 (“ITA 2007”); and whether interest paid on loans the duration of which was less than a year, but which were routinely replaced by further loans from the same lenders, was “yearly interest” within s.874 ITA 2007. Judgment The Court of Appeal dismissed the appeal and ... Read more

Mylan Australia Holding is a subsidiary of the multinational pharmaceutical company Mylan Group. Mylan Australia Holding is the head of the Australian tax consolidated group, which includes its subsidiary Mylan Australia Pty. In 2007, Mylan Australia Pty acquired the shares of Alphapharm Pty Ltd and a substantial loan (A$923,205,336) was provided by a group company in Luxembourg to finance the acquisition. In subsequent years the interest expense was deducted from the taxable income of Mylan’s Australian tax group. The Australian Taxation Office (ATO) issued amended assessments to Mylan Australia Holding disallowing approximately AUD 589 million of interest deductions claimed for the 2007 to 2017 tax years. The ATO had initially pursued the structure as a transfer pricing issue, but ultimately argued that the deductions should be disallowed under the general anti-avoidance rule. Mylan Australia Holding appealed to the Federal Court. Judgment of the Court The Federal Court decided in favour of Mylan Australia Holding and set aside the amended assessment ... Read more

The Australian Tax Office (ATO) had determined that Minerva had received a “tax benefit” in connection with a “scheme” to which Part IVA – Australian GAAR – applied. Minerva appealed to the Federal Court, which upheld the assessment of the ATO. Mylan then appealed the decision to the Full Federal Court. Judgment of the Full Federal Court The Full Federal Court found in favour of Minerva. Excerpts “121 The s 177D factors are to be considered in light of the counterfactual or other possibilities and the outcomes resulting from the scheme. Part of the difficulty in the present case is that the same commercial outcome for the parties would not have been achieved by a distribution of income to the special unitholder as was achieved by the distribution of income to the ordinary unitholder, putting aside the Australian income tax consequences. Jupiter was indebted to LF and the distributions from MFGT enabled the repayment of that debt. Vesta increased its ... Read more

In the course of a customs and tax inspection conducted against C. sp. z o.o., it was established that, despite its obligation, it had failed to calculate, collect and pay withholding tax on the interest paid on loans granted in 2017 – 2018 to C. B.V. in the Netherlands. Due to the Company’s failure to submit a correction to the tax return, the completed customs and tax audit was transformed into tax proceedings. The tax authorities determined the amount due for uncollected withholding tax on interest paid to the Dutch Company for the individual months from January to December 2017 and from February to August and for October 2018. (a total of PLN 3,787,862.00) as well as ruled on the tax liability of the Company, as payer of the withholding tax, for the aforementioned amount of uncollected tax. In the decision in question, it was acknowledged that the funds which were the subject of the loan granted to the Company ... Read more

A Polish real estate company, “N. sp. z o.o.”, had asked the tax office for an opinion on the tax treatment of interest paid on a loan received from a related party ‘M’ in Romania. The tax office refused the request. In its view, “M” had received the funds needed to make the loans to N from other group companies and therefore almost all of the interest income earned by “M” was ultimately transferred to “M.C.”, which was based in Malta. On this basis, the ultimate beneficiary of the interest paid by N was not “M” in Romania, but “M.C.” in Malta. “N. sp. z o.o.” disagreed and appealed to the Administrative Court. Decision of the Administrative Court The Court dismissed the appeal. Excerpts “The company has not provided any argumentation to exclude the authority’s finding that the coincidence of dates, juxtaposed with the fact that M. did not, at the date of these agreements, have any funds of its ... Read more

In 2005, eBay Inc. set up an company in Israel – eBay Israel Holdings Ltd – to acquire the shares in Shopping.com Ltd., which later changed its name to eBay Marketplace Israel Ltd. for $685 million. To finance the acquisition, eBay Inc paid $44.9 million in share capital and lent the company a further $634,5 million. The loan was payable on demand and carried no interest. The tax authority issued an assessment where interest had been added to the loan based on the arm’s length provision in section 85A. The interest payments resulted in withholding taxes. eBay Israel Holdings disagreed with the assessment and filed an appeal. Judgment of the District Court The court upheld the assessment and dismissed the appeal. The court noted that Section 85A was enacted in 2006, after the loan was granted. However, Section 3(j) of the Income Taxed Act provided for an annual interest rate, which was also relied upon by the tax authorities in ... Read more

The taxpayer paid interest on five loans concluded with its Dutch subsidiary (“BV2”) on 31 December 2017, claiming exemption from withholding tax on the basis of the double taxation treaty between Belgium and the Netherlands (Article 11, §3, (a)). The dispute concerns whether the Dutch subsidiary “BV2” can be considered the beneficial owner of these interests. The concept of “beneficial owner” is not defined in the Belgium-Netherlands double tax treaty. However, this concept is also used in the European Directive on interest and royalties. In the Court’s view, this concept must be interpreted in the same way for the application of the Belgian-Dutch double taxation treaty. Indeed, as members of the EU, Belgium and the Netherlands are also obliged to ensure compliance with EU law. The Court noted that, of the five loans on which the taxpayer paid interest to its subsidiary “BV2”, four loans were linked to four other loans granted by a Dutch company higher up in the group’s organisation chart and having the legal form of a “CV” (now an LLC), to the taxpayer’s Dutch parent company, “BV1”. The fifth loan on which the taxpayer pays interest to its subsidiary “BV2” is clearly linked to a fifth loan ... Read more

“A SWAP s.a.r.l.” contested decisions regarding its taxes for the years 2014 to 2017 issued by the tax authorities. A significant aspect of the dispute was whether certain payments under a financial arrangement, classified by the tax authorities as hidden profit distributions, were subject to withholding tax. The Administrative Tribunal had ruled in favour of the tax authorities, and an appeal was then filed by “TR Swap s.a.r.l.” with the Administrative Court. Judgment The Administrative Court ruled against “A SWAP s.a.r.l.”, upholding the decision of the Administrative Tribunal and confirming the decisions of the tax authorities. The Court rejected the “A SWAP s.a.r.l.”‘s arguments, including those based on the principle of legitimate expectations. Click here for English translation Click here for other translation ... Read more

“BO LDA” filed an appeal to annul an additional corporate tax assessment and associated compensatory interest imposed by the Portuguese Tax and Customs Authority. The case revolved around whether “BO LDA” was entitled to an exemption from withholding tax on interest payments under the Interest and Royalties Directive or, alternatively, under Double Taxation Conventions (DTCs) between Portugal and the UK or Hong Kong. Decision The arbitral tribunal ruled against “BO LDA” and upheld the assessment issued by the tax authorities. The tribunal found that the exemption under the Interest and Royalties Directive required proof that the recipient of the interest was its beneficial owner. The recipient, UK3, along with UK2 and UK1, was part of a complex financial structure involving companies in Hong Kong and other offshore jurisdictions. These UK-based companies had no real economic activity, no employees, and no premises of their own. Their sole function was to pass interest payments up the corporate chain, ultimately reaching entities in ... Read more

17 January 2023 the South African Revenue Service (SARS) released an interpretation note (IN 127) titled “DETERMINATION OF THE TAXABLE INCOME OF CERTAIN PERSONS FROM INTERNATIONAL TRANSACTIONS: INTRA-GROUP LOANS” which provides guidance on how SARS will determine arm’s length pricing for intra-group loans. The Note also provides guidance on the consequences for a taxpayer if the amount of debt, the cost of debt or both are not arm’s length. According to the note an intra-group loan would be incorrectly priced if the amount of debt funding, the cost of the debt or both are excessive compared to what is arm’s length ... Read more

At issue was whether certain disbursements received by “Capital Ltd” from non-domiciled related companies should be classified as loans or capital contributions. “Capital Ltd” claimed that the purpose of the funds was to stabilize the financial state of the company, and that classifying them as loans with presumed interest was inappropriate under these circumstances. The tax authority argued that the disbursements should be regarded as loans, with a clear obligation of repayment, which justified applying withholding tax on presumed interest payments. The assessment relied on a comparability analysis to establish a market interest rate for these transactions. “Capital Ltd” asserted that the tax authority had failed to consider crucial comparability factors, such as the scale of the principal amount, the debtor’s financial status, and its risk rating. These omissions led to an improperly inflated deemed interest calculation. Judgment The court determined that the tax authority’s comparability analysis was insufficient, as it did not fully account for the differences between the ... Read more

Aozora, a UK company, received interest income from a loan to its US subsidiary, from which US withholding tax was deducted. Aozora sought unilateral tax credit relief under section 790 of the Income and Corporation Taxes Act 1988 (ICTA) for this US tax. The IRS had denied Aozora benefits under the UK-US Tax Treaty on the basis that Aozora was not a “qualified person” under Article 23 of the treaty. The UK tax authorities (HMRC) refused the unilateral relief arguing that Article 23 of the treaty was an “express provision” denying credit relief, thereby disqualifying Aozora from section 790 relief. On appeal the First-tier Tribunal found in favour of Aozora, concluding that Article 23 was not an “express provision” that denied credit relief as required by section 793A(3). An appeal was then filed by the tax authorities with the Upper Tribunal. Judgment The Upper Tribunal dismissed HMRC’s appeal and upheld the FTT’s decision. It held that section 793A(3) only applies ... Read more

“WHT Ltd” had requested a refund of withholding tax on interest paid to a related company in the Netherlands. The tax authority determined that the contractual interest rate of 2.05% exceeded the officially recognized interest rate of 1.226% at the time the loan was granted. Under Article 72 of the Corporate Income Tax Act, tax benefits apply only if the interest rate charged is not higher than what would have been paid to an unrelated lender. The dispute thus centered on whether the interest rate applied to the loan was at arm’s length. “WHT Ltd” attempted to demonstrate compliance by submitting a non-binding refinancing offer from a third-party bank, internal calculations of creditworthiness, comparisons to previous bank loans, and statistical data from the Bank of Slovenia. However, the tax authority deemed this evidence insufficient to prove that an independent lender would have charged a comparable interest rate. The Ministry of Finance, acting as the appellate authority, had upheld the tax ... Read more