In 2009 and 2010 Global Nory, S.L. distributed a dividend of 7,000,000 euros to its parent company resident in Luxembourg, without declaring withholding taxes, as it considered that the dividend was exempt. In 2013, Global Nory, S.L. was notified of the commencement of general inspection proceedings, referring, among other items, to the dividend payments, and in 2014 the final assessment was issued, resulting in additional withholding taxes of 700,000 euros and 138,753.43 euros to late payment interest. The assessment was based on the following facts: The only relevant asset of Global Noray SL is a 5% stake in the listed company Corporación Logística de Hidrocarburos. This shareholding was acquired for a sum of 176,500,000 euros. Global Noray, S.L.’s income consists mainly of dividends received on these shares. Global Noray, S.L., is wholly owned by PSP Eur SARL, which in turn is wholly owned by PSP Lux SARL. The latter company is wholly owned by PSP IB. PSP stands for “Public Sector Investment Pension”. PSP IB stands for “Public Sector Pension Investment Board”, which is a Canadian Crown Corporation whose purpose is to manage the public pension funds of various groups of civil servants, military and police officers in Canada. PSP Eur SARL has provided a certificate of residence in Luxembourg. The tax authorities considered that the withholding tax exemption was not applicable, since those entities lacked any real economic activity, and considering that there were no economic reasons, but rather fiscal reasons, in the incorporation of the various European companies dependent on the Canadian parent company, since the ultimate owner of the group is a Canadian fund, eliminated the exemption in the settlement agreement. In the Inspectorate’s view, PSP Eur SARL has as its object the direction and management of the filial company without the appropriate organisation of material and personal resources, nor has it proved that it was set up for valid economic reasons, and not in order to take undue advantage of the scheme provided for in point (h). Since the filial company has no economic activity of any kind, merely collecting a dividend from CLH, there is no adequate organisation of human and material resources to manage an investee which does not carry out an economic activity. Appeals were filed by Global Noray but they were all subsequently dismissed by courts. Finally, an appeal was filed with the Supreme Court. Judgement of the Supreme Court The Supreme Court also upheld the assessment of additional withholding taxes and dismissed the appeal of Global Noray. The Court concluded that the Spanish anti-abuse clause which applies to dividend distributions by a Spanish subsidiary to its European parent company controlled, directly or indirectly, by shareholders not resident in the EU or in the EEA must be construed in such a way that the burden of proof of abuse falls on the tax authorities. However, in the case at hand the tax authorities had lifted this burden of proof. Click here for English Translation Click here for other translation Spain Supreme Court, 8 June 2023 STS_2652_2023

This case concerns the application of the beneficial ownership rule to dividends paid by a French corporation to its Luxembourg parent. The Luxembourg parent company was not considered to be the beneficial owner of the dividends because it did not carry out any activity other than the receipt and further distribution of dividends, and it distributed the full amount of the dividend to its Luxembourg parent one day after receipt; all entities in the chain of ownership were wholly owned; and the two Luxembourg entities had common directors. Click here for English translation Click here for other translation CAA de PARIS 2ème chambre, 07-12-2022 No 21PA05986

The owner of a buy sell distributor in the pharmaceutical sector had entered into a total return swap with the company and on that basis the company had deducted a commission corresponding to 85% of net profits from its taxable income. The tax authorities disallowed the deduction claiming the swap-arrangement was not at arm’s length. The commission-payments received by the owner was instead considered a non-deductible hidden distribution of profits (dividend) and a withholding tax of 15% was applied. An appeal was filed with the Administrative Tribunal. Judgement of the Administrative Tribunal The Tribunal found the appeal of “TR Swap SARL” unfounded and decided in favor of the tax authorities. Excerpt “However, the court is obliged to note that the commissions paid to Mr … on the basis of the … and corresponding to 85% of the net profits of the company … amount to … euros, … euros, … euros and … euros during the disputed tax years 2014 to 2017, i.e. a total of … euros, as shown in the management decision of 7 June 2019, these amounts not being contested by the claimant. However, the amounts made available to the companies …, respectively … by Mr … correspond, on the one hand, to a maximum annual amount of … euros, in respect of the administrative operating costs of the company … as well as, on the other hand, as it appears from the documents entitled “Margin Calculation Sheet” from April 2013 to March 2018 issued by the plaintiff, to an amount of …, within the framework of the line of credit, an amount that does not bear interest and that should be subject, according to the terms agreed between the parties concerned, to reimbursement so as to constitute only a loan. Thus, Mr …, by paying annually a maximum amount of … euros, i.e. a total maximum of … euros during the disputed years from 2014 to 2017, received, by way of commission and after the repayment of the credit line granted, a total amount of … euros, elements which allow the court to hold that the tax authorities have provided sufficient elements to hold that Mr … … was granted an advantage that exceeds a priori the market conditions between third parties, so as to cast doubt on the transactions currently at issue and reversing the burden of proof. It should then be noted that in order to establish the economically justified nature of the distribution of the net profits of the company … between Mr … and itself, the plaintiff only relied on a document describing “the method used to determine the transfer price, as well as all the data selected to calculate the transfer price over the period 2014-2018″, which however only contains interest rates provided without any other explanation and whose author is not known, so that it is devoid of any evidential value. Furthermore, in the face of the state party’s challenges, the plaintiff failed to submit to the court any element that would make it possible to establish the existence and reality of the risks allegedly weighing on Mr. … and justifying the payment of commissions to the latter according to the terms and conditions set out in the …. The Director [of the Tax Administration] was therefore right to hold that the tax office could legitimately consider that the disputed amounts paid to Mr … in the context of the … concluded with the plaintiff during the tax years 2014 to 2017 did not comply with the usual market conditions between third parties and that it thus concluded that there was a hidden distribution of profits. It follows from all of the above considerations and in the absence of any other pleas that the appeal under review must be dismissed as unfounded.” Click here for English translation Click here for other translation Luxembourg 221122 Case no 43535

The French Accor hotel group was the subject of an tax audit related to FY 2010, during which the tax authorities found that Accor had not invoiced a fee for the use of its trademarks by its Brazilian subsidiary, Hotelaria Accor Brasil, in an amount of 8,839,047. The amount not invoiced was considered a deemed distribution of profits and the tax authorities applied a withholding tax rate of 25% to the amount which resulted in withholding taxes in an amount of EUR 2.815.153. An appeal was filed by Accor with the Administrative Court. In a judgment of 7 July 2020, the Administrative Court partially discharged Accor from the withholding tax up to the amount of the application of the conventional reduced rate of 15% (related to dividends), and rejected the remainder of the claim. The Administrative Court considered that income deemed to be distributed did not fall within the definition of dividends under article 10 of the tax treaty with Brazil and could not, in principle, benefit from the reduced rate. However in comments of an administrative instruction from 1972 (BOI 14-B-17-73, reproduced in BOI-INT-CVB-BRA, 12 August 2015) relating to the Franco-Brazilian tax treaty, it was stated, that the definition of dividends used by the agreement covers “on the French side, all products considered as distributed income within the meaning of the CGI”. The Administrative Court noted that such a definition would necessarily include distributed income within the meaning of the provisions of Article 109 of the CGI”. The tax authorities appealed against this judgment. Judgement of the Administrative Court of Appeal The Court allowed the appeal of the tax authorities and set aside the judgment in which the Administrative Court had partially discharged Accor from the withholding tax to which it was subject in respect of the year 2010. “Under the terms of Article 10 of the tax treaty concluded between the French Republic and the Federative Republic of Brazil on 10 September 1971: “1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State. / 2. However, dividends may be taxed in the State in which the company paying the dividends has its tax domicile and according to the laws of that State, but the tax so charged shall not exceed 15 per cent of the gross amount of the dividends / (…) 5. (a) The term “dividend” as used in this Article means income from shares, “jouissance” shares or “jouissance” warrants, mining shares, founders’ shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate units which is assimilated to income from shares by the taxation law of the State of which the company making the distribution is resident. (…) “. It follows from these stipulations that the dividends mentioned in Article 10 of the Franco-Brazilian Convention must be defined as the income distributed by a company to its members by virtue of a decision taken by the general meeting of its shareholders or unit holders under the conditions provided for by the law of 24 July 1966, as amended, on commercial companies, which does not include income deemed to be distributed within the meaning of Article 109(1) of the French General Tax Code. Neither these stipulations, nor any other clause of the Franco-Brazilian agreement, prevent the taxation in France of income considered as distributed to Hotelaria Accor Brasil by Accor, according to French tax law, at the common law rate set, at the date of the taxation in dispute, at 25% of this income by Article 187 of the General Tax Code.” “The Accor company claims, on the basis of Article L. 80 A of the Book of Tax Procedures, of the instruction of 8 December 1972 referenced BOI n° 14-B-17-72 relating to the tax treaty concluded between France and Brazil on 10 September 1971, which provides that: “According to paragraph 5 of Article 10, the term dividends means income from shares, jouissance shares or warrants, mining shares, founders’ shares or other profit shares with the exception of debt claims and, in general, income assimilated to income from shares by the tax legislation of the State of which the distributing company is resident. / This definition covers, on the French side, all income considered as distributed income within the meaning of the Code général des Impôts (art. 10, paragraph 5b). “However, this interpretation was brought back by an instruction referenced 4 J-2-91 of July 2, 1991, published in the Bulletin officiel des impôts n° 133 of July 11, 1991, relating to the impact of international treaties on the withholding tax applicable to income distributed outside France, according to which: “the advantages which benefit [the partners and the persons having close links with the partners] and which are considered as distributed income in domestic law retain this character in treaty law when the applicable treaty refers to dividends and gives a definition similar to that of the OECD model. On the other hand, when they benefit persons other than the partners, these benefits are subject to the treaty provisions relating to “undesignated” income, i.e. income that does not fall into any of the categories expressly defined by the applicable treaty”. Annex 1 to this instruction specifically states, with regard to Brazil, that income paid to a beneficiary who is not a shareholder of the distributing company is subject to withholding tax at the ordinary law rate of 25%. These statements must be regarded as having reported, on this particular point, the administrative interpretation contained in paragraph 2351 of the instruction of 8 December 1972. In this respect, it is irrelevant that the instruction of 8 December 1972 was fully reproduced and published by the BOFIP on 12 September 2012 under the reference BOI-INT-CVB-BRA, after the tax year in question. It follows that Accor cannot claim the benefit of the reduced conventional tax rate.” Click here for English translation Click here for other translation

The Administrative Court found that a voluntary redemption of shares was not a controlled transaction covered by arm’s length provisions. A redemption is a corporation’s repurchase of all or a portion of the shares held by a shareholder at an amount not in excess of the amount stated in the articles or calculated according to a formula stated in the articles. A redemption of shares can only take place between a company and its shareholders. Hence, terms and pricing of the transaction cannot be determined based on unrelated transactions. The purpose of the redemption of shares is not to modify the amount of income achieved by the related parties by applying a non-arm’s length price. Click here for English Translation Click here for other translation Poland case I SA_Bd 30_22 - Wyrok WSA w Bydgoszczy z 2022-03-22

The companies NCL Investments Ltd and Smith & Williamson Corporate Services Ltd (the Companies) had granted its employees stock options to acquire shares in the ultimate holding company, Smith & Williamson Holdings Limited (SWHL). The companies employ staff and make those staff available to other companies in the group in return for a fee. That fee is based on the costs that the companies incur in employing the staff, marked up with a profit element. The Companies claimed deductions in the computation taxable profits. The tax authorities accepted that IFRS2 required the Companies to recognise an expense in their income statements equal to the fair value of the options, but held that the debits were inapt to affect the profits of the Companies for corporation tax purposes. These transactions were treated by IFRS2 as a capital contribution (benefit) granted by SWHL to the Companies. The Debits did not represent any cost to the Companies, nor did they anticipate or reflect an actual cost which would arise in the future. On that basis tax authorities disallowed deductions for corporate tax purposes. An appeal was filed by the companies which was allowed by the lower courts. Appeals were then filed by the tax authorities. Judgement of the Supreme Court The Supreme Court dismissed the tax authorities’ claims and decided in favour of the Companies. uksc-2020-0125-judgment

By judgment of 13 March 2020, the Provincial Administrative Court upheld the complaint filed by K.O. and revoked a decision issued by the tax authorities on the determination of the amount of the tax liability resulting from a transfer of shares between K.O. and a related party in 2016. An appeal was filed by the tax authorities with the Supreme Administrative Court in which the authorities stated that Provincial Administrative Court incorrectly had concluded that the nominal value of shares taken up by a taxpayer is not subject to market mechanisms and, therefore, the authority should not question the revenue thus generated. According to the tax authorities the taxpayer effected a transaction with a related entity of which it was the owner and determined without justification a contribution in-kind disproportionately high in relation to the shares acquired in the related entity, while the authority, taking these circumstances into account, determined a comparable uncontrolled price that the taxpayer would have obtained in exchange for the transfer of shares in I. to an unrelated entity, verifying the proportion of the distribution of the value of the non-cash contribution in line with the purpose and function of the transfer pricing provisions Judgement of the Supreme Administrative Court The court dismissed the appeal of the tax authorities and upheld the decision of the Administrative Court. Excerpts “The taxable income in the case of taking up shares in a company in exchange for a contribution in kind in 2016 was the nominal value of such shares and not their market value, determined in any way. The court of first instance rightly emphasises that the nominal value cannot be verified. This view is also confirmed by the established judicature of the Supreme Administrative Court, which may be exemplified by the judgments of this Court: of 19 April 2006, ref. no. II FSK 558/05; of 8 December 2009, ref. no. II FSK 1149/08; of 22 May 2013, ref. no. II FSK 1838/11, or the judgments quoted above concerning the issue of application of provisions on transfer prices, which is already disputed in the case.” … “If a share is taken up at a price higher than its nominal value, the surplus of the share subscription price over its nominal value is transferred to the supplementary capital. There is no doubt that in a limited-liability company reserve capital may also be created (this follows from the wording of Article 233 § 1), but the wording of Article 154 § 3 determines that at the moment of covering the share the agio must be transferred to the reserve capital, and only secondarily may it be transferred (pursuant to a separate resolution of the shareholders’ meeting) to the reserve capital in whole or in part. The share premium is permissible irrespective of whether the shares are covered by a contribution in kind or by a cash contribution. There are no legal and accounting counter-indications that a certain part of the value of the in-kind contribution made to the company should be allocated not to the share capital, but to the supplementary or reserve capital.” … “The Supreme Administrative Court sitting in judgment does not share the view expressed in the appealed judgment that in the absence of legal definitions of transfer pricing concepts, one should refer to colloquial language. The institution of transfer pricing is primarily applicable to cross-border relations. It is subject to international regulations, its application results in the necessity of adjusting income of each party to the transaction, belonging to different tax jurisdictions. Reference in previous case-law, including in the judgment under appeal, to the dictionary meaning of the Polish language and equating the concept of a ‘transaction’ with an ‘agreement’ is unsupported by the interpretation of the transfer pricing provisions. That institution applies mainly to cross-border transactions within multinational enterprises. It is permissible to refer to the meaning of colloquial language in the course of an interpretation, but only if the meaning of the words used by the legislator cannot be deduced either from legal language or from legalese. In addition, given the international character of transfer pricing, the terms related to it should be understood universally.” “The parity (proportion) of the distribution of the value of the in-kind contribution to the company’s capitals is therefore neither a financial result nor a financial indicator within the meaning of the above concepts.” … “In summary, in the opinion of the Supreme Administrative Court, the subject of transactions between related parties covered by transfer pricing in 2016 could be: tangible and intangible goods, tangible and intangible services (including financial services), joint ventures, restructuring activities as described in Chapter 5a of the Regulation of the Minister of Finance of 2009. The division of the in-kind contribution made by a natural person into the capital of the company did not constitute the subject of the transaction within the meaning of the transfer pricing regulations.” Click here for English Translation Click here for other translation II FSK 1544_20 - Wyrok NSA z 2022-02-11

Narcea Producciones y Promociones SL managed the economic rights, representation commissions and the image and TV rights of a football player. The image and TV rights were transferred to a related party free of charge. Following an audit, the tax authorities issued an assessment where profits from the transfer had been added to the taxable income based on the arm’s length principle. Not satisfied with this decision Narcea Producciones y Promociones, S.L. filed an appeal. Judgement for the Tribunal Superior The Tribunal Superior dismissed the appeal and decided in favor of the tax authorities. Excerpts: “In accordance with Article 16.1.1º and 2º and 4.1º a) of the TRLIS, related-party transactions shall be valued at market price between independent parties in conditions of free competition and this allows the tax authorities to check this valuation and make the corresponding valuation corrections with regard to transactions subject to Corporate Income Tax, Personal Income Tax and Non-Resident Income Tax, with the limit of not determining a higher income than that effectively derived from the transaction for all the persons or entities that have carried it out and the value that is set is binding for the former in relation to the rest of the related persons or entities. In this case there has been a lower taxation than that which would have resulted from valuing the transaction at market price, considering that there was no remuneration whatsoever by the company to the member for the transfer of his image and TV rights compared to the value paid by the football club to the plaintiff company for said transfer. In relation to the valuation itself, among the means provided for this purpose by the Law, is the method of the free purchase price, article 4.1º.a) of the TRLIS, which in this case has been applied by the Inspectorate, taking as the value of the transaction the amounts received for the transfer of the image and TV rights, deducting the expenses necessary to obtain them, taking into account the percentage represented by the amounts paid by Hercules for the transfer with respect to the total income obtained by the company and the total expenses. The Inspectorate, in our opinion correctly, after analysing the peculiarities of the service provided, which takes into account the personal qualities of the partner and is the reason why the service is contracted, the assumption by the partner of the service and of the main risks and the characteristics of the market, applies the method provided for in article 16.4.1º. a) of the TRLIS, taking as market value between independent parties and in free competition the amounts received by the company that were agreed with Hercules for the transfer of the image and TV rights of the professional footballer partner, corrected with the deduction of the expenses that were necessary to obtain them, duly accredited, without the presumption of having valued the operation at market price being applicable in this case, as the requirements established in article 16. 6 of the RIS, as the company lacked the material and human resources to provide the services beyond the shareholder and did not remunerate the latter in any amount for such a transfer. This valuation method as applied by the tax authorities complies with the OECD transfer pricing guidelines of 22/0/2010, as the characteristics of the services, the functions and risks assumed by the parties, the contractual terms of the transactions and the economic circumstances of the market were taken into account. According to the appellant, the valuation method applied does not satisfy the comparability requirements of the method of Article 16(4)(a), because no basis for comparison is taken, but it is the value agreed between independent parties consisting of the amount which each year the football club was prepared to pay for the transfer of the image and TV rights of the footballer, a single person for that purpose without any comparable. Furthermore, the legal qualification made by the Inspectorate of the business carried out as a related transaction is correct as has been seen for the purposes of Article 13 of Law 58/2003 and it was not necessary to resort to the figure of the relative simulation of Article 16 of the same Law, which requires an appearance of a business other than the real one and wanted by the parties, nor the conflict in the application of the rule, whose requirements are not met given the wording of Article 15 of the same Law, which requires that the transactions are notoriously artificial or improper for the result obtained and that they do not result in relevant legal or economic effects other than the fiscal savings and the effects of the usual or proper transactions.” Click here for English translation Click here for other translation Spain vs Promo STSJ_M_122_2022

An assessment was issued for FY 2017, whereby additional income tax was imposed on “GSS Ltd” in the amount of 843.344,38 €, plus a fine of 421.672,19 €, i.e. a total amount of 1.265.016,57 €. Various adjustments had been made and among them interest rates on intra group loans, royalty payments, management fees, and losses related to disposal of shares. Not satisfied with the assessment, an appeal was filed by “GSS Ltd.” Judgement of the Tax Court The court dismissed the appeal of “GSS Ltd.” and upheld the assessment of the tax authorities Excerpts “Because only a few days after the entry of the holdings in its books, it sold them at a price below the nominal value of the companies’ shares, which lacks commercial substance and is not consistent with normal business behaviour. Since it is hereby held that, by means of the specific transactions, the applicant indirectly wrote off its unsecured claims without having previously taken appropriate steps to ensure its right to recover them, in accordance with the provisions of para. 4 of Article 26 of Law 4172/2013 and POL 1056/2015. Because even if the specific actions were suggested by the lending bank Eurobank, the applicant remains an independent entity, responsible for its actions vis-à-vis the Tax Administration. In the absence of that arrangement, that is to say, in the event that the applicant directly recognised a loss from the write-off of bad debts, it would not be tax deductible, since the appropriate steps had not been taken to ensure the right to recover them. Because on the basis of the above, the audit correctly did not recognise the loss on sale of shareholdings in question. The applicant’s claim is therefore rejected as unfounded.” “Since, as is apparent from the Audit Opinion Report on the present appeal to our Office, the audit examined the existence or otherwise of comparable internal data and, in particular, examined in detail all the loan agreements submitted by the applicant, which showed that the interest rates charged to the applicant by the banks could not constitute appropriate internal comparative data for the purpose of substantiating the respective intra-group transactions, since the two individual stages of lending differ as to the nature of the transactions. (a) the existence of contracts (the bank loans were obtained on the basis of lengthy contracts, unlike the loans provided by the applicant for which no documents were drawn up, approved by the Board of Directors or general meetings), (b) the duration of the credit (bank loans specify precisely the time and the repayment instalments, unlike the applicant’s loans which were granted without a specific repayment schedule), (c) the interest rate (bank loans specify precisely the interest rate on the loan and all cases where it changes, unlike the applicant’s loans, (d) the existence of collateral (the bank loans were granted with mortgages on all the company’s real estate, with rental assignment contracts in the case of leasing and with assignment contracts for receivables from foreign customers (agencies), unlike the applicant’s loans which were granted without any collateral), (e) the size of the lending (the loans under comparison do not involve similar funds), (f) security conditions in the event of non-payment (the bank loans specified precisely the measures to be taken in the event of non-payment, unlike the applicant’s loans, for which nothing at all was specified), (g) the creditworthiness of the borrower (the banks lent to the applicant, which had a turnover, profits and real estate, unlike the related companies, most of which had no turnover, high losses and negative equity), (h) the purpose of the loan (83 % of the applicant’s total lending was granted to cover long-term investment projects as opposed to loans to related parties which were granted for cash facilities and working capital). Since, in the event that the applicant’s affiliated companies had made a short-term loan from an entity other than the applicant (unaffiliated), then the interest rate for loans to non-financial undertakings is deemed to be a reasonable interest rate for loans on mutual accounts, as stated in the statistical bulletin of the Bank of Greece for the nearest period of time before the date of the loan (www.bankofgreece.gr/ekdoseis-ereyna/ekdoseis/anazhthsh- ekdosewn?types=9e8736f4-8146-4dbb-8c07-d73d3f49cdf0). Because the work of this audit is considered to be well documented and fully justified. Therefore, the applicant’s claim is rejected as unfounded.” Click here for English translation Click here for other translation Greece 4450-2021

In 2007, the majority of the shares in the company Villa d’Este S.p.A. (53% of the capital) was held by a Luxembourg company Regina S.A. of which Felofin S.p.A. was a shareholder. Three “families” each held 29.41% of Regina S.A, for a total of 88.23% (while the remaining 11.77% was held by three other minority shareholders), and they also held direct stakes in the capital of Villa d’Este S.p.A. (Felofin S.p.A., in particular, held 5.09% of the shares in Villa d’Este S.p.A.). In 2007, Felofin S.p.A. sold its 5.09% stake in Villa D’Este S.p.A. to Finanziaria Lago S.p.A. for a total of 303,369 shares and a consideration of Euro 8,565,000.00, i.e. at the price of € 28.23 per share. On the same date, Regina S.A. sold the majority shareholding (53%) in Villa d’Este S.p.A. to Finanziaria Lago S.p.A (holding company of the Fontana family, which in the meantime had left the shareholding structure of Regina S.A.). The sale of the shareholding provided for the payment of € 240,000,000.00 (price per share equal to € 76.26). In 2012, the tax authorities determined that the capital gain in Felofin S.p.A. from sale of the shares in Villa d’Este S.p.A in FY 2007 should have been € 9,781,785.00 higher and issued an assessment. The additional capital gain had been calculated based on a “normal value” of the shareholding which, according to the Office, would have been € 61.00 per share. The “normal value” of €61.00 per share had been obtained by reducing the price agreed (€76.26) by Regina S.A. by a percentage equal to 25% which, according to the tax authorities, would usually be recognised as a “majority premium” for shareholders who transfer a controlling stake. Felofin S.p.A. appealed against this tax assessment to the Varese Provincial Tax Commission, requesting its annulment. The Tax Commission of the Province of Varese upheld the appeal and cancelled the notice of assessment. This decision was then appealed to the Regional Tax Commission by the tax authorities The Regional Tax Commission upheld the appeal filed by the Tax authorities and set aside the decision of the Provincial Tax Commission. The Court stated that it appeared “improbable and uneconomic that Felofin S.p.A. could sell its shareholding to Finanziaria Lago S.p.A. at the price of Euro 28.23 per share, i.e. at a price three times lower (Euro 48.03) than the price agreed on the same day by Regina S.A. of Euro 76.26. Such sale cannot appear to represent a “normal value”, given that, contrary to what was held by the first judges, the company Felofin S.p.A., with the exit from the shareholding of Regina S.A., held 41.67% and not 29.41% in Villa d’Este S.p.A. This decision was then appealed to the High court by Felofin S.p.A. Judgement of the High Court The Court upheld the decision of the Regional Tax Commission and dismisses the appeal of Felofin S.p.A. Excerpt “In the present case, as we have seen, the appellate court held that the Revenue Agency’s analytical assessment was legitimately founded, in light of the significant difference in the price of the shares sold to the financial company Lago S.p.A., which was excessive considering that the appellant, at the time of the sale to the finance company of the portion of shares it held directly in Villa D’Este S.p.A., did not have to pay, like any other minority shareholder, the price imposed by Finanziaria Lago S.p.A..” The judgement on the uneconomic nature of the sale and the correctness of the value attributed to the shares sold is also left exclusively to the judge of merit, except for the examination of the failure to examine a decisive fact, which is the subject of discussion between the parties, pursuant to Article 360, first paragraph, no. 5, of the Code of Civil Procedure.” “The fourth plea in law, alleging failure to state reasons on account of failure to examine decisive facts, which were the subject of discussion between the parties, and incorrect assessment of the relevant documents, is likewise inadmissible. In fact, “the complaint for failure to state reasons with regard to the use or non-use of presumptive reasoning cannot be limited to affirming a different belief from that expressed by the judge of merit, but must bring out the absolute illogicality and inconsistency of the decisive reasoning, it being excluded that the mere failure to assess a circumstantial element can give rise to the fault of failure to examine a decisive point” (Cass. Ord. no. 5279 of 2020). In the present case, therefore, the plea is inadmissible, since the appellant complains of the failure to examine circumstantial evidence, such as the strained relations within the corporate structure, the advantageousness of the sale in relation to the original purchase price of the shares and the non-applicability of the Pex regime to the sale of the direct minority shareholding only, considered by the appellate court to be recessive in comparison with the evidence put forward by the office as the basis for the assessment and, in any event, lacking adequate proof.” Click here for English translation Click here for other translation ITA 20211123

A Spanish subsidiary – SGL Carbon Holding SL – had significant financial expenses derived from an intra-group loan granted by the parent company for the acquisition of shares in companies of the same group. The taxpayer argued that the intra-group acquisition and debt helped to redistribute the funds of the Group and that Spanish subsidiary was less leveraged than the Group as a whole. The Spanish tax authorities found the transactions lacked any business rationale other than tax avoidance and therefor disallowed the interest deductions. The Court of appeal upheld the decision of the tax authorities. The court found that the transaction lacked any business rationale and was “fraud of law” only intended to avoid taxation. The Court also denied the company access to MAP on the grounds that Spanish legislation determines: The decision was appealed by SGL Carbon to the Supreme Court. Judgement of the Supreme Court The Supreme Court dismissed the appeal of SGL CARBON and upheld the judgment. Click here for English translation Click here for other translation Spain STS_3572_2021

The controversy in the case of India vs Concentrix Services Netherlands B.V. & Optum Global Solutions International Netherlands B.V., was the rate of withholding tax to be applied on dividends paid by the Indian subsidiaries (Concentrix Services India Private Limited & Optum Global Solutions India Private Limited) to its participating (more than 10% ownership) shareholders in the Netherlands. The shareholders in the Netherlands held that withholding tax on dividends should be applied by a rate of only 5%, whereas the Indian tax authorities applied a rate of 10%. The difference in opinions relates to interpretation of a protocol to the tax treaty between India and the Netherlands containing an most favoured nation clause (MFN clause). MFN clauses provides that the parties to the treaty (here India and the Netherlands) are obliged to provide each other with a treatment no less favourable than the treatment they provide under other treaties in the areas covered by the MFN clause. The MFN Clause in the relevant protocol to the tax treaty between India and the Netherlands had the following wording “2. If after the signature of this convention under any Convention or Agreement between India and a third State which is a member of the OECD India should limit its taxation at source on dividends, interests, royalties, fees for technical services or payments for the use of equipment to a rate lower or a scope more restricted than the rate or scope provided for in this Convention on the said items of income, then as from the date on which the relevant Indian Convention or Agreement enters into force the same rate or scope as provided for in that Convention or Agreement on the said items of income shall also apply under this Convention.” More favourable tax treaties in regards of withholding tax had later been signed between India and #Slovenia, #Lithuania, and #Columbia. However, none of these countries were OECD members at the time where the Tax Treaties with India were entered. Concentrix Services Netherlands B.V. & Optum Global Solutions International Netherlands B.V. contended that since India had entered into Tax Treaties with other countries which were now members of OECD, the lower rate of 5% withholding tax in these treaties should automatically apply to the Tax Treaty between India and the Netherlands. According to the Tax Authorities since none of the aforementioned countries were members of the OECD, at the date where the tax treaties with India were signed, the MFN clause of the protocol appended to the tax treaty between India and the Netherlands would not apply in regards to these tax treaties. Slovenia, Lithuania, and Columbia only later became members of the OECD. Judgement of the Delhi High Court The High Court decided in favour of Concentrix Services Netherlands B.V. & Optum Global Solutions International Netherlands B.V. Hence, withholding tax on dividends paid by the Indian subsidiaries to its (participating) shareholders in the Netherlands was limited to 5%. Excerpts from the conclusion of the High Court “In our view, the word “is” describes a state of affairs that should exist not necessarily at the time when the subject DTAA was executed but when a request is made by the taxpayer or deductee for issuance of a lower rate withholding tax certificate under Section 197 of the Act. .” “Clearly, the Netherlands has interpreted Clause IV (2) of the protocol appended to the subject DTAA in a manner, indicated hereinabove by us, which is, that the lower rate of tax set forth in the India-Slovenia Convention/DTAA will be applicable on the date when Slovenia became a member of the OECD, i.e., from 21.08.2010, although, the Convention/DTAA between India and Slovenia came into force on 17.02.2005.” “However, the case before us is one where the other contracting State, i.e., the Netherlands has interpreted Clause IV (2) in a particular way and therefore in our opinion, in the fitness of things, the principle of common interpretation should apply on all fours to ensure consistency and equal allocation of tax claims between the contracting States.” India-vs-Concentrix-Services-Optum-Global-Solutions-Netherlands-HC-decision-22-03-21

Société Générale S.A. had paid for costs from which its subsidiaries had benefited. The costs in question was not deducted by Société Générale in its tax return, but nor had they been considered distribution of profits subject to withholding tax. Following an audit for FY 2008 – 2011 a tax assessment was issued by the tax authorities according to which the hidden distribution of profits from which the subsidiaries benefited should have been subject to withholding tax in France Société Générale held that the advantage granted by the parent company in not recharging costs to the subsidiaries resulted in an increase in the valuation of the subsidiaries. It also argued that the advantages in question were not “hidden” since they were explicitly mentioned in the documents annexed to the tax return By judgment of 11 October 2018, the court of first instance discharged the withholding taxes as regards the absence of re-invoicing of costs incurred on behalf of the subsidiaries located in Mauritania, Burkina Faso and Benin. Judgement of the Court The Administrative Court of Appeal decided partially in favour of the tax authorities and partially in favour of Société Générale. It discharged Société Générale from withholding taxes relating to non-deductible expenses called “remuneration of DeltaCrédit’s managers” and to the costs incurred on behalf of its Moldovan and Georgian subsidiaries based on an interpretation of the articles on dividends in the relevant tax treaties. Excerpts “…Société Générale did not re-invoice “expenses borne by the head office for the subsidiaries”, expressly mentioned as such in the tables No. 2058 A of non-deductible expenses appended to its returns. Société Générale also assumed the costs of “personnel seconded to foreign subsidiaries”, the “remuneration of the managers of [its Russian subsidiary] Deltacrédit”, and, as mentioned in the previous point, “ITEC transfer prices”, which it spontaneously reintegrated into its taxable income, thus acknowledging the non-deductibility of these expenses. These facts reveal that Société Générale has incurred costs that are normally borne by its foreign subsidiaries. As a result, Société Générale is presumed to have made a transfer of profits to a company located outside France, within the meaning of the aforementioned provisions of Article 57 of the General Tax Code. It is therefore incumbent on it to prove that this transfer involved sufficient consideration for it and thus had the character of an act of normal commercial management.” “In this case, with regard to the “expenses borne by the head office for foreign subsidiaries”, the cost of “personnel seconded to foreign subsidiaries”, and “ITEC transfer prices”, the entries in the tables of non-deductible expenses, which do not specify the precise nature of the benefits granted, nor the beneficiary companies, do not in themselves reveal the existence of the gifts granted. On the other hand, the non-accounting mention made by Société Générale, in Table 2058 A of its income tax return, of the benefit granted to its Russian subsidiary DeltaCrédit by paying the remuneration of its managers, reveals both the purpose of the expense and its beneficiary. This advantage could not therefore be considered as a hidden advantage within the meaning of the provisions of Article 111c of the General Tax Code.” “Lastly, even though no financial transfer was made, the costs unduly borne lead to disinvestment for the company which bore them and to distributed income for the company which benefited from them. It follows that, in terms of French tax law, Société Générale is only entitled to argue that the Montreuil Administrative Court was wrong to reject its request for a discharge in respect of the non-deductible charges referred to as “remuneration of DeltaCrédit’s directors” ” Under Article 7 of the Convention between France and the former USSR, applicable to the income at issue: “1. Dividends paid by a resident of a State to a resident of the other State may be taxed in the first State. However, the tax so charged shall not exceed 15 per cent of the gross amount of such dividends. 2. The term “dividends” as used in this Article means income from shares as well as other income which is subjected to the treatment of income from shares by the laws of the State of which the person making the distribution is a resident. “These stipulations do not cover income deemed to be distributed by virtue of the provisions of Article 111 c) of the General Tax Code which is not subject to the same regime as income from shares. Société Générale is therefore entitled to argue that this income was not taxable in France, pursuant to Article 12 of the same agreement, which provides that “income not listed in the preceding articles (…) received by a resident of a State and arising from sources in the other State shall not be taxable in that other State. “.” “Under the terms of Article 13 of the Franco-Mauritanian, Franco-Beninese and Franco-Burkinabe tax treaties: “income from securities and similar income (income from shares, founders’ shares, interest and limited partnership shares, interest from bonds or any other negotiable debt securities) paid by companies (…) having their tax domicile in the territory of one of the Contracting States may be taxed in that State”. These stipulations, which refer only to the income from securities and similar income they list, do not concern income deemed to be distributed within the meaning of Article 111 c) of the General Tax Code. The Minister is therefore not entitled to argue that the first judges wrongly discharged Société Générale from the withholding taxes applied to the benefits granted to its subsidiaries located in Mauritania, Benin and Burkina Faso, which were not taxable in France.” Click here for English translation Click here for other translation CAA de VERSAILLES, 1ère chambre, 09_02_2021, 18VE04115-19VE00405

Société Générale S.A. had paid for costs from which its subsidiaries had benefited. The costs in question was not deducted by Société Générale in its tax return, but nor had they been considered distribution of profits subject to withholding tax. Following an audit for FY 2008 – 2011 a tax assessment was issued by the tax authorities according to which the hidden distribution of profits from which the subsidiaries benefited should have been subject to withholding tax in France Société Générale held that the advantage granted by the parent company in not recharging costs to the subsidiaries resulted in an increase in the valuation of the subsidiaries. It also argued that the advantages in question were not “hidden” since they were explicitly mentioned in the documents annexed to the tax return By judgment of 11 October 2018, the court of first instance discharged the withholding taxes as regards the absence of re-invoicing of costs incurred on behalf of the subsidiaries located in Mauritania, Burkina Faso and Benin. Judgement of the Court The Administrative Court of Appeal decided partially in favour of the tax authorities and partially in favour of Société Générale. It discharged Société Générale from withholding taxes relating to non-deductible expenses called “remuneration of DeltaCrédit’s managers” and to the costs incurred on behalf of its Moldovan and Georgian subsidiaries based on an interpretation of the articles on dividends in the relevant tax treaties. Excerpts “…Société Générale did not re-invoice “expenses borne by the head office for the subsidiaries”, expressly mentioned as such in the tables No. 2058 A of non-deductible expenses appended to its returns. Société Générale also assumed the costs of “personnel seconded to foreign subsidiaries”, the “remuneration of the managers of [its Russian subsidiary] Deltacrédit”, and, as mentioned in the previous point, “ITEC transfer prices”, which it spontaneously reintegrated into its taxable income, thus acknowledging the non-deductibility of these expenses. These facts reveal that Société Générale has incurred costs that are normally borne by its foreign subsidiaries. As a result, Société Générale is presumed to have made a transfer of profits to a company located outside France, within the meaning of the aforementioned provisions of Article 57 of the General Tax Code. It is therefore incumbent on it to prove that this transfer involved sufficient consideration for it and thus had the character of an act of normal commercial management.” “In this case, with regard to the “expenses borne by the head office for foreign subsidiaries”, the cost of “personnel seconded to foreign subsidiaries”, and “ITEC transfer prices”, the entries in the tables of non-deductible expenses, which do not specify the precise nature of the benefits granted, nor the beneficiary companies, do not in themselves reveal the existence of the gifts granted. On the other hand, the non-accounting mention made by Société Générale, in Table 2058 A of its income tax return, of the benefit granted to its Russian subsidiary DeltaCrédit by paying the remuneration of its managers, reveals both the purpose of the expense and its beneficiary. This advantage could not therefore be considered as a hidden advantage within the meaning of the provisions of Article 111c of the General Tax Code.” “Lastly, even though no financial transfer was made, the costs unduly borne lead to disinvestment for the company which bore them and to distributed income for the company which benefited from them. It follows that, in terms of French tax law, Société Générale is only entitled to argue that the Montreuil Administrative Court was wrong to reject its request for a discharge in respect of the non-deductible charges referred to as “remuneration of DeltaCrédit’s directors” ” Under Article 7 of the Convention between France and the former USSR, applicable to the income at issue: “1. Dividends paid by a resident of a State to a resident of the other State may be taxed in the first State. However, the tax so charged shall not exceed 15 per cent of the gross amount of such dividends. 2. The term “dividends” as used in this Article means income from shares as well as other income which is subjected to the treatment of income from shares by the laws of the State of which the person making the distribution is a resident. “These stipulations do not cover income deemed to be distributed by virtue of the provisions of Article 111 c) of the General Tax Code which is not subject to the same regime as income from shares. Société Générale is therefore entitled to argue that this income was not taxable in France, pursuant to Article 12 of the same agreement, which provides that “income not listed in the preceding articles (…) received by a resident of a State and arising from sources in the other State shall not be taxable in that other State. “.” “Under the terms of Article 13 of the Franco-Mauritanian, Franco-Beninese and Franco-Burkinabe tax treaties: “income from securities and similar income (income from shares, founders’ shares, interest and limited partnership shares, interest from bonds or any other negotiable debt securities) paid by companies (…) having their tax domicile in the territory of one of the Contracting States may be taxed in that State”. These stipulations, which refer only to the income from securities and similar income they list, do not concern income deemed to be distributed within the meaning of Article 111 c) of the General Tax Code. The Minister is therefore not entitled to argue that the first judges wrongly discharged Société Générale from the withholding taxes applied to the benefits granted to its subsidiaries located in Mauritania, Benin and Burkina Faso, which were not taxable in France.” Click here for English translation Click here for other translation CAA de VERSAILLES, 1ère chambre, 09_02_2021, 18VE04115-19VE00405

Redington India Limited (RIL) established a wholly-owned subsidiary Redington Gulf (RG) in the Jebel Ali Free Zone of the UAE in 2004. The subsidiary was responsible for the Redington group’s business in the Middle East and Africa. Four years later in July 2008, RIL set up a wholly-owned subsidiary company in Mauritius, RM. In turn, this company set up its wholly-owned subsidiary in the Cayman Islands (RC) – a step-down subsidiary of RIL. On 13 November 2008, RIL transferred its entire shareholding in RG to RC without consideration, and within a week after the transfer, a 27% shareholding in RC was sold by RG to a private equity fund Investcorp, headquartered in Cayman Islands for a price of Rs.325.78 Crores. RIL claimed that the transfer of its shares in RG to RC was a gift and therefore, exempt from capital gains taxation in India. It was also claimed that transfer pricing provisions were not applicable as income was exempt from tax. The Indian tax authorities disagreed and found that the transfer of shares was a taxable transaction, as the three defining requirements of a gift were not met – that the transfer should be (i) voluntary, (ii) without consideration and that (iii) the property so transferred should be accepted by the donee. The tax authorities also relied on the documents for the transfer of shares, the CFO statement, and the law dealing with the transfer of property. The arm’s length price was determined by the tax authorities using the comparable uncontrolled price method – referring to the pricing of the shares transferred to Investcorp. In the tax assessment, the authorities had also denied deductions for trademark fees paid by RIL to a Singapore subsidiary for the use of the “Redington” name. The tax authorities had also imputed a fee for RIL providing guarantees in favour of its subsidiaries. RIL disagreed with the assessment and brought the case before the Dispute Resolution Panel (DRP) who ruled in favour of the tax authorities. The case was then brought before the Income Tax Appellate Tribunal (ITAT) who ruled in favour of RIL. ITAT’s ruling was then brought before the High Court by the tax authorities. The decision of the High Court The High Court ruled that transfer of shares in RG by RIL to its step-down subsidiary (RC) as part of corporate restructuring could not be qualified as a gift. Extraneous considerations had compelled RIL to make the transfer of shares, thereby rendering the transfer involuntary. The entire transaction was structured to accommodate a third party-investor, who had put certain conditions even prior to effecting the transfer. According to the court, the transfer of shares was a circular transaction put in place to avoid payment of taxes. “Thus, if the chain of events is considered, it is evidently clear that the incorporation of the company in Mauritius and Cayman Islands just before the transfer of shares is undoubtedly a means to avoid taxation in India and the said two companies have been used as conduits to avoid income tax” observed the Court. The High Court also disallowed deductions for trademark fees paid by RIL to a Singapore subsidiary. The court stated it was illogical for a subsidiary company to claim Trademark fee from its parent company (RIL), especially when there was no documentation to show that the subsidiary was the owner of the trademark. It was also noted that RIL had been using the trademark in question since 1993 – long before the subsidiary in Singapore was established in 2005. Regarding the guarantees, the Court concluded these were financial services provided by RIL to it’s subsidiaries for which a remuneration (fee/commission) was required. India vs Ms Redington (India) Limited 10 Dec 2020 Madras High Court FY 09 10

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 issued by the tax authorities. In 2016, the Tax Revenue Appeals Tribunal upheld the assessment issued by the tax authorities. AFRICAN BARRICK GOLD then filed an appeal to the Court of Appeal. Judgement of the Court of Appeal The Court dismissed the appeal of AFRICAN BARRICK GOLD and upheld the assessment issued by the tax authorities. Excerpts “In light of our earlier finding that the appellant is a resident company with sources of mining income from its mining entities in Tanzania, this ground need not detain us long. We shall dismiss this ground because assignment of TIN and VRN registration numbers are legal consequences of the appellant’s tax residence in Tanzania. From the premise of our conclusion that the appellant became a resident company from 11th March 2010 when it was issued with a Certificate of Compliance for purposes of registering its place of business in Tanzania, the appellant had statutory obligation to apply to the respondent for a tax identification number within 15 days of beginning to carry on the business.” “We shall not trouble ourselves with the way the Board and the Tribunal interchangeably discussed “tax avoidance” and “tax evasion” while these courts were determining the salient question as to whether the dividend the appellant received from its Tanzanian entities and which was paid out to the appellant’s shareholders abroad was subject to withholding tax. As we pointed earlier, neither the Board nor the Tribunal made any actionable criminal finding against the appellant in respect of tax evasion. Otherwise, we agree with Mr. Tito in his submission that since the dividend which the appellant paid to its foreign shareholders had a source in the United Republic in terms of section 69(a) of the ITA 2004, the appellant had a statutory duty under section 54(1)(a) of the ITA 2004 to withhold tax from such dividends. Because the appellant failed to withhold that tax, the appellant is liable to pay that withholding tax in terms of sections 82(l)(a)(b) and 84(3) of the ITA 2004.” Click here for translation ocr-civil-appeal-no-144-2018-african-barrick-gold-plcappellant-versus-commissioner-general-tra-respo

JSC Atomredmetzolo (ARMZ) is a Company incorporated in the Russian Federation dealing in uranium mining industry. Late 2010, the Company purchased from the Australia Stock Exchange all shares in Mantra Resources Limited (Mantra Resources) a company incorporated in Australia and owner of Mkuju River Uranium project located Tanzania. Following the acquisition of all the issued shares in Mantra Australia, JSC Atomredmetzolo became a sole registered and beneficiary owner of shares in Mantra Australia making Mantra Australia a wholly owned subsidiary of JSC Atomredmetzolo. Hence Mantra Tanzania and Mkuju River Uranium Project were placed under the control of JSC Atomredmetzolo who had a majority 51.4% shareholding in a Canadian Uranium exploration and mining company named Uranium One Inc. Thus, JSC Atomredmetzolo opted to invest in the Mkuju River Uranium project through Uranium One based in Canada. Subsequently, JSC Atomredmetzolo entered into a put/call option agreement with Uranium One, pursuant to which JSC Atomredmetzolo sold and transferred the shares it had acquired in Mantra Australia to Uranium One for a consideration equal to JSC Atomredmetzolo acquisition costs of the scheme shares. This was viewed by the tax authorities as acquisition of shares by JSC Atomredmetzolo in Mantra Australia which resulted into acquisition of interest in Mantra’s Core asset, that is, Mkuju River Uranium project located in Tanzania, because the subsequent sale and transfer of the said shares to Uranium One was a realization of interest in the Mkuju River Uranium project by JSC Atomredmetzolo. In that regard, the tax authorities concluded that, the said transaction was subject to taxation in Tanzania. As such, the tax authorities in November 2011 notified JSC Atomredmetzolo on existence of tax liability of USD 196,000,000/= assessed on investment income because the income earned has a source in Tanzania since the transaction involved a domestic asset. In addition, on account of conveyance of the domestic asset in question, the tax authorities also required JSC Atomredmetzolo to pay Stamp Duty which was assessed at USD 9,800,000. This made JSC Atomredmetzolo lodge two appeals to the Tax Revenue Appeals Board contesting the liability to pay the taxes. In a judgment handed down on 15th May 2013, the Board determined in favour of JSC Atomredmetzolo. This decision was later upheld by the Tax Revenue Appeals Tribunal in its ruling of december 2013. The tax authorities then brought to the Court of appeal. Judgement of the Court of Appeal. The Court nullified the decisions from the previous instances, due to lack of legal jurisdiction. Excerpt “In the case at hand, since the appellant’s letter in question constituted notice on existence of liability to pay income tax to the respondent, it was illegal to seek remedy of an appeal before the Board which is statutorily barred to entertain appeals relating to tax assessment under the provisions of section 7A of the TRAA. Therefore, the Board had no jurisdiction and it embarked on a nullity to entertain the respondent’s appeals. Similarly, it was illegal for the Board to entertain the respondent’s appeal on stamp duty because the respective tax dispute resolving mechanism initially requires the dispute to be adjudicated by the Stamp Duty Officer and the appeal therefrom lies to the Commissioner and finally a reference may be made to the Board. Thus, as it was the case on the income tax dispute, the Board illegally entertained the respondent’s appeal on stamp duty and what ensued thereafter is indeed a nullity. We are fortified in that account because jurisdiction is a creature of statute and as such, it cannot be assumed or exercised on the basis of the likes and dislikes of the parties.” “On the way forward, we invoke our revisional jurisdiction under the provisions of section 4 (3) of the AJA to nullify the proceedings and judgments of the Board and the Tribunal because the first appeal stemmed from null proceedings.” Click here for translation consolidated-civil-appeals-nos-78-79-2018-commissioner-general-tanzania-revenue-authorityappellant

For FY 2007 Atlantique Négoce declared having paid dividends to its Luxembourg parent company, Enka, but the tax authorities found that it had not been proven that the Luxembourg parent company was the actual beneficial owner of the dividends. On that basis a claim for withholding tax on the dividends was issued. Judgement of the Conseil d’Etat. The court upheld the decision of the tax authorities and dismissed the appeal of Atlantique Négoce. It follows from the grounds of the judgment of the Court of Justice of the European Union (CJEU) of 26 February 2019, Skatteministeriet v T Danmark and Y Denmark Aps (aff. C-116/16 and C 117/16, paragraph 113) that the status of beneficial owner of the dividends must be regarded as a condition for benefiting from the exemption from withholding tax provided for in Article 5 of Directive 90/435/EEC of 23 July 1990. “The documents in the file submitted to the court of first instance show that the administration contested before the court the fact that the Luxembourg parent company Enka was the actual beneficiary of the dividends in question, in the absence of any element, such as a bank identity statement, establishing that this company was indeed the holder of the bank account opened in Switzerland into which the dividends were paid. In holding, after a sovereign assessment free of distortion, that none of the documents produced by the applicants was of such a nature as to establish that this company had apprehended the dividends at issue paid in 2007, the court did not disregard the rules on the allocation of the burden of proof or commit an error of law.” Click here for English translation Click here for other translation Conseil d_État, 9ème - 10ème chambres réunies, 05_06_2020

Key End Es Energy concluded a share purchase and sale agreement of 20.12.2012 with a related party LUKERG BULGARIA GmbH, under which KEY END EU ENERGY transferred to its parent company LUKERG BULGARIA GmbH the ownership of the shares in eight subsidiaries. The subsidiaries owned a total of 15 wind turbines for the production of electricity and operated them on the Bulgarian energy market. According to the Purchase and Sale Agreement the price of the shares were BGN 20 935 937,75. Following an audit of the transaction the tax authorities issued an assessment of additional taxable income for FY 2012 related to the sale of shares. According to the authorities the arm´s length value of the shares were BGN 38 609 215,00. This value was determined based on a CUP/CUT method. As support/sanity check for the valuation the DCF method and the DuPont Analysis was also applied. The additional value was added to the taxable income of Key End Es Energy. A complaint was filed by Key End Es Energy with the Administrative court where, by decision No. 5477 of 09.09.2019, the assessment was annulled. The tax authorities then filed appel with the Supreme Administrative Court. In the appeal the tax authorities argued that the court erred in ignoring the valuation of the independent valuer, Raiffeisen Investment AG, on which the transaction was based and erred in holding that the agreed price was a market price. Further, it is submitted that the court erred in holding that the market price of the controlled sale and purchase transaction dated 20.12.2012 was as set out in the 2013 Share Transfer Pricing Documentation prepared by KPMG Bulgaria after the 20.12.2012 transaction. It also contested the court’s conclusions that the expert prepared in the course of the audit only formally used the CUP/CUT method, while in reality it used the discounted cash flow method, which was not provided for in Regulation No. N-9 of 14.08.2006. In view of the tax authorities, the priority should not be the formal application of the transfer pricing methods in Regulation N-9/2006, but instead arriving at actual values by means of the mechanisms of the various methods. Judgement of the Supreme Administrative Court The Supreme Administrative Court set aside the decision of the Administrative Court and remanded the case to another panel of the court of first instance for reconsideration. Excerpt “Since the burden of proving the substantive grounds for the issuance of the RA rests with the revenue administration, in the presence of a material difference between the conclusions of the valuation experts appointed in the course of the audit and the court proceedings, the defendant in the first instance proceedings has requested by an application filed in open court on 21.02.2018 the appointment of a valuation expert, which, having familiarized itself with all the evidence in the case, to give a conclusion under item 13 of the application in three options for the market. By admitting only the appellant’s questions and refusing to admit the questions formulated by the respondent in the proceedings at first instance to the appointed expert examination by order of 18.04.2018, the court violated a fundamental principle under Article 8(1) of the APC – the arm’s length principle and at the same time limited the right of the respondent to engage evidence in support of the thesis it defends. The infringement constitutes a material breach of the rules of court procedure and a ground for cassation under Article 209(3) of the Code of Civil Procedure and, in so far as the dispute has not been clarified from the factual point of view, the case must be referred back to another formation of the court of first instance. In the new hearing, the court should appoint a expert, which independently, using one of the applicable rules under Regulation No H-9 of 14.08.2006. The court should, in accordance with the provisions of Article N-9 of the Law on the procedure and methods for the application of methods for determining market prices, derive the market value of the shares of the eight subsidiaries owned by the audited entity, the subject of the sale both under the transaction of 20.12.2012 between related parties and as part of the subject of the sale under the transaction of 14.06.2012 concluded between unrelated parties.” Click here for English Translation Click here for other translation ulgarie vs KEY END ES ENERGY April 2020 SAC case no 4972

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 lack of substance in the Irish company. “…the circumstantial evidence suggests with a probability bordering on certainty that the complainant and the other companies involved wanted to secure a tax saving for themselves with the transfer of the shareholding in the subsidiary and the subsequent distribution of a dividend to the complainant, which they would not have been entitled to under the previous group structure. The economic objective asserted by the complainant – locating the research and development function, including the shareholding in the subsidiary, under the Irish grandparent company responsible for overseeing the licensing agreements – does not explain why the complainant went heavily into debt in order to ultimately use this borrowed capital to buy the subsidiary’s liquid funds, which were subject to latent withholding tax. It would have been much simpler for all parties involved and would have led to the same economic result if the subsidiary had instead distributed these funds to the sister company immediately before the transfer of the shareholding and the sister company had thus recorded an inflow of liquidity in the form of a dividend instead of a purchase price payment. Against this background, the chosen procedure appears to be outlandish and the legal arrangement artificial. Since the arrangement chosen by the complainant mainly served to obtain advantages from the DTA CH-IE and the AEOI-A CH-EU and the three characteristics of tax avoidance are met, the complainant must be accused of abuse of law both from the perspective of international law and from the perspective of internal law. “ “A person who, like the complainant, fulfils the criteria of abuse of the agreement and tax avoidance as defined by the practice cannot invoke the advantage pursuant to Art. 15 para. 1 aAIA-A CH-EU. As a result, the lower court did not violate either federal or international law by completely refusing to refund the withholding tax to the complainant on the basis of Art. 15 para. 1 aAIA-A CH-EU.” Click here for English translation Click here for other translation Swiss BO 2c_354-2018

Union Castle Ltd. claimed a tax deduction of £ 39 million related to losses on derivative contracts. After acquiring derivative contracts, Union Castle issued bonus A shares to it’s parent company, Caledonia, which carried a dividend equal to 95% of the cash-flows arising on the close-out of the contracts. Therefore Union Castle had written off 39 million of the value of the contracts in it’s accounts. The tax authorities disagreed that a tax loss had been suffered and issued an assessment disallowing the loss. The Tribunal found in favor of the tax authorities. Capital transactions are subject of the UK transfer pricing rules. Issuing of shares meets the requirements of “making or imposing conditions in commercial and financial relations” as required by Article 9 of the OECD Model Convention. OECD TPG apply to debt financing. Share transactions, which have an effect on income taxation, must be within the UK transfer pricing rules. The Cases was then brought before the Court of Appeal where the appeals were dismissed. “The overall result, if my Lords agree, is that both appeals are dismissed. In the case of Union Castle’s appeal, I agree with the UT’s conclusions on the “loss” and “arise from” issues, but I have come to a different conclusion on the “fairly represent” issue and I would dismiss the appeal on that ground as well as on the “arise from” issue.” Union Castle Mail Steamship vs HMRC

X S.à.r.l./B.V. filed corporate income tax returns for the year 2012 as a foreign taxpayer, declaring a taxable profit and a taxable amount of nil. No dividend distribution had been declared for income tax purposes Following an audit, the tax authorities included the dividend distribution in the taxable income and tax was levied on the dividend distribution at a rate of 2.5 per cent. In dispute before the Supreme Court was whether the dividend distribution was taxable to the X S.à.r.l./B.V. under Section 17(3) opening words and (b) of the Act. The dispute centred on the questions (i) whether X S.à.r.l./B.V. held the substantial interest in Holding with the main purpose or as one of the main purposes to avoid the levying of income tax or dividend tax on the DGA, and (ii) whether this substantial interest was not part of the business assets of X S.à.r.l./B.V.. Depending on the answers to those questions, the dispute was whether levying corporate income tax on the dividend distribution (a) was prevented by the operation of Directive 2011/96/EU (hereinafter: the Parent-Subsidiary Directive), or (b) was contrary to the freedom of establishment provided for in Article 49 TFEU. Judgement of the Supreme Court The Supreme Court upheld the assessment issued by the tax authorities. Excerpt “When examining whether an arrangement is abusive, it is not sufficient to apply predetermined general criteria. In each specific case, the arrangement in question must be examined as a whole. Automatic application of an anti-abuse measure of general scope without the inspector being required to produce even the slightest evidence or indications of abuse goes beyond what is necessary to prevent abuse (see Eqiom and Enka, paragraph 32). If it is sufficient for the inspector to produce such initial evidence or indications, the taxpayer must be given the opportunity to produce evidence showing the existence of economic reasons for the arrangement (cf. ECJ 20 December 2017, Deister Holding AG and Juhler Holding A/S, joined cases C 504/16 and C 613/16, ECLI:EU:C:2017:1009, para 70). 2.6.6. In applying the scheme, the starting point for the allocation of the burden of proof is that the inspector states the facts and circumstances from which it follows that the subjective condition has been fulfilled, and, in the event of reasoned challenge, makes them plausible (cf. Parliamentary Papers II 2011/12, 33 003, no. 10, p. 94). This principle is in line with Union law (cf. T Danmark judgment, paragraph 117). 2.6.7. When applying Union law, the fulfilment of the subjective condition merely provides a presumption of proof that abuse has occurred. This is confirmed by the T Danmark judgment, paragraph 101. If such a presumption of abuse exists, the taxpayer must be given the opportunity to rebut that presumption. The taxpayer may overcome this presumption by establishing, and if necessary demonstrating, facts indicating that the holding of the substantial interest does not constitute a wholly artificial arrangement unrelated to economic reality. A group of companies may be regarded as a wholly artificial arrangement if, in a group structure involving (a) non-EU resident, underlying shareholder(s) and a company resident in the Netherlands, a body resident within the Union has been interposed in order to avoid the levying of Dutch income or dividend tax, without this EU body or the body’s establishment in the EU Member State having any real significance (cf. Parliamentary Papers II 2011/12, 33 003, no. 3, pp. 105 and 106, and T Danmark judgment, paragraph 100). 2.6.8. The Court did not disregard the foregoing in 2.6.2 to 2.6.7 above. The judgments challenged by ground I do not show an error of law and, as interwoven with valuations of a factual nature, cannot otherwise be examined for correctness by the Supreme Court in the cassation proceedings. Nor are those judgments incomprehensible. For this reason plea I also fails.” Click here for English translation Click here for other translation Dutch-Case-No-18-00219-ORG

There is an obligation to withhold tax on dividends paid to a holding company resident in an EU Member State, if the beneficial owner is resident abroad. Although the Parent-Subsidiary Directive 90/435 does not contain a beneficial owner clause, the exemption clause contained in Article 14.1.h) of the TRLIRNR is perfectly in line with EU law. It cannot be rejected as an incorrect transposition nor can it be considered to infringe the Community principles of freedom of movement or establishment. All this in accordance with the CJEU Judgment of 26 February 2019. The judgment of the CJEU in Cases C-116/16 and C-117/16 is analysed. In contrast to the judgment cited by the claimant: CJEU Judgment of 7 September 2017 Case C-6/16. SP vs Palmolive SAN_1128_2018 ENG NW”>Click here for English Translation Click here for other translation Spain BO - Resolución nº 00-2188-2017 081019

A Spanish subsidiary – SGL Carbon Holding SL – had significant financial expenses derived from an intra-group loan granted by the parent company for the acquisition of shares in companies of the same group. The taxpayer argued that the intra-group acquisition and debt helped to redistribute the funds of the Group and that Spanish subsidiary was less leveraged than the Group as a whole. The Spanish tax authorities found the transactions lacked any business rationale other than tax avoidance and therefor disallowed the interest deductions. The Court held in favor of the authorities. The court found that the transaction lacked any business rationale and was “fraud of law” only intended to avoid taxation. The Court also denied the company access to MAP on the grounds that Spanish legislation determines: Article 8 Reglamento MAP: Mutual agreement procedure may be denied, amongst other, in the following cases: … (d) Where it is known that the taxpayer’s conduct was intended to avoid taxation in one of the jurisdictions involved. (…) Click here for translation Spain vs SGL Carbon Holding April 22 2019 1885

Neftemash-Service LLC sold real estate (administrative and warehouse building, land plots, part of a workshop building) to two individuals that were also founders of the company and held the positions of general director and commercial director. The Company claimed the transactions were caused by an urgent need for capital, and that the reason for selling directly to the founders was that no third parties were interested in buying the properties. The Russian tax authorities held that the properties had been sold at non-arms length prices and issued an adjustment based on the market value. The court supported the position of the tax authorities. The price was lower than its market value at the time of sale, and the prices of land plots were substantially lower than their original purchase prices. Prices deviated from the market values multiple times (2-29 times). The tax authorities arguments in regard to the choice of pricing method (which was no a CUP) was found to be sufficient by the Court. The Company’s argument, that it was impossible to sell real estate at a higher price was rejected. In the opinion of the Court, the Company had no intention of selling the property to third parties. The Court also noted, that Neftemash-Service LLC continued to work in the building that was sold, but now under a lease agreements concluded with the founders. At the same time, the cost of maintaining the property continued to be carried by NefteMash-service LLC. The decision was upheld by the Court of Appeal and later the Supreme Court. A64-1247-2017 A64-1247-2017

A Luxembourg-based limited company (LU) held a 30% stake in an Austrian stock company operating an airport. LU employed no personnel and did not develop any activities. The parent company of LUP was likewise resident in Luxembourg. LUP had business premises in Luxembourg and employed three people. All of the shares in LUP were held by a company in the British Cayman Islands in trust for a non- resident Cayman Islands-based fund. In 2015, the Austrian Company distributed a dividend to LU. LU was not yet involved in the Austrian corporation “for an uninterrupted period of at least one year” thus withholding tax was withheld and deducted. A request for refunding of the withholding tax was denied by the tax office because the dividend was distributed to recipients in a third country and the tax authorities regarded the structure as abusive. LU then appealed the decision to the Federal Fiscal Court. The Court held that the appeal was unfounded, because the tax office rightly assumed that the structure was abusive within the meaning of Austrian tax rules. LU then filed an appeal to the Austrian Administrative High Court (VwGH). The High Court overruled the Federal Fiscal Court and found that LUP had actually developed activities. An economic reason for the set-up of a company structure- for example, the professional management of long-term investments in the EU by a management holding with several employees (the LUP as the Luxembourg parent company of the appellant) – exists even if the desired economic goal would have been achieved otherwise (i.e. with a holding company located outside the EU). According to the Court, an economic reason for a set-up exists if the economic objective, as put forward in this case, was better and safer to achieve. Thus, the structure was not abusive. Click here for English translation Click here for other translation Austrich vs Corp 27 March 2019 RO-2018-13-0004

A refund of withholding tax on dividend payments from an Italien subsidiary, CDC srl, was claimed by the parent company in Luxembourg, CDC Net SA. The parent company had been subject to income tax in Luxembourg as required by the EU Directive, but in Luxembourg there were no actual taxation of the dividends. The refund was denied as, according to the authorities, the Luxembourg company did not meet the requirements of the EU Directive due to lack of actual taxation of the dividends in Luxembourg. The Court ruled in favor of the tax authorities and denied the refund of withholding taxes under the European Parent Subsidiary Directive (Directive 90/435/EEC, Article 5, paragraph 1, ) as no double taxation existed due to the dividend exemption regime in Luxembourg. Click here for English translation Click here for other translation Italy Dividend Supreme Court 2018

In this case, Union Castle Ltd. calimed a tax deduction of £ 39 million related to losses on derivative contracts. After acquiring derivative contracts, Union Castle issued bonus A shares to it’s parent company, Caledonia, which carried a dividend equal to 95% of the cash-flows arising on the close-out of the contracts. Therefore Union Castle had written off 39 million of the value of the contracts in it’s accounts. The tax authorities disagreed that a tax loss had been suffered and issued an assesment disallowing the loss. The Tribunal found in favor of the tax authorities. Capital transactions are subject of the UK transfer pricing rules. Issuing of shares meets the requirements of “making or imposing conditions in commercial and financial relations” as required by Article 9 of the OECD Model Convention. OECD TPG apply to debt financing. Share transactions, which have an effect on income taxation, must be within the UK transfer pricing rules. Click here for translation Union_Castle_Mail_Steamship_Company_Ltd_and_HMRC

Determination of the criterion “decisive influence” or controlling interest. There is no basis for a general conclusion that, where two persons have the same ability to influence decision-making, they both exercise joint control. Otherwise, Section 12(2) of the Corporation Tax Act should apply to any case where two or more persons exercise equal control over the management of a company, even if the only way in which decisions could ever be taken in the company is if they are taken in concert. It is not excluded that two persons have established a mechanism for exercising influence on an equal footing precisely in order to ensure that neither has a decisive influence. In order to apply Section 12(2) of the Law on Corporate Income Tax in accordance with its meaning, i.e. to identify cases where the decisive influence of a person has been the basis for entering into transactions which are not in line with market prices, it should be possible to identify a set of circumstances in circumstances of equal influence which makes it possible to consider that two or more persons are acting jointly. Such circumstances may be apparent, inter alia, from the activities of the undertaking over an extended period of time, from the location of the disputed transactions in the context of the other business activities, from the links between the persons concerned, in particular in the long term. Excerpt from the Judgement of the Supreme Court “[16] As can be seen, the Supreme Court in the above-mentioned case did not find any difference in principle between the direct or indirect interpretation of decisive influence contained in the Law on Concerns and other laws. There would be no reason to find such a difference in the present case, since, in view of the general meaning of the concept of decisive influence, it must be established that one person can take decisions (control) in relation to the company and, in the absence of specific agreements on other arrangements, such a situation must be established in the first place by a participation, from which, in ordinary cases, further derive the corresponding voting rights and the possibility to appoint and dismiss the management body. The Regional Court, too, in interpreting Article 1(12) of the Credit Institutions Law and concluding that decisive influence means the ability to control the decisions of the governing body of the company with regard to the conclusion of economic transactions and their value, has not in fact changed this general understanding, i.e. it has emphasised the ability to control decision-making. Moreover, any interpretation of the concept of ‘decisive influence’ cannot contradict its immediate general meaning, namely that the person concerned has the power to make a difference in the decision-making, in the determination of issues. In accordance with the general principles of commercial companies, this will normally be secured by an appropriate share in the share capital. At the same time, it should be noted that the Regional Court has used the concept (control) explained in Article 1(12) of the Credit Institutions Law to explain the concept of “decisive influence”, which is used in the provision as a means of clarification, but insofar as it does not detract from the meaning – the characteristic of being able to decisively influence decisions – the interpretation is not incorrect. One can agree with the representative of the State Revenue Service at the hearing that it is important to apply the concept of ‘decisive influence’ contained in Section 1(5) of the Law on Corporate Income Tax in its own right in accordance with its meaning. [17] The judgment of the District Court, after a legal analysis, further assesses the circumstances of the case. The Court finds that the status of the members of the applicant’s board of directors in the applicant, as well as their participation in the capital of the applicant’s parent company (50 per cent each) and their status as members of the parent company’s board of directors, created a set of circumstances which ensured decisive influence over the applicant and the ability to exercise (joint) control over the applicant. It follows from the above that the Regional Court, although it had previously examined the question of the elements of decisive influence of a single person, reached its conclusion by finding that two persons exercised control jointly. The assessment is thus based on an aspect which goes beyond the concept of decisive influence as contained in the Law on Concerns and the Law on Credit Institutions. The question of joint control requires consideration of whether decisive influence can be said to exist even if each person individually does not formally possess it under either definition and whether it is possible to consider the possibility of control by those persons together. The conclusion that, where two persons have the same ability to influence decision-making, they both exercise joint control is not self-evident. Otherwise, Section 12(2) of the Corporation Tax Act should apply to any case where two or more persons exercise equal control over the management of a company, even if the only way in which decisions could ever be taken in the company is by a decision agreed between them. It is not excluded that two persons have established a mechanism for exercising influence on an equal footing precisely in order to ensure that neither has a decisive influence. [18] At the same time, it cannot be excluded that, in a situation of equal influence, more than one person knowingly implements a common economic plan with a common objective, and it is precisely this conscious cooperation which makes it safe to assume that one person can count on the other in decision-making. That is to say, a plan or objective and the cooperation within it make it possible to regard them as a single entity. [19] In order to apply Section 12(2) of the Law on Corporation Tax in accordance with its meaning, namely to identify cases where the decisive influence of a person has been the

ICL ESPAÑA, S.A., ICL Packaging Coatings, S.A., were members of the Tax Consolidation Group and obtained extraordinary profits in the financial years 2000, 2001 and 2002. (AKZO NOBEL is the successor of ICL ESPAÑA, as well as of the subsidiary ICL PACKAGING.) On 26 June 2002, ICL ESPAÑA, S.A. acquired from ICL Omicron BV (which was the sole shareholder of ICL ESPAÑA, S.A. and of Elotex AG and Claviag AG) 45.40% of the shares in the Swiss company, Elotex AG, and 100% of the shares in the Swiss company of Claviag AG. The acquisition was carried out by means of a sale and purchase transaction, the price of which was 164.90 million euros, of which ICL ESPAÑA, S.A. paid 134.90 million euros with financing granted by ICL Finance, PLC (a company of the multinational ICL group) and the rest, i.e. 30 million euros, with its own funds. On 19 September 2002, ICL Omicron BV contributed 54.6% of the shares of Elotex AG to ICL ESPAÑA, S.A., in a capital increase of ICL ESPAÑA, S.A. with a share premium, so that ICL ESPAÑA, S.A. became the holder of 100% of the share capital of Elotex AG. The loan of 134,922,000 € was obtained from the British entity, ICL FINANCE PLC, also belonging to the worldwide ICL group, to finance the acquisition of the shares of ELOTEX AG. To pay off the loan, the entity subsequently obtained a new loan of €75,000,000. The financial burden derived from this loan was considered by ICL ESPAÑA as an accounting and tax expense in the years audited, in which for this concept it deducted the following amounts from its taxable base – and consequently from that of the Group: FY 2005 2,710,414.29, FY 2006 2,200,935.72, FY 2007 4,261,365.20 and FY 2008 4.489.437,48. During the FY under review, ICL ESPAÑA SA has considered as a deductible expense for corporate tax purposes, the interest corresponding to loans obtained by the entity from other companies of the group not resident in Spain. The financing has been used for the acquisition of shares in non-resident group companies, which were already part of the group prior to the change of ownership. The amounts obtained for the acquisition of shares was recorded in the groups cash pooling accounts, the entity stating that “it should be understood that the payments relating to the repayment of this loan have not been made in accordance with a specific payment schedule but rather that the principal of the operation has been reduced through the income made by Id ESPAÑA SA from the cash available at any given time”. Similarly, as regards the interest accrued on the debit position of ICL ESPAÑA SA, the entity stated that “the interest payments associated with them have not been made according to a specific schedule, but have been paid through the income recorded by ICL ESPAÑA SA in the aforementioned cash pooling account, in the manner of a credit policy contract, according to the cash available at any given time”. The Spanish tax authorities found the above transactions lacked any business rationale other than tax avoidance and therefor disallowed the interest deductions for tax purposes. This decision was appealed to the National Court. Judgement of the National Court The Court partially allowed the appeal. Excerpts “It follows from the above: 1.- The purchase and sale of securities financed with the loan granted by one of the group companies did not involve a restructuring of the group itself. The administration claims that the transfer of 100% ownership of the shares of both Swiss companies is in all respects formal. And it is true that no restructuring of the group can be seen as a consequence of the operation, nor is this alleged by the plaintiff. 2.- There are no relevant legal or economic effects apart from the tax savings in the operation followed, since, as we have pointed out, we are dealing with a merely formal operation, with no substantive effect on the structure and organisation of the Group. 3.- The taxation in the UK of the interest on the loan does not affect the correct application of Spanish tax legislation, since, if there is no right to deduct the interest generated by the loan, this is not altered by the fact that such interest has been taxed in another country. It is clear that the Spanish authorities cannot make a bilateral adjustment in respect of the amounts paid in the United Kingdom for the taxation of the interest received. For this purpose, provision is made for the mutual agreement procedure under Article 24 of the Convention between the Kingdom of Spain and the United Kingdom of Great Britain and Northern Ireland for the avoidance of double taxation and the prevention of fiscal evasion in relation to taxes on income and on capital and its Protocol, done at London on 14 March 2013 (and in the same terms the previous Instrument of Ratification by Spain of the Convention between Spain and the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion in respect of Taxes on Income and on Capital, done at London on 21 October 1975, Article 26 ).” “For these reasons, we share the appellant’s approach and we understand that the non-compliance with the reinvestment takes place in the financial year 2004 (as the start of the calculation of the three-year period is determined by the deed of sale dated 29 June 2001), and that therefore the regularisation on this point should be annulled because it corresponds to a financial year not covered by the inspection.” “Therefore, and in the absence of the appropriate rectification, this tax expense would be double-counted, firstly because it was considered as a tax expense in 1992 and 1999, and secondly because it was included in seventh parts – in 2003 and in the six subsequent years – only for an amount lower than the amount due, taking into account the proven

The 2018 Vodafone case from India – whether termination of option rights under an agreement can be treated as a “deemed international transaction” under section 92B(2) of the Income Tax Act. Vodafone India Services had a call option to buy shares in SMMS Investment Pvt Ltd — which held 5.11% equity capital of the Vodafone India through a web of holdings for 2.78 crore if the fair market value of these shares was less than 1,500 crore. If the fair market value was higher, it had to pay a little more. Under the same agreement, if Vodafone India Services terminated its right to acquire the share, the company would have to pay Rs 21.25 crore. Instead of exercising the call option and acquiring the valuable shares at a very low price, Vodafone India Service terminated the option and paid 21.25 crore. The tax administration held that the Vodafone India Service should have received a substantial consideration for not exercising the option. Vodafone India Services held that termination of an option was not a transaction. It also argued that it was not an international transaction, but a deal between domestic companies. The tribunal held in favor of the tax administration. The deal was deemed an international transaction. The consideration value was to be based on the price of the shares that was later sold in the market. Se also India vs. Vodafone 2012 India vs Vodafone India Services Pvt Ltd, Jan 2018, ITA No.565 Ahd 2017 -

A Norwegian company, A, first acquired shares in Company C from a unrelated party D for tNKR 625. Company A then transferred the acquired shares in C to a subsidiary E, a shell company established by C for the purpose of the transaction. Company A then sold the shares in subsidiary E to the unrelated party D, from which it had originally bought the shares in C, for tNKR 3830, a price almost six times higher than the acquisition price, in a tax free transfer. Based on these facts, the Norwegian tax administration adjusted the price of the intra-group transfer shares in C from A to E. The Norwegian tax tribunal decided that the valuation af the shares in the intra-group transfer could be based on a linear appreciation in the share value. Click here for translation Norway vs AS 27 november 2017 SKATTEKLAGENEMDA NS 71-2017

The issues in this case was: Whether the price of purchase of right to dividends were deductible. Whether the purchase and sale of right to dividends was trading transaction in course of Appellant’s trade. Whether the purchase price expenditure incurred wholly and exclusively for purposes of the trade. Whether HMRC were permitted to argue point in relation to section 730 ICTA that was not raised in closure notice and which they stated they were not pursuing Whether the price of sale of right to dividends should be disregarded for the purposes of calculating Appellant’s trading profits under section 730(3) ICTA BNP-vs-HMRC

The French Court considers that in the event of a transfer of shares, the goodwill recognized at the acquisition of the shares shall no longer be included in the balance sheet of the parent company. Click here for translation France vs Havas 12 July 2017, Conseil d'Etat, No 400644

S BV was not granted deductions in its Swedish PE for interest on debt relating to the acquisition of subsidiaries. The Court of Appeal considers that it is clear that key personnel regarding acquisition, financing and divestment of the shares in the subsidiary and the associated risks have not existed in the PE. It is also very likely that the holding of the shares has not been necessary for and conditioned by the PE’s operations. Therefore, there is no support for allocating the shares and the related debt to the PE. Click here for translation Sweden vs Corp 30 June 2017 KRNS, mål nr 2385—2390-16

Tax avoidance scheme. Use of total return swap over shares in subsidiary to create a deemed creditor relationship. Value of shares depressed by novating liability for large loans to subsidiary. The scheme used by Ladbroke UK involved a total return swap and a novation of loans to extract reserves. Used to achieve a “synthetic transfer” of the JBB business to LB&G. In essence, this involved extracting the surplus which had accumulated in LGI and transferring it to LB&G prior to an actual sale of the JBB business to LB&G. The normal way to extract such reserves would be by a dividend payment. The Court ruled, that it is sufficient for the application of paragraph 13 (UK GAAR) that the relevant person has an unallowable purpose. Where the unallowable purpose is to secure a tax advantage for another person, HMRC do not have to show that the other person has in fact obtained a tax advantage, if the other person has been prevented from obtaining a tax advantage by the operation of paragraph 13. It would be impossible to construe paragraph 13 in that way where the relevant person intended to obtain a tax advantage for 40 itself, and there is nothing in the wording to indicate a different result where it intends to obtain a tax advantage for another. UK Ladbrokes-UK-2017

In this case the US Tax Court held that a closing agreement did not result in retroactive indebtedness. Analog Devices Corp. repatriated cash dividends from a foreign subsidiary and claimed an 85% dividends received deduction for FY 2005, cf. US regs § 965. No related party indebtedness was reported by the company which would have limited the deduction available. During the audit of Analog Devises Corp. the IRS claimed that a 2 pct. royalty from the subsidiary should be increased to 6% for FY 2001-2005. This was accepted and Analog Devises Corp. entered into a closing agreement with the IRS. The US Tax Court held that the closing agreement concerning accounts receivable, cf. the increased royalty, was not related party indebtedness for the purposes of § 965. US vs Analog Devices & Subsidiaries, Nov 22 2016, United State Tax Court 147 TC no 15

In 2007, IKEA reorganised its property portfolio in Norway so that the properties were demerged from the Norwegian parent company and placed in new, separate companies. The shares in these companies were placed in a newly established property company, and the shares in this company were in turn sold to the original parent company, which then became an indirect owner of the same properties. The last acquisition was funded through an inter-company loan. Based on the non-statutory anti-avoidance rule in Norwegian Tax Law, the Supreme Court concluded that the parent company could not be allowed to deduct the interest on the inter-company loan, as the main purpose of the reorganisation was considered to be to save tax. The anti-avoidance rule in section 13-1 of the Tax Act did not apply in this circumstance. Click here for translation Norway vs IKEA-Handel-og-Ejendom-HRD-2016-722

The company had deducted impairment losses recognised on an investment in an Argentinean company (recently acquired from a related entity) arising from the conversion into capital of loans granted to the entity by other group companies, loans which had been acquired by the Spanish taxpayer. The tax administration argued that acquisition of such loans would not have taken place between independent parties due to the economic situation in Argentina at that time. The Supreme Court considered this conclusion to be wrong for two reasons: From a technical point of view, it was unacceptable to consider that the loans had no market value, since economic reality shows that even in situations of apparent insolvency there is an active market to purchase loans that are apparently uncollectible. If the loans acquired could have a market value, it was not possible to deny that they had such value without proving it; and From a legal point of view, it was not possible to disregard transactions actually carried out between related parties which could be attributed a market value by simply referring to the direct application of Article 9 of the International Convention on the avoidance of double taxation between Spain and France or between Spain and Argentina. It would have been necessary in this case to apply a general internal anti-abuse clause to carry out this reclassification. Click here for translation Spain-vs-PEUGEOT-CITROEN-AUTOMOVILES-May-2016-Supreme-Court-case-nr-58-2015 And Click here for translation Spain-vs-PEUGEOT-CITROEN-AUTOMOVILES-December-2014-National-Appellate-Court-case-nr-317-2011

A German company resolved a share capital reduction of €16 m in preparation for a capital repayment to avoid an IFRS consolidation requirement for its sole shareholder, a public utility. It took the reduction to capital reserve, waited as required by the German Company Act for one year after a public announcement to it’s creditors, reported the reduction to the German trade registry and repaid an amount of €4 m to the shareholder. This repayment was sufficient to reduce the assets below the level for the consolidation requirement. The tax administration recharacterised the payment to a “dividend distribution” subject to withholding tax under the German Corporate Tax Act provision to the effect that payments to shareholders are deemed to be made from retained earnings unless unambiguously specified as repayments of share capital. The Supreme Tax Court concluded that the unambiguous specification need not be solely in the capital reduction/repayment resolution itself. The reduction resolution stated being preparatory to a capital repayment to the shareholder, but did not state the (at the time unknown) amount. It was clear from all the circumstances that the repayment followed the capital reduction as soon as the German Company Act permitted. There was every indication that a capital payment was intended and nothing to suggest that anything else had ever been contemplated. Accordingly, the court accepted the payment as a tax-free repayment of share capital, despite the interim booking as a capital reserve. Click here for English translation Click here for other translation Germany-vs-Corp-2014-BUNDESFINANZHOF-Urteil-I-R-31-13

A Ltd, which belonged to the Norwegian X Group, owned the entire share capital of B Ltd and had on 18.5.2004 sold it to a Norwegian company in the same group. The Norwegian company had the same day transferred the shares back on to A Ltd. C ASA had also been transferred shares in other companies belonging to the X group. C ASA was listed on the Oslo Stock Exchange in June 2004. Following the transaction with the subsidiary the Tax Office had raised A Ltd’s income for 2004 with 62,017,440 euros on the grounds that the price used in the transaction were considered below the shares’ market value. Further, a tax increase of EUR 620 000 had been applied. A Ltd stated that the purchase price for the shares of B Ltd had been determined on the basis of the company’s net present value, calculated according to a calculation of the present value of cash flows in the B Ab. The calculation was made by an outside expert. The purchase price had been calculated using “media kalkyl” that led to a lower value than the optional price determination calculations, which were based on high and low growth. Media kalkyl differed from other calculations in respect of certain variables that significantly affected the final outcome. For several of the variables used a description of how they were derived from B Ltd’s budget was missing, from historical data, data for comparison companies or other data. Variables not declared were also used in the calculation by the external expert, which was based on factor analysis and which was presented to support the calculations. The Supreme Administrative Court noted that although the cash flow calculations in principle can be considered to be an acceptable way to determine the market price of shares in companies not listed on the stock exchange, the estimates presented by the company could not be considered a reliable account of the price that would have been used in a transfer between independent parties. Because any comparison price that would have been based on events that could be equated with those at issue in this case were not available, and the yield based value of B Ltd had been established in a reliable manner, and since B Ltd’s assets under the Company’s balance had essentially consisted of financial assets, the fair value of B Ltd’s for taxation considered B Ltd’s net asset value. Using the net asset value was not wrong either for the reason that C ASA immediately after the listing of company had a market value lower than the net asset value. Nor were the fact that C ASA at the time of listing of the company had a 20 percent minority stake, sufficient to show that the purchase price corresponded to the market price. Consequently, the Company’s income in the taxation could be relevant amounts. With regard to the measures with which the company had tried to clarify the current value and that the issue concerned the appeal could be considered to make room for interpretation, the Supreme Administrative Court, removed the tax increase imposed in connection with the taxation. Fiscal year 2004 The law on the taxation procedure (1558/1995) 31, 32 and 57 § Click here for other translation Finland-2014-February-Supreme-Administrative-Court-HFD-2014-33

The Supreme Tax Court has held that the costs incurred by a taxpayer in connection with a tax treaty mutual agreement proceeding are not costs of earning the relevant income, but has left open a possible deduction as “unusual expenses”. A US resident realised a gain on the sale of a share in a GmbH. The German tax office sought to tax the gain, but the taxpayer objected on the grounds that it was taxable in the US under the double tax treaty. This tax office did not accept this objection, so a mutual agreement proceeding was initiated in an effort to clear the issue. Ultimately, the two competent authorities agreed to split the taxing right in the ratio 60:40 in favour of Germany. However, the taxpayer had incurred various consultancy and legal costs in the course of the process and these should, he claimed, be deducted from the taxable gain, as they would not have arisen without it. The tax office refused this, too. The Supreme Tax Court held that the costs at issue were not direct costs of making the capital gain. They were incurred in the course of resolving a dispute over the right to tax it and thus did not arise until after it had been made. Admittedly, without the gain, they would not have been incurred at all, although this connection was too remote to allow classification as direct costs. The court explicitly left the question open as to whether they might have been allowable against total income as “unusual expenses”, as that deduction is only available to German residents. Click here for English translation Click here for other translation Germany-vs-Corp-October-2013-BUNDESFINANZHOF-Urteil-vom-9-IX-r-25-12

In this case a taxable loss of a debitor following a conversion should be calculated on basis of the proportional part of the claim that was converted. Click here for translation DK SKM 2013-699

In 2003 Alesco NZ bought two other companies in New Zealand. Its Australian owner, Alesco Corporation, funded the acquisitions by advancing the purchase amount of $78 million. In consideration Alesco NZ issued a series of optional convertible notes (OCNs or notes). The notes were non-interest bearing for a fixed term and on maturity the holder was entitled to exercise an option to convert the notes into shares. Between 2003 and 2008 Alesco NZ claimed deductions for amounts treated as interest liabilities on the notes in accordance with relevant accounting standards and a determination issued by the Commissioner against its liability to taxation in New Zealand. In the High Court Heath the Commissioner’s treatment of the OCN funding structure as a tax avoidance arrangement under section BG 1 of the Income Tax Act of 1994 and the Income Tax Act of 2004 was upheld. NewZealand-vs-Alesco-New-Zealand-Ltd-March-2013

Miron and Frères Ltd acquired a farm from one of its shareholders, Gérard Miron, at a price ($600.000) far exceeding the original cost ($90.000) one year prior to the transaction. Miron and Frères Ltd claimed a capital cost allowance based on the price paid. Considering that the purchase was not a transaction “at arm’s length” but was one between a corporation and a controlling shareholder, the tax authorities rejected the claim and based the allowance on the original cost to the shareholder. Judgement of the Supreme Court The appeal filed by Miron and Frères Ltd was dismissed with costs. “Notwithstanding that an assessment is, by virtue of s. 42(6) deemed to be valid and binding, subject to appeal, the appellant saw fit to adduce no evidence with respect to the shares or the subject matter of control apart from the share-holdings as above set out. It is now argued on behalf of the appellant that it was for the respondent to support his decision by such evidence relative to control of the shares so held as he saw fit. In my view this is a misconception. The Minister, having concluded in the making of the assessment that the relevant transaction was not one between persons dealing at arm’s length, it was for the appellant to show error on the part of the Minister in this respect; Johnston v. Minister of National Revenue. This it did not attempt to do.” Click here for translation 1955 scr 679

The first rulings where the IRS proposed recharacterizing transactions that could be considered abusive through use of transfer pricing provisions. Judgement of the Supreme Court The court instead applied the general anti-abuse doctrine. “It is earnestly contended on behalf of the taxpayer that, since every element required by the foregoing subdivision (B) is to be found in what was done, a statutory reorganization was effected, and that the motive of the taxpayer thereby to escape payment of a tax will not alter the result or make unlawful what the statute allows. It is quite true that, if a reorganization in reality was effected within the meaning of subdivision (B), the ulterior purpose mentioned will be disregarded. The legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or altogether avoid them, by means which the law permits, cannot be doubted. United States v. Isham, 17 Wall. 496, 84 U. S. 506; Superior Oil Co. v. Mississippi, 280 U. S. 390, 280 U. S. 395-396; Jones v. Helvering, 63 App.D.C. 204, 71 F.2d 214, 217. But the question for determination is whether what was done, apart from the tax motive, was the thing which the statute intended. The reasoning of the court below in justification of a negative answer leaves little to be said. When subdivision (B) speaks of a transfer of assets by one corporation to another, it means a transfer made “in pursuance of a plan of reorganization” [§ 112(g)] of corporate business, and not a transfer of assets by one corporation to another in pursuance of a plan having no relation to the business of either, as plainly is the case here. Putting aside, then, the question of motive in respect of taxation altogether, and fixing the character of the proceeding by what actually occurred, what do we find? Simply an operation having no business or corporate purpose — a mere device which put on the form of a corporate reorganization as a disguise for concealing its real character, and the sole object and accomplishment of which was the consummation of a preconceived plan, not to reorganize a business or any part of a business, but to transfer a parcel of corporate shares to the petitioner. No doubt, a new and valid corporation was created. But that corporation was nothing more than a contrivance to the end last described. It was brought into existence for no other purpose; it performed, as it was intended from the beginning it should perform, no other function. When that limited function had been exercised, it immediately was put to death. In these circumstances, the facts speak for themselves, and are susceptible of but one interpretation. The whole undertaking, though conducted according to the terms of subdivision (B), was in fact an elaborate and devious form of conveyance masquerading as a corporate reorganization, and nothing else. The rule which excludes from consideration the motive of tax avoidance is not pertinent to the situation, because the transaction, upon its face, lies outside the plain intent of the statute. To hold otherwise would be to exalt artifice above reality and to deprive the statutory provision in question of all serious purpose.” Click here for translation US Supreme Court Gregory v Helvering 293 U.S. 465 (1935)