In 2013 “A” SARL requested a tax ruling confirming that its US branch had sufficient substance to qualify as a permanent establishment. The tax authorities issued the ruling conferming this to be the case, but only premised on the information provided by “A” SARL. The ruling would not be valid if the facts or circumstances described therein were incomplete or inaccurate.
In 2016, “A” SARL filed an amended tax return for 2013 in which it had effectively allocated a dividend in kind to the US branch.
Despite of the above mentioned tax ruling, the tax authorities disallowed the amendments to the tax return, finding that the US branch did not have sufficient substance to qualify as a permanent establishment.
Not satisfied with the decision “A” SARL filed an appeal with the Administrative Court.
Judgement of the Administrative Tribunal
The Court decided in favour of the tax authorities and denied the recognition of US permanent establishment.
Excerpt (in English)
“In view of all the inconsistencies noted above in relation to (i) the date on which the Branch was set up, (ii) the transfer to the Branch of the claimant company’s shareholdings in company “M” and (iii) the distribution of the dividend to the claimant company, and in the absence of detailed and concrete explanations from the plaintiff company concerning, in particular, the contradictions in the dates mentioned in the various resolutions of its Board of Directors, respectively in its initial and amending tax returns, the allegation that the disputed dividend in kind was attributed to it via the branch must be rejected as being unsupported by any tangible evidence. Indeed, it would have been incumbent on the plaintiff company to provide documents that would have made it possible to establish irrevocably and indisputably that the disputed bonds had first been transferred by “M” to the branch before being subsequently reallocated to it by the branch, such as, for example, a copy of the decision by the shareholders of “F” to distribute a dividend in kind to the branch, with a precise indication of the date of payment, proof of the registration of the bonds in “M”‘s share account, proof of the transfer of the bonds to “F”‘s share account, proof of the transfer of the bonds to “M”‘s share account, proof of the transfer of the bonds to “F”‘s share account, proof of the transfer of the bonds to “M”‘s share account and proof of the transfer of the bonds to “F”‘s share account. bonds to the branch’s securities account, or a copy of the minutes and decisions taken by the manager of the US Branch, and in particular a document issued by the latter stating that the … Eurobonds were continued by the branch to the plaintiff company after July 11, 2013 at 4:30 p.m., i.e. the time when, according to the aforementioned letter of July 11, 2013, the branch would have been allocated the plaintiff company’s holdings in company “F”, or, if applicable, on July 12, 2013, which it nevertheless remains in default of doing.
This conclusion is not shaken by the documents submitted by the plaintiff company to establish the existence of a permanent establishment in the United States within the meaning of Article 5 of the Convention, namely the certificate of registration of the Stable Establishment with the Connecticut revenue authorities, the branch’s bank account details and the copy of the service contract between the branch and the American company “H”. Indeed, it must be noted that the certificate of registration of the Stable Establishment with the Connecticut Revenue Service contains no precise date, so that it has not been established that the said establishment was actually created on July 11, 2013, as the plaintiff company maintains. As for the other two documents, they are irrelevant to the issue of the actual transfer of the dividend in kind to the branch, and must therefore be rejected as irrelevant in this respect. The same is true of the copy of the document described by the plaintiff company as a “copy of the confirmation of the listing of the Eurobonds on the Jersey Stock Exchange”, dated October 9, 2013, which, in the absence of more detailed explanations, does not allow us to conclude that the disputed bonds were actually reallocated to the plaintiff company via the branch on July 12, 2013.
It follows that it has not been unequivocally established that the key elements of the transaction in the present case correspond to those described in the request for an advance ruling, so that the ACD was not obliged to comply with it, in particular as regards the recognition of the branch as a permanent establishment and consequently the taxation of its profits in the United States.
It follows from all the foregoing considerations that the tax office rightly refused to take into consideration the new tax balance sheet as provided by the plaintiff company together with the rectifying tax return dated November 15, 2016, so that the bulletins for community income tax and communal business tax for the year 2013, issued on September 21, 2016 are to be confirmed.
It follows from all the foregoing considerations that the appeal is not well-founded in any of its pleas, so that the plaintiff company is to be dismissed.”
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