The tax authorities had issued an assessment in which the value of shares transfered between related parties had been adjusted by application of the arm’s length principle. The assessment was appealed to the Administrative Court, which upheld the assessment. An appeal was then filed with the Administrative Court of Appeal. Judgement of the Court The Administrative Court of Appeal upheld the judgement issued by the Administrative Court and decided in favour of the tax authorities. Excerpt “It should be remembered here that at the time of the facts the law did not provide for the use of any method, although there were already some guidelines from the OECD to this effect, and the Tax and Customs Authority researched and used a methodology close to the “comparable price” of the sale of shares closest to a shareholder to the company, making reference to the fact that this shareholder tried to sell the shares on the market. In its appellate submissions and conclusions, the appellant puts forward arguments for its dismissal based on the unreliability of the values thus obtained, giving reasons for not taking into account the values set in the deal with the shareholder M…, concluded in the same year, 1997, namely due to the animosity of relations between this partner, the company and the members of the management bodies, but the truth is that it does not effectively rule out the fact that the shareholder had previously tried to sell the shares in a fully competitive market or that this had an influence on the price reached. In fact, although the Appellant emphasises the differences between the deals concluded, the first with the shareholder M…and the others at issue here, with the Carreira C…and M… families, the truth is that both acquired their own shares and for very different amounts, but it is true that, contrary to what the Appellant argues, the objects of the deals are in themselves comparable: the sale of shares. Therefore, the judgement under appeal does not deserve censure when it disregards the values ascertained in the expert report carried out more than 25 years after the facts, in a context of significant time lagsand which uses the equity method and validates the result calculated using the methodology used by the Tax and Customs Authority, for the reasons described above. In fact, in addition to not really calling into question the conclusions and methods used by the Tax and Customs Authority, the figures found in the expert’s report are not intended to replace the reasoning behind the corrections it made, nor to lead to new formulas for determining the tax base. The truth is that the factual situation described in the STA judgement cited by the Appellant is very different from the case under consideration in the present proceedings, since in addition to the fact that the existence of relationships different from those that would normally be agreed between independent peopleIn addition, the values that served as the basis for the contested settlement were not corrected on the basis of the application of the coefficient of monetary correction to the acquisition price of shares. Thus, and with greater assertiveness or development, we cannot see how the interpretation accepted violates the principle of taxing companies on their real income (article 104/2 of the Constitution), given that the law, in the aforementioned article 57/1 CIRC, allowed the Tax Authority to make corrections to the declaration [see conclusion Y) of the pleadings on appeal]. In fact, this is not about the presumption of veracity enjoyed by the Impugnant’s and now Appellant’s accounts, but rather about preventing the erosion of the tax base and tax avoidance through price manipulation by verifying the existence of special relationships between the people involved in the deal with the ability to influence the conditions and the way in which the price was determined. The Appellant is therefore wrong on these points.” Click here for English translation. Click here for other translation Portugal 16112023 Acordão do Tribunal Central Administrativo 541-02.5 BTLRS ...

K.P. is active in retail sale of computers, peripheral equipment and software. In December 2013 it had transfered valuable trademarks to its subsidiary and in the years following the transfer incurred costs in form of licence fees for using the trademarks. According to the tax authorities the arrangement was commercially irrationel and had therfore been recharacterised. Not satisfied with the assessment an appeal was filed. Judgement of the Provincial Administrative Court. The Court decided in favor of K.P.  According to the Court recharacterization of controlled transactions was not possible under the Polish arm’s length provisions in force until the end of 2018. Click here for English translation Click here for other translation Poland vs KP Po 475_23 October 2023 ...

K. S.A. had made an in-kind contribution to a subsidiary (a partnership) in the form of previously created or acquired and depreciated trademark protection rights for individual beer brands. The partnership in return granted K. S.A. a licence to use these trademarks (K. S.A. was the only user of the trademarks). The partnership made depreciations on these intangible assets, which – due to the lack of legal personality of the partnership – were recognised as tax deductible costs directly by K. S.A. According to the tax authorities the role of the partnership was limited to the administration of trademark rights, it was not capable of exercising any rights and obligations arising from the licence agreements. Therefore the prerequisites listed in Article 11(1) of the u.p.d.o.p. were met, allowing K. S.A.’s income to be determined without regard to the conditions arising from those agreements. The assessment issued by the tax authorities was later set aside by the Provincial Administrative Court. An appeal and cross appeal was then filed with the Supreme Administrative Court. Judgement of the Supreme Administrative Court. The Supreme Administrative Court upheld the decisions of the Provincial Administrative Court and dismissed both appeals as neither of them had justified grounds. The Provincial Administrative Court had correctly deduced that Article 11(1) of the u.p.d.o.p. authorises only adjustment of the amount of licence fees, but not the nature of the controlled transactions by recognising that instead of a licence agreement for the use of the rights to trademarks, an agreement was concluded for the provision of services for the administration of these trademarks. Excerpts “The tax authorities, in finding that the applicant had not in fact made an in-kind contribution of trademark rights to the limited partnership, but had merely entrusted that partnership with the duty to administer the marks, referred to Article 11(1) of the u.p.d.o.p. (as expressed in the 2011 consolidated text. ), by virtue of which the tax authorities could determine the taxpayer’s income and the tax due without taking into account the conditions established or imposed as a result of the links between the contracting entities, with the income to be determined by way of an estimate, using the methods described in paragraphs 2 and 3 of Article 11 u.p.d.o.p. However, these are not provisions creating abuse of rights or anti-avoidance clauses, as they only allow for a different determination of transaction (transfer) prices. The notion of ‘transaction price’ is legally defined in Article 3(10) of the I.P.C., which, in the wording relevant to the tax period examined in the case, stipulated that it is the price of the subject of a transaction concluded between related parties. Thus, the essence of the legal institution regulated in Article 11 of the u.p.d.o.p. is not the omission of the legal effects of legal transactions performed by the taxpayer or a different legal definition of those transactions, but the determination of their economic effect expressed in the transaction price, with the omission of the impact of institutional links between counterparties”  “For the same reasons, the parallel plea alleging infringement of Articles 191, 120 and 121(1) of the P.C.P. by annulling the tax authority’s legal rulings on the grounds of a breach of the aforementioned rules of evidence in conjunction with Articles 11(1) and 11(4) of the u.p.d.o.p. and holding that the tax authority did not correct the amount of royalties and the marketability of the transaction, but reclassified the legal relationship on the basis of which the entity incurred the expenditure, is also inappropriate. In fact, the assessment of the Provincial Administrative Court that such a construction of the tax authority’s decision corresponds to the hypothesis of the 2019 standard of Article 11c(4) of the u.p.d.o.p. is correct, but there was no adequate legal basis for applying it to 2012/2013 and based on Article 11(1) and (4) of the u.p.d.o.p. in its then wording. Failure to take into account a transaction undertaken by related parties deemed economically irrational by the tax authority violated, in these circumstances, the provisions constituting the cassation grounds of the plea, as the Provincial Administrative Court reasonably found.” “Contrary to the assumption highlighted in the grounds of the applicant’s cassation appeal, in the individual interpretations issued at its request, the applicant did not obtain confirmation of the legality of the entire optimisation construction, but only of the individual legal and factual actions constituting this construction, presented in isolation from the entire – at that time – planned future event. Such a fragmentation of the description of the future event does not comply with the obligation under Article 14b § 3 of the Code of Civil Procedure to provide an exhaustive account of the actual state of affairs or future event, and therefore – as a consequence – the applicant cannot rely on the legal protection provided under Article 14k § 1 or Article 14m § 1, § 2 (1) and § 3 of the Code of Civil Procedure.” Click here for English translation Click here for other translation Poland II FSK 1352-22 ORG ...

In 2010, E S.A. transferred the legal ownership of a trademark to subsidiary S and subsequently entered into an agreement with S for the “licensing of the use of the trademarks”. In 2013, the same trademark was transferred back to E. S.A. As a result of these transactions, E. S.A., between 2010 and 2013, recognised the licence fees paid to S as tax costs, and then, as a result of the re-purchase of those trademarks in 2013 – it again made depreciation write-offs on them, recognising them as tax costs. The tax authority found that E S.A. had reported income lower than what would have been reported had the relationships not existed. E S.A. had  overestimated the tax deductible costs by PLN […] for the depreciation of trademarks, which is a consequence of the overestimation for tax purposes of the initial value of the trademarks repurchased from S – 27 December 2013 – by the amount of PLN […]. The function performed by S between 2010 and 2013 was limited to re-registration of the trademarks with the change of legal ownership. In the tax authority’s view, the expenses incurred by E S.A. for the reverse acquisition of the trademarks did not reflect the transactions that unrelated parties would have entered into, as they do not take into account the functions that E S.A. performed in relation to the trademarks. A tax assessment was issued where – for tax purposes – the transaction had instead been treated as a service contract, where S had provided protection and registration services to E S.A. A complaint was filed by E S.A. Judgement of the Court The Court found that there was no legal basis for re-characterisation in Poland for the years in question and that the issue should instead be resolved by applying the Polish anti-avoidance provision. On that basis, the case was referred back for further consideration. Excerpts “In principle, the tax authorities did not present any argumentation showing from which rules of interpretation they came to the conclusion that such an application of the above-mentioned provisions is legally possible and justified in the present case. It should be noted in this regard that Article 11(1) in fine speaks of the determination of income and tax due without – ‘[…] taking into account the conditions arising from the relationship…’, but does not allow for the substitution of one legal act (a licence agreement) for another act (an agreement for the provision of administration services), and deriving from the latter the legal consequences for the determination of the amount of the tax liability. There should be no doubt in this case that, in fact, the authorities made an unjustified reclassification of the legal act performed in the form of the conclusion of a valid licensing contract, when they concluded (referring to the OECD Guidelines – Annex to Chapter VI – Illustrative Examples of Recommendations on Intangible Assets, example 1, point 4) that the transactions carried out by E. and S. in fact constitute, for the purposes of assessing remuneration, a contract for the provision of trademark administration services and the market price in such a case should be determined for administration services. As the applicant rightly argued, such a possibility exists as of 1 January 2019, since Article 11c(4) uses the expression – “[…] without taking into account the controlled transaction, and where justified, determines the income (loss) of the taxpayer from the transaction appropriate to the controlled transaction”. This is what is meant by the so-called recharacterisation, i.e. the reclassification of the transaction, which is what the tax authorities actually did in the present case. At the same time, the Court does not share the view expressed in the jurisprudence of administrative courts, referring to the content of the justification of the draft amending act, according to which, the solutions introduced in 2019 were of a clarifying rather than normative nature (cf. the judgment of the WSA in Rzeszów of 20 October 2022, I SA/Rz 434/22). The applicant rightly argues in this regard that the new regulation is undoubtedly law-making in nature and that the provisions in force until the end of 2018 did not give the tax authorities such powers. It is necessary to agree with the view expressed in the literature that a linguistic interpretation of Article 11(1) of the A.p.d.o.p. and Article 11c of the A.p.d.o.p. proves that Article 11c of that Act is a normative novelty, as the concepts and premises it regulates cannot be derived in any way from the wording of Art. 11(1) u.p.d.o.p. (cf. H. LitwiÅ„czuk, Reclassification (non-recognition) of a transaction made between related parties in the light of transfer pricing regulations before and after 1.01.2019, “Tax Review” of 2019, no. 3).” “It follows from the justification of the contested decisions that, in applying Article 11(1) and (4) of the TAX Act to the facts of this case, the tax authorities referred to the OECD Guidelines, inter alia, to the example provided therein (Anex to Chapter VI – Illustrative Examples of Recommendations on Intangible Assets, example 1, point 4), from which, according to the authorities, it follows that the transactions carried out by E. S.A. and S. for the purposes of assessing remuneration constitute, in fact, a contract for the provision of trademark administration services and, in that case, the market price should be determined for such services. In this context, it should be clarified that the OECD Guidelines (as well as other documents of this organisation), in the light of the provisions of Article 87 of the Constitution of the Republic of Poland, do not constitute a source of universally binding law. Neither can they determine in a binding manner the basic structural elements of a tax, since the constitutional legislator in Article 217 of the Basic Law has subjected this sphere exclusively to statutory regulations. Since these guidelines do not constitute a source of law, they can therefore neither lead to an extension of the powers of the tax authorities nor of the ...

3 February 2023 the Inland Revenue of New Zealand issued an interpretation statement explaining the Commissioner’s view of the law on tax avoidance in New Zealand. It sets out the approach the Commissioner will take to the general anti-avoidance provisions in the Income Tax Act 2007 – ss BG 1 and s GA 1. Where s BG 1 applies, s GA 1 enables the Commissioner to make an adjustment to counteract a tax advantage obtained from or under a tax avoidance arrangement. The Supreme Court in Ben Nevis considered it desirable to settle the approach to the relationship between s BG 1 and the specific provisions in the rest of the Act. This approach is referred to as the Parliamentary contemplation test. The Parliamentary contemplation test was confirmed as the proper and authoritative approach to applying s BG 1 by the Supreme Court in Penny and Frucor. The statement is based on and reflects the view of the Supreme Court as set out in Ben Nevis, and applied in Penny and Frucor. NZ IS 23 01 ...

As part of a multinational tax integrity package aimed to address the tax avoidance practices of multinational enterprises (MNEs) and improve transparency through better public reporting of MNEs’ tax information, the Australian Treasury issued a Consultation Paper in August 2022. This paper seeks to consult on the implementation of proposals to: amend Australia’s existing thin capitalisation rules to limit interest deductions for MNEs in line with the Organisation for Economic Cooperation and Development (OECD)’s recommended approach under Action 4 of the Base Erosion and Profit Shifting (BEPS) program (Part 1); introduce a new rule limiting MNEs’ ability to claim tax deductions for payments relating to intangibles and royalties that lead to insufficient tax paid (Part 2); and ensure enhanced tax transparency by MNEs (Part 3), through measures such as public reporting of certain tax information on a country‑by‑country basis; mandatory reporting of material tax risks to shareholders; and requiring tenderers for Australian government contracts to disclose their country of tax domicile. The changes contemplated seek to target activities deliberately designed to minimise tax, while also considering the need to attract and retain foreign capital and investment in Australia, limit potential additional compliance cost considerations for business, and continue to support genuine commercial activity. Australian consultation paper Tax integrity and transparency Aug 2022 ...

The ATO is currently reviewing treaty shopping arrangements designed to obtain the benefit of a reduced withholding tax (WHT) rate under a double-tax agreement (DTA) in relation to royalty or dividend payments from Australia. Typically, this benefit is sought via the interposition of one or more related entities between an Australian resident and the ultimate recipient of the royalty or dividend, where the interposed entity is a resident of a treaty partner jurisdiction. The ultimate recipient is generally located in a jurisdiction that either does not have a DTA with Australia or, where it is a treaty partner of Australia, the DTA provides a less favourable treaty benefit. A key purpose of Australia’s treaty network is to eliminate double taxation without creating opportunities for tax avoidance practices, such as treaty shopping arrangements. We are concerned that some taxpayers have entered into, or are considering implementing, arrangements interposing entities in treaty jurisdictions to obtain a more favourable tax outcome under a DTA in the form of reduced WHT rates. These taxpayers may not be entitled to such benefits under our DTAs. Arrangements that pose a potential risk of treaty shopping may display some of the following features and we are likely to make further enquiries where such factors exist: • Structures and restructures involving the interposition of an existing or newly incorporated entity between Australia and the ultimate recipient of royalties or unfranked dividends. • The interposed entity may have significant existing operations and employees and the taxpayer may contend that commercial benefits and/or synergies flow to the Australian operations or the interposed entity. • Royalty or unfranked dividend payments (or potential future royalty or unfranked dividend payments) to the interposed entity are (or would be) subject to WHT at reduced rates under the relevant DTA compared with Australian domestic law or the applicable WHT rate under the DTA between Australia and the country of residence of the ultimate recipient ATO TA 2022_2 ...

Heavy Transport Holding Denmark ApS, a subsidiary in the Heerema group, paid dividends to a parent company in Luxembourg which in turn paid the dividends to two group companies in Panama. The tax authorities found that the company in Luxembourg was not the beneficial owner of the dividends and thus the dividends were not covered by the tax exemption rules of the EU Parent/Subsidiary Directive or the Double Taxation Convention between Denmark and Luxembourg. On that basis an assessment was issued regarding payment of withholding tax on the dividends. An appeal was filed by Heavy Transport Holding Denmark ApS with the High Court. Judgement of the Eastern High Court The court dismissed the appeal of Heavy Transport Holding Denmark ApS and decided in favor of the tax authorities. The parent company in Luxembourg was a so-called “flow-through” company which was not the beneficial owner of the dividend and thus not covered by the tax exemption rules of the Parent/Subsidiary Directive and the Double Taxation Convention between Denmark and Luxembourg. The Danish subsidiary was held liable for the non-payment of dividend tax. Excerpt “The actual distribution On 23 May 2007, Heavy Transport Holding Denmark ApS distributed USD 325 million, corresponding to DKK 1,799,298,000, to its parent company Heavy Transport Finance (Luxembourg) SA. The amount was set off by the Danish company against a claim on the Luxembourg parent company arising from a loan of the same amount taken out by Heavy Transport Finance (Luxembourg) SA in Heavy Transport Holding Denmark ApS on 22 January 2007 to pay the purchase price for the company. Heavy Transport Finance (Luxembourg) SA acquired Heavy Transport Holding Denmark ApS from the two companies, Heavy Transport Group Inc. and Incomara Holdings SA, both resident in Panama and owners of both the Danish and Luxembourg companies. The purchase price was transferred from Heavy Transport Finance (Luxembourg) SA to the Panamanian companies on 24 January 2007. The loan from Heavy Transport Holding Denmark ApS to Heavy Transport Finance (Luxembourg) SA of USD 325 million is referred to in the loan agreement between the parties of 22 January 2007 as an ‘interim dividend’ and states that the amount will be paid as a ‘short term loan’ until such time as a resolution is passed at a future general meeting of Heavy Transport Holding Denmark ApS to distribute a dividend to the parent company in the same amount. The loan agreement also provides that the loan is to be repaid on demand or immediately after the dividend payment has been declared by offsetting it. It is undisputed that the company Heavy Transport Finance (Luxembourg) SA was set up as an intermediate holding company between the Panamanian companies and Heavy Transport Holding Denmark ApS with the aim of ensuring that no Danish withholding tax was triggered by the dividend distribution. Moreover, as regards the activities of Heavy Transport Finance (Luxembourg) SA, it appears that the company, which was apparently set up in 2004 to provide the financing for Heavy Transport Holding Denmark ApS and, after 22 January 2007, as the parent company of the company, did not have (and does not have) any employees, the administration of the company being outsourced to a group company in Luxembourg, Heerema Group Service SA. It is undisputed that the parent company had no other activity when it took over the Danish company. Heavy Transport Finance (Luxembourg) SA’s annual accounts for 2007 show that its assets as at 31 December 2007 consisted of cash of USD 148 551 and financial assets of USD 1 255 355 in its subsidiary Heavy Transport Holding Denmark ApS. In the light of the foregoing, the Court finds that Heavy Transport Finance (Luxembourg) SA was obliged and, moreover, was only able to repay the loan of USD 325 million to Heavy Transport Holding Denmark ApS by offsetting the dividend received and thus had no real power of disposal over the dividend. Consequently, and since the purpose of the transactions was undoubtedly to avoid Danish taxation of the dividends in connection with the repatriation of the funds to the shareholders in Panama, Heavy Transport Finance (Luxembourg) SA cannot be regarded as the beneficial owner of the dividends within the meaning of Article 10(2) of the Double Taxation Convention and, as a general rule, the tax should not be reduced in accordance with the rules of the Convention. Heavy Transport Finance (Luxembourg) SA is also not entitled to the tax exemption under the Parent/Subsidiary Directive, as it must be considered as a flow-through company with no independent economic and commercial justification, and must therefore be characterised as an artificial arrangement whose sole purpose was to obtain the tax exemption under the Directive, see the judgment of 26 February 2019 in Joined Cases C-116/16 and C-117/16. Significance of the possibility of liquidation under Article 59 of the current law on limited liability companies However, Heavy Transport Holding Denmark ApS claims that there is no abuse of the Parent/Subsidiary Directive, since the two shareholders in Panama, Heavy Transport Group Inc. and Incomara Holdings SA, instead of contributing the company Heavy Transport Finance (Luxembourg) SA to receive and distribute the ordinary dividends of Heavy Transport Holding Denmark ApS to the Panamanian companies, could have chosen to liquidate the Danish company pursuant to Article 59 of the current Anartsselskabslov, whereby any liquidation proceeds distributed by the parent company in Luxembourg would have been tax-free for the two shareholders. In its judgment of 26 February 2019, paragraphs 108-110, the CJEU has ruled on the situation where there is a double taxation convention concluded between the source State and the third State in which the beneficial owners of the dividends transferred by the flow-through company are resident for tax purposes. The Court held that such circumstances cannot in themselves preclude the existence of an abuse of rights. The Court stated that if it is duly established on the basis of all the facts that the traders have carried out purely formal or artificial transactions, devoid of any economic or ...

On 30 November 2012, X sold its trademarks to subsidiary C which in turn sold the trademarks to subsidiary D. X and D then entered into a trademark license agreement according to which X would pay license fees to D. These license fees were deducted by X in its 2013 tax return. The tax authorities claimed that X had understated its taxabel income as the license fees paid by X to D for the use of trademarks were not related to obtaining or securing a source of revenue. The decision stated that in the light of the principles of logic and experience, the actions taken by the taxpayer made no sense and were not aimed at achieving the revenue in question, but instead at generating costs artificially – only for tax purposes. An appeal was filed by X. Judgement of the Administrative Court The court set aside the assessment of the tax authorities and decided in favor of X. According to the court taxpayers are not obliged to conduct their business in such a way as to pay the highest possible taxes, and gaining benefits from so-called tax optimization not prohibited by law, was allowed in 2013. The Polish anti-avoidance clause has only been in force since 15 July 2016. Furthermore, although it may have been possible to set aside legal effects of the transactions under the previous provision in Article 24b § 1 of the C.C.P., the Constitutional Tribunal in its verdict of 11 May 2004, declared this provision to be inconsistent with the Constitution of the Republic of Poland. Excerpts “In the Court’s view, the authorities’ findings fail to comply with the provisions applied in the case, including in particular Article 15 of the CIT Act. The legal transactions described in the appealed decision indeed constitute an optimisation mechanism. However, the realised transaction scheme is not potentially devoid of economic as well as tax rationales. The actions performed were undoubtedly also undertaken in order to achieve the intended tax result, i.e. optimisation of taxation. It should be strongly emphasised that none of the actions taken were ostensible. All of the applicant’s actions were as real as possible. Noticing the obvious reality of the above transactions, the tax authorities did not even attempt to apply the institution regulated in Article 199a of the CIT Act. The omission of legal effects of the transactions performed would probably have been possible in the former legal order, under Article 24b § 1 of the C.C.P., but this provision is no longer in force. The Constitutional Tribunal in its verdict of 11 May 2004, ref. no. K 4/03 (Journal of Laws of 2004, no. 122, item 1288) declared this provision to be inconsistent with the Constitution of the Republic of Poland. On the other hand, the anti-avoidance clause introduced by the Act of 13 May 2016 amending the Tax Ordinance Act and certain other acts (Journal of Laws 2016, item 846) has been in force only since 15 July 2016. Pursuant to the amended Article 119a § 1 o.p. – an act performed primarily for the purpose of obtaining a tax benefit, contradictory in given circumstances to the object and purpose of the provision of the tax act, does not result in obtaining a tax benefit if the manner of action was artificial (tax avoidance). Issues related to the application of the provisions of this clause in time are regulated by Article 7 of the Amending Act, according to which the provisions of Articles 119a-119f of the Act amended in Article 1 apply to the tax advantage obtained after the date of entry into force of this Act. Thus, the anti-avoidance clause applies to tax benefits obtained after the date of entry into force of the amending law, i.e. from 15 July 2016, which, moreover, was not in dispute in the present case. Considering the above, it should be pointed out that the tax authorities in the case at hand had no authority to use such argumentation as if the anti-avoidance clause applied. In the legal state in force in 2013. (applicable in the present case) the general anti-avoidance clause was not in force. This state of affairs amounts to a prohibition on the tax authorities disregarding the tax consequences of legal transactions carried out primarily for the purpose of obtaining a tax advantage.” Click here for English translation. Click here for other translation Poland case no I SA_Po 1058_21 - Wyrok WSA w Poznaniu z 2022-03-28 ...

The issue in these two cases is whether withholding tax was payable on interest paid to foreign group companies considered “beneficial owners” via conduit companies covered by the EU Interest/Royalties Directive and DTA’s exempting the payments from withholding taxes. The first case concerned interest accruals totalling approximately DKK 1,476 million made by a Danish company in the period 2007-2009 in favour of its parent company in Sweden in connection with an intra-group loan. The Danish Tax Authorities (SKAT) subsequently ruled that the recipients of the interest were subject to the tax liability in Section 2(1)(d) of the Corporation Tax Act and that the Danish company was therefore obliged to withhold and pay withholding tax on a total of approximately DKK 369 million. The Danish company brought the case before the courts, claiming principally that it was not obliged to withhold the amount collected by SKAT, as it disputed the tax liability of the recipients of the interest attributions. The second case concerned interest payments/accruals totalling approximately DKK 3,158 million made by a Danish company in the period 2006-2008 in favour of its parent company in Luxembourg in respect of an intra-group loan. SKAT also ruled in this case that the interest payments/write-ups were taxable for the recipients and levied withholding tax on them from the Danish company totalling approximately DKK 817 million. The Danish company appealed to the courts, claiming principally that the interest was not taxable. The Eastern High Court, as first instance, dealt with the two cases together. The European Court of Justice has ruled on a number of preliminary questions in the cases, see Joined Cases C-115/16, C-118/16, C119/16 and C-299/16. In both cases, the Ministry of Taxation argued in general terms that the parent companies in question were so-called “flow-through” companies, which were not the “beneficial owners” of the interest, and that the real “beneficial owners” of the interest were not covered by the rules on tax exemption, i.e. the EU Interest/Royalties Directive and the double taxation conventions applicable between the Nordic countries and between Denmark and Luxembourg respectively. Judgement of the Eastern High Court In both cases, the Court held that the parent companies in question could not be regarded as the “beneficial owners” of the interest, since the companies were interposed between the Danish companies and the holding company/capital funds which had granted the loans, and that the corporate structure had been established as part of a single, pre-organised arrangement without any commercial justification but with the main aim of obtaining tax exemption for the interest. As a result, the two Danish companies could not claim tax exemption under either the Directive or the Double Taxation Conventions and the interest was therefore not exempt. On 3 May 2021, the High Court ruled on two cases in the Danish beneficial owner case complex concerning the issue of taxation of dividends. The judgment of the Regional Court in Denmark vs NETAPP ApS and TDC A/S can be read here. Click here for English translation Click here for other translation Takeda AS and NTC Parents Sarl Nov 2021 case no b-2942-12 ...

Brewery S.A. had transferred its trademarks to a subsidiary in Cyprus and in subsequent years paid royalties/licences for the use of the trademarks. The tax authorities had disregarded deductions of the royalty/licence payments for tax purposes, and the resulting assessment of additional taxable income was later upheld by the District Administrative Court. Judgement of the Supreme Administrative Court In its judgment, the court stated that it is beyond the scope of the legal possibilities of tax authorities to assess legal actions and to derive – contrary to their content – negative tax consequences for the taxpayer, if such authorisation does not directly result from a tax provision. The court referred to the position contained in the NSA’s judgment of 16 December 2005, in the light of which, the tax authorities have no grounds under tax law for questioning effectively concluded agreements, even if their purpose is to reduce the tax burden. Seeking to pay the lowest possible taxes is not prohibited by law; it is, as it were, a natural right of every taxpayer. It is up to the tax authorities and then the administrative court to assess how effectively (in accordance with the law) these aspirations are realised by a particular entity . In conclusion, the NSA stated that in the light of the above remarks and the factual circumstances of that case, it is reasonable to conclude that, from the perspective of the content of Article 15(1) of the TAX Act, only the assessment of the transaction between the appellant company and the Cypriot company, connected with determining whether the expenditure incurred on account of the concluded sub-license agreement fulfils the prerequisites resulting from that provision, and in particular whether there is a causal link between the incurred expenditure and the obtained (objectively obtainable) revenue or the preservation or protection of a source of revenue, is of significance. The court gave a positive answer to this question. Since the transaction of selling copyright to trademarks was legally effective, it means that the ownership of these rights was transferred to another entity, even if it is a company controlled by a domestic company. Therefore, if the exclusive holder of the rights to use certain property rights is another entity than the applicant company, and in order to maintain the current domestic production, it was necessary to use the right to these trademarks, even in the form of a sub-licence (the acquisition of which was also not questioned) and production and sale of goods with these trademarks was carried out, it is difficult not to see the connection of the incurred expense with the source of revenue, which is economic activity, and the fact that the expense was incurred in order to obtain revenue. The Court stated that the tax authorities did not make use in that case of the possibility provided in the legal state of 2011 by the provision of Article 11 of the tax act. This regulation, concerning the possibility of correcting the prices applied between related parties, in fact introduced an exception to the principle of determining income taking into account the prices applied between counterparties. Its purpose was and is to prevent the erosion of the tax base through the harmful transfer of profits between related parties. Click here for English Translation Click here for other translation Poland vs P SA SAC II FSK 1550-19 ...

A shared service center in Poland both provided intra-group services to the group and in doing so also received and paid for services from other group companies. At issue was payments for the services that the Shared Service Center in Poland received. Under some circumstances intra-group service costs are non-deductible in Poland according to local anti-avoidance provisions aimed at base eroding payments, and according to the tax authorities the payments for intra group services received by the Shared Service Center were non-deductible according to these anti-avoidance provisions. The tax authorities had considered that the payments for the received services were non-deductible according to these provisions. Court decision Service costs that are directly connected with provision of services that generate income, and are included in the base for remuneration of the services provided are deductable and thus not covered by the non-deduction provisions. The Company’s revenues in connection with the support provided to related entities (domestic and foreign) was calculated based on the net transaction margin method or cost plus. This means that the cmpany determines the cost base (operating costs and in the case of the net transaction margin method general administrative costs) allocated appropriately to each recipient of the service to define revenues from services provided to related entities, and it is the cost base that is key to determine the Company’s remuneration for a given service. According to the Company, it operates a shared services center, and therefore provides support services. Therefore, the company bears a number of costs that are oriented towards the provision of the service for the person ordering the service. Although the costs incurred by the Company may have the nature of indirect costs (in accounting terms), in a business sense, individual cost elements affect the quality and nature of the service provided for the party ordering the service. This is the activity of shared service centers, which are cost centers that, through the skilful use of synergies, are able to create value (including value at the level of costs) for the service provider. The condition for excluding expenditure from cost limitation is that the expenditure as a tax deductible cost is directly related to the act of producing or purchasing a good or providing a service. In this case, a language interpretation outlines the boundaries of other interpretations, including functional ones. The interpretation of the provision of art. 15e paragraph 11 point 1, made by the authority in an unacceptable manner, inconsistent with the content of the norm contained therein, excludes service providers from the right to exclude from cost limitation referred to in art. 15e paragraph 1, despite meeting the conditions of this exclusion. The service expenditures were not artificial or economically unjustified, which should be counteracted by limiting costs (and thus limiting the right to classify expenditure as tax deductible costs). Therefore, it should be emphasized that functional (including teleological) interpretation of the limitation of being classified as tax deductible costs (Article 15e (1), which has a clear connection with the exclusion of this limitation (Article 15e (11) updop), leads to the conclusion, that the purpose of the restriction was to counteract aggressive optimization, the lack of economic justification for the expenditure incurred. This means that the exclusion of a restriction must be caused by the lack of such features of the expenditure incurred when considering the functional and systemic interpretation Click here for translation 935-19 - Wyrok WSA w Poznaniu ...

“Brewery S.A.” had transferred its trademarks to a subsidiary in Cyprus and in subsequent years paid royalties/licences for the use of the trademarks. The tax authorities disregarded the deductions of the royalty/licence payments, and issued an assessment of additional taxable income. An appeal was filed by “Brewery S.A.” Judgement of the District Administrative Court The court dismissed the appeal of “Brewery S.A.” and upheld the assessment issued by the tax authorities. “It should be emphasised that the tax authorities have not questioned the already well-established view that sub-licence fees are, in principle, deductible costs. They did not question either their incurrence by the company or their amount. However, in the specific circumstances, they pointed out that these fees were not purposeful and have no connection to revenue. On the other hand, if, in a specific case, an analysis of the entity’s conduct in the light of the principles of logic and life experience leads to the conclusion of an obvious and complete lack of sense of the actions taken, aiming, in principle, not at the desire to actually achieve a given revenue, but to artificially, solely for tax purposes, generate costs, one may speak of the lack of a cause and effect relationship referred to in Article 15(1) of the CIT Act. This is because then the taxpayer’s purpose is different – instead of generating revenue, he or she seeks only to avoid paying tax” Click here for English Translation Click here for other translation Poland Case I SA-Lu 48-19 - Wyrok ...

On 17 February 2003, the President of the Polish Supreme Administrative Court and the Ombudsman requested the Constitutional Court to declare that Article 24b par. 1 of the Tax Ordinance of 29 August 1997 – by giving the tax authorities and fiscal control bodies, while resolving a tax case, the right to disregard the effects of legal transactions which may give the taxpayer an advantage in the form of reduction of tax liability, increase of overpayment or refund of tax – violates the principle of citizens’ trust in the state and the created law resulting from Article 2 of the Constitution of the Republic of Poland and violates the principle of freedom of economic activity expressed in the freedom to arrange one’s civil law relations, i.e. Article 22 of the Constitution of the Republic of Poland. Article 24b of the Tax Ordinance had the following wording: “Art. 24b par. 1. Tax authorities and tax inspection bodies, when settling tax cases, shall disregard the tax consequences of legal actions, if they prove that from the performance of these actions one could not expect any significant benefits other than those arising from a reduction in the amount of tax liability, increase in loss, increase in overpayment or refund of tax. Par. 2. If the parties, by performing a legal transaction referred to in par. 1, have achieved an intended economic result for which another legal transaction or transactions is appropriate, the tax consequences are derived from that other legal transaction or transactions”. Judgement of the Constitutional Court In a split decision, the Court declared the provision in Article 24b § 1 of the Tax Ordinance inconsistent with the Constitution of the Republic of Poland. Excerpts “The infringement of the Constitution consists in enacting unclear and ambiguous provisions, which do not allow a citizen to foresee the legal consequences of his actions” /Judgement of 22 May 2002, K 6/02 – OTK ZU 2002 nr 3/A poz. 33 p. 448/. It follows from the principle of determinacy that “every legal regulation should be constructed correctly from the linguistic and logical point of view – it is only when this basic condition is met that it can be assessed in terms of the remaining criteria”.” “Phrases such as: “could not have been expected”, “other significant benefits”, “benefits resulting from the reduction of the amount of the liability” definitely do not allow to assume that “their jurisprudential interpretation will indeed be uniform and strict” and that “from their wording it will not be possible to derive a law-making power of the applying bodies”. It is worth noting here, that the aforementioned reservation, that a provision using indefinite phrases should not become the object of law-making activity of organs applying the law, has been formulated by the Constitutional Tribunal first and foremost in relation to the normative provisions applied by the courts” “In the opinion of the Constitutional Tribunal, such a statutory solution does not withstand criticism in the light of art. 93 clause 2 of the Constitution. On the one hand, it leads to a dangerous and undesirable blurring of the distinction between lawmaking and its interpretation, which results from giving the value of extended validity to the official interpretation, which is supposed to perform exclusively the function of subjectively limited ordering and unification of the jurisprudential activity. On the other hand, it makes acts addressed formally only to the internal structure of the state apparatus a means of influencing the sphere of taxpayers’ rights and freedoms, i.e. the sphere which may be regulated only by acts included in the closed category of sources of universally binding law. This kind of impact is not permissible either through sources of law of an internal character, or even less so through acts, which only seemingly have the value of purely interpretative actions, but in practice assume features similar to those displayed by normative acts. Therefore, apart from the inconsistency with art. 93 sec. 2 sentence 2 of the Constitution, the solution adopted in art. 14 par. 2 of the Tax ordinance may lead to “disruption” of the whole concept of the system of sources of law adopted by the legislator.” NB. A new Polish anti-avoidance clause was introduced by the Act of 13 May 2016 amending the Tax Ordinance and has been in force since 15 July 2016. Pursuant to the amended anti-avoidance provision in Article 119a § 1 o.p. – an act performed primarily for the purpose of obtaining a tax benefit, contradictory in given circumstances to the object and purpose of the provision of the tax act, does not result in obtaining a tax benefit if the manner of action was artificial (tax avoidance). Click here for English translation. Click here for other translation Poland case K 4_03 - Wyrok TrybunaÅ‚u Konstytucyjnego z 2004-05-11 ...