Tag: Article 9

Where an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State, or the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State, and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly.

Spain vs EPSON IBÉRICA S.A.U., March 2021, Supreme Court, Case No 390:2021

The SEIKO EPSON CORPORATION is a multinational group of Japanese origin active in among others areas, production and sale of computer products. The group is present in Spain, EPSON IBÉRICA, but has its European HQ in the Netherlands, EPSON EUROPE BV. The main shareholder and sole director of EPSON IBÉRICA S.A.U. was initially Mr. Jose Augusto. However, following a capital increase on 24 April 1986, EPSON IBÉRICA SAU became the subsidiary of the EPSON Group […]

UK vs Union Castle Ltd, April 2020, UK Court of Appeal, Case No A3/2018/3003 and 3004

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 […]

TPG2020 Chapter X paragraph 10.10

Although countries may have different views on the application of Article 9 to determine the balance of debt and equity funding of an entity within an MNE group, the purpose of this section is to provide guidance for countries that use the accurate delineation under Chapter I to determine whether a purported loan should be regarded as a loan for tax purposes (or should be regarded as some other kind of payment, in particular a […]

TPG2020 Chapter X paragraph 10.5

Commentary to Article 9 of the OECD Model Tax Convention notes at paragraph 3(b) that Article 9 is relevant “not only in determining whether the rate of interest provided for in a loan contract is an arm’s length rate, but also whether a prima facie loan can be regarded as a loan or should be regarded as some other kind of payment, in particular a contribution to equity capital.”

UK vs Union Castle Ltd, October 2018, UK Upper Tribunal, Case No 0316 (TCC)

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 […]

Spain vs EPSON IBÉRICA S.A.U., Feb 2018, High Court, Case No 314/2016

EPSON IBÉRICA S.A.U. had deducted the full employee pension costs of a CEO that had worked both for the HQ in the Netherlands and the local Spanish Company. The tax authorities issued an assessment where 90% of the pension costs had been disallowed in regards to the taxable income in Spain. The disallowed percentage of the costs was based on the CEO’s salary allocation between Netherlands (90%) and Spain (10%), cf. the agreement entered between […]

OECD Article 9 (with commentary)

ARTICLE 9 ASSOCIATED ENTERPRISES 1. Where an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State, or the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State, and in either case conditions are made or imposed bet ween the two enterprises in their […]

TPG2017 Chapter VI paragraph 6.2

The purpose of this Chapter VI is to provide guidance specially tailored to determining arm’s length conditions for transactions that involve the use or transfer of intangibles. Article 9 of the OECD Model Tax Convention is concerned with the conditions of transactions between associated enterprises, not with assigning particular labels to such transactions. Consequently, the key consideration is whether a transaction conveys economic value from one associated enterprise to another, whether that benefit derives from […]

TPG2017 Chapter VI paragraph 6.1

Under Article 9 of the OECD Model Tax Convention, where the conditions made or imposed in the use or transfer of intangibles between two associated enterprises differ from those that would be made between independent enterprises, then any profits that would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly.

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