Following an audit the tax authorities issued a adjustment to BMW Hellas S.A. related to its pricing of imported cars. The adjustment was later annulled by the Administrative Court of Appeal. Not satisfied with this result, the tax authorities then filed an appeal with the Supreme Administrative Court. Judgement of the Supreme Administrative Court The Supreme Court dismissed the appeal of tax authorities and upheld the decision of the Administrative Court of Appeal. Excerpts “Because, as is clear from the above-mentioned provision of Article 137.C(C)(2) of the Customs Code, the customs authorities are not in breach of their obligations under Article 137.C(2) of the Customs Code. 1 of Law No. 3583/2007, smuggling, when importing a vehicle into the country, occurs where the non-payment or reduced payment of the tax or duty provided for by law is the result of the declaration of false information or the falsification of the documents required for importation or the use of special devices. For the purposes of those provisions, any action which misleads the customs authorities as to the nature, extent and amount of the tax or duty liability constitutes a deception and, more generally, an act intended to avoid payment of the taxes and duties legally due. The importation of vehicles at wholesale selling prices which are lower than the wholesale selling prices at which similar imports have been made in the past, but which are in accordance with the manufacturer’s price list and on which the statutory taxes (and, where appropriate, duties) have been calculated and paid, does not therefore constitute a deception in that sense, irrespective of the business policy which dictated the reduction in wholesale prices and irrespective of whether that business policy was subsequently changed; nor do such imports subsequently acquire the character of a ploy because the retail price is not set in line with the reduced wholesale price and the benefit of the importer’s payment of a lower price is not passed on to consumption, but legally calculated, regardless of whether that non-passing on is compatible with the sound operation of trade. Consequently, in the circumstances of the case, the Administrative Court of Appeal rightly held that the mere reduction in the factory prices of the cars imported by the first respondent in 2011, 2012 and 2013, without, at the same time, any other misleading action on the part of the appellants to deceive the customs authorities during the customs clearance of the cars, did not constitute a case of a ploy within the meaning of Article 137 C(1)(b) of the Customs Code. 7 and 155(7). 2(m) of the National Customs Code and that, as a result, the objective element of smuggling was not established in this case, and that the claims to the contrary, given that the first respondent’s benefit from the reduction in its tax burden on importation of the cars imported at a reduced wholesale price was not passed on to the retail selling prices of the cars imported at a reduced wholesale price, must be rejected as unfounded.” Click here for English translation Click here for other translation ...

CF (Pvt) Ltd’s main business was import, distribution and marketing of motor vehicles and spare parts of a specified brand. Following an audit CF had been issued a tax assessment related to the transfer pricing and VAT – import prices, management fees, audit costs etc. Judgement of the High Court The High Court issued a decision predominantly in favor of the tax authorities. In its judgement, the court stated that either the general deduction provision under section 15 (2) or section 24 or section 98 of the Income Tax Act could be employed to deal with transfer pricing matters. Excerpts: “It seems to me that the unsupported persistent assertions maintained by the appellant even after the concession of 14 November 2014 were indicative of both corporate moral dishonesty and a lack of good faith. I therefore find that the appellant through the mind of its management evinced the intention to evade the payment of the correct amount of tax as contemplated by s 46 (6) of the Income Tax Act by claiming the deduction of management fees paid to the intermediary, who was not entitled to such fees. The Court or the Commissioner have no option but to impose a 100% penalty. The penalty imposed by the Commissioner is accordingly confirmed.” “It seems to me that the Commissioner may very well have been justified in invoking the provisions of s 24 of the Income Tax Act by the acts of commission and omission of the appellant in respect of both management fees and goods in transit at the time he did. However, in accordance with the provisions of s 65 (12) of the Income Tax Act I did not find the claim of the Commissioner unreasonable even in respect of the interest issue that the Commissioner conceded at the eleventh hour or the grounds of appeal frivolous. I will therefore make no order of costs against either party other than that each party is to bear its own costs. Disposal Accordingly, it is ordered that: 1. The amended assessments number 20211442 for the year ending 31 December 2009, 20211443 for the year ending 31 December 2010, 202211446 for the year ending 31 December 2011 and 20211448 for the year ending 31 December 2012 that were issued against the appellant by the respondent on 27 June 2014 are hereby set aside. 2. The Commissioner is directed to issue further amended assessments against the appellant in respect of each year of assessment in compliance with this judgment and in doing so shall: a. Add back to income 7% interest on the cost of services rendered by the appellant for the consignment stock in transit to Zambia, Malawi and Tanzania in the sum of US$2 240 for 2009, US$ 2 505.87 for 2010, US$ 2 198.13 for 2011 and US$3 273.20 for 2012 tax years, respectively. b. Add back to income management fees that were deducted by the appellant in each year in the sum of US$130 000 for 2009, US$140 000 for 2010, US$ 256 629 for 2011 and US$ 140 000 for 2012 tax year, respectively. c. Bring to income the provisions for leave pay in the sum of US$10 000 for 2009, US$ 9 960 for 2010, US$2 049 for 2011 and US$ 491 for 2012 tax year. d. Bring to income provisions for audit fees in the sum of US$ 10 199.17 for 2009, US$12 372 for 2010, US$10 575 for 2011 and US$ 1 260 for the 2012 tax year, respectively. e. Discharge the notional interest he sought to impose on loans and advances made to ADI and GS, respectively. 3. The appellant is to pay 100% additional tax on management fees, 4. The appellant shall pay additional penalties of 10% in respect of leave pay and audit fee provisions. 5. The tax amnesty application is dismissed. 6. Each party shall bear its own costs.” Click here for other translation ...

A tax assessment based on Japanese CFC rules (anti-tax haven rules) had been applied to a “TH Corp”‘s, subsidiary in Singapore. According to Japanese CFC rules, income arising from a foreign subsidiary located in a state or territory with significantly lower tax rates is deemed to arise as the income of the parent company when the principal business of the subsidiary is holding shares or IP rights. However, the CFC rules do not apply when the subsidiary has substance and it makes economic sense to conduct business in the subsidiary in the low tax jurisdiction. Judgement of the court. According to the court, total revenue, number of employees, and fixed facilities are relevant in this determination. The Court held that the Singapore subsidiary had conducted a broad range of businesses – including finance and logistics – with the economically rational purpose of streamlining its ASEAN operations, and thus set aside the CFC taxation. Excerpt “Satisfaction of the substance and control criteria (a) According to the above-mentioned findings, A1 rents an office in Singapore and uses it for the regional control business. Therefore, it can be said that A1 has fixed facilities in Singapore, the country where its head office is located, which are deemed to be necessary for the conduct of its main business, the regional control business. Therefore, it satisfies the substantive criteria (Article 6-6(4) and (3) of the Act). (b) According to the facts certified above, A1 holds general meetings of shareholders and meetings of the board of directors, executes the duties of officers, and prepares and keeps accounting books in Singapore. Therefore, it can be said that A1 manages, controls and operates its own business in the country where its head office is located, and therefore, the management control standard (Article 66-6 Article 66-6, paragraphs 4 and 3). Conclusion According to the above, A1 satisfies all of the requirements for exemption from application, namely, the business criterion, the country of domicile criterion, the substance criterion and the control criterion. Therefore, the plaintiff is exempted from the application of Article 66-6(1) of the Measures Act in each of the fiscal years in question.” Click here for English translation Click here for other translation ...