Tag: Broadcom

Israel vs Broadcom, December 2019, Lod District Court, Case No 26342-01-16

Broadcom Semiconductors Ltd is an Israeli company established in 2001 under the name Dune Semiconductors Ltd. The Company is engaged in development, production, and sale of components to routers, switches etc. The shares in Dune Semiconductors were acquired by the Broadcom Corporation (a US group) in 2009 and following the acquisition intellectual property was transferred to the new Parent for a sum of USD 17 million. The company also entered into tree agreements to provide marketing and support services to a related Broadcom affiliate under a cost+10%, to provide development services to a related Broadcom affiliate for cost+8%, and a license agreement to use Broadcom Israel’s intellectual property for royalties of approximately 14% of the affiliate’s turnover. The tax authorities argued that functions, assets, and risks had been transferred leaving only an empty shell in Israel and a tax assessment was issued based on the purchase price for the shares resulting in additional taxes of USD 29 millions. According to the company such a transfer of functions, assets, and risks would only be applicable if Broadcom Israel had been emptied of its activities which  was not the case. Following the restructuring Broadcom Israel continued as a licensor and as a service provider. The financial situation of the company also improved. The position of the company was further supported by the fact that several years following the restructuring, Broadcom Israel sold its intellectual property and was taxed for the capital gain. The District Court held in favor of the company. A business restructuring from a fully fledged principal  to a service provider on a cost-plus basis does not necessarily result in a transfer of value. Judgement of the Court In the judgement the court argues that this case is different from the prior Gteko-case where the Israeli company became an empty shell and financial results were dramatically reduced following the acquisition and restructuring of the company. Unlike the Gteko-case, Broadcom had increased its activities in Israel following the acquisition. The court also emphasized that the tax authorities did not take into consideration options realistically available to the company at the time of the restructuring. For a business restructuring to constitute a sale of functions, assets, and risks property for tax purposes, it must be demonstrated not only that the change occurred, but also that the change did not meet the arm’s length principle. The court confirmed that the OECD’s Transfer Pricing Guidelines are applicable as a reference for tax purposes in Israel. Click here for an English translation Broadcom Israel 263420116inew ...

Italy vs Computer Associates SPA, February 2013, Supreme Court no 4927

The Italian tax authorities had challenged the inter-company royalty paid by Computer Associates SPA, 30% as per contract, to it’s American parent company, registered in Delaware. According to the authorities a royalty of 7% percentage was determined to be at arm’s length and an assessment for FY 1999 was issued, where deduction of the difference in royalty payments was disallowed. The tax authorities noted the advantage for group to reduce the income of Computer Associates SPA, increasing, as a result, that of the parent company, due to the much lower taxation to which the income is subject in the US state of Delaware, where the latter operates (taxation at 36% in Italy, and 8.7% in the State of Delaware). The Supreme Court dismissed the appeal of Computer Associates SPA and concluded that the assessment was in compliance with the law. Click here for English translation Click here for other translation Italy Supreme-Court-27-February-2013-No.-4927.pdf ...