The taxpayer paid interest on five loans concluded with its Dutch subsidiary (“BV2”) on 31 December 2017, claiming exemption from withholding tax on the basis of the double taxation treaty between Belgium and the Netherlands (Article 11, §3, (a)). The dispute concerns whether the Dutch subsidiary “BV2” can be considered the beneficial owner of these interests. The concept of “beneficial owner” is not defined in the Belgium-Netherlands double tax treaty. However, this concept is also used in the European Directive on interest and royalties. In the Court’s view, this concept must be interpreted in the same way for the application of the Belgian-Dutch double taxation treaty. Indeed, as members of the EU, Belgium and the Netherlands are also obliged to ensure compliance with EU law. The Court noted that, of the five loans on which the taxpayer paid interest to its subsidiary “BV2”, four loans were linked to four other loans granted by a Dutch company higher up in the group’s organisation chart and having the legal form of a “CV” (now an LLC), to the taxpayer’s Dutch parent company, “BV1”. The fifth loan on which the taxpayer pays interest to its subsidiary “BV2” is clearly linked to a fifth loan granted by the same “CV” (now LLC) to the said subsidiary “BV2”. The taxpayer’s subsidiary “BV2” and its parent company “BV1” together form a tax unit in the Netherlands. At the level of the tax unit, a ruling (“APA-vaststellingsovereenkomst”) has been obtained in the Netherlands, stipulating a limited remuneration for the financing activities that this tax unit carries out for the companies in the group. The “transfer pricing report” attached to the ruling request indicates that a Dutch CV is the lender and that the taxpayer is the final borrower in respect of the loans in question. The “APA-vaststellingsovereenkomst” also clearly shows the link between these various loans. The loans granted by the CV are then transferred to a new Delaware LLC. The mere fact that a tax unit exists between the taxpayer’s subsidiary “BV2” and the parent company “BV1” does not imply ipso facto that the subsidiary “BV2” is a conduit company and therefore does not, in principle, prevent it from being considered a “beneficial owner”. However, a tax unit may be part of an arrangement designed to avoid or evade tax in certain transactions. The tax unity between the subsidiary “BV2” and the parent company “BV1” of the taxpayer has the effect that the interest obtained by the subsidiary “BV2” is offset by the interest paid to the LLC, so that there is virtually no tax to pay on this interest. Furthermore, the taxpayer would not have been able to claim any exemption if he had paid the interest directly to the LLC and if the interposition of the Dutch companies had not been used. In addition to the aforementioned links between the various loans, the Court emphasised the fact that the claims against the taxpayer and the underlying debts were initially held by a single company, that they were then divided between the taxpayer’s Dutch subsidiary “BV2” (claims) and the parent company “BV1” (debts), and then, following a merger between this subsidiary and the parent company, were reunited within the same company (BV 1). According to the court, this also reveals the interlocking nature of these loans, as well as the artificial nature of the construction. It is at least implicit from the above facts that the Dutch subsidiary “BV2” and the parent company “BV1” act only as formal intermediaries and that the final lender is the LLC, which took over the loans from the CV. For the fifth loan, which was financed by the Dutch subsidiary “BV2” directly with the CV (now LCC), it appears that the Dutch company “BV2” has an obligation to pay interest to the CV (now LLC). For the other four loans, significant evidence of actual interest flows was found in the financial statements of the companies concerned. According to the court, the taxpayer had not met his burden of proving that he was the beneficial owner of the interest. The exemption from withholding tax was rightly rejected by the tax authorities on this basis. In addition, the withholding tax must be added to the amount of income for the calculation of the withholding tax (grossing up). Click here for English Translation Click here for other translation Belgium-Beneficial-Owner-Case-21-942-A ORG ...

The cases concerned in particular whether Takeda A/S under voluntary liquidation and NTC Parent S.à.r.l. were obliged to withhold tax on interest on intra-group loans granted by foreign group companies. The cases were to be assessed under Danish tax law, the EU Interest/Royalty Directive and double taxation treaties with the Nordic countries and Luxembourg. In a judgment of 9 January 2023, concerning dividends distributed to foreign parent companies, the Supreme Court has ruled on when a foreign parent company is a “beneficial owner” under double taxation treaties with, inter alia, Luxembourg, and when there is abuse of rights under the EU Parent-Subsidiary Directive. In the present cases on the taxation of interest, the Supreme Court referred to the judgement of January 2023 on the general issues and then made a specific assessment of the structure and loan relationships of the two groups. The Supreme Court stated that both groups had undergone a restructuring involving, inter alia, the contribution of companies in Sweden and Luxembourg, respectively, and that this restructuring had to be seen as a comprehensive and pre-organised tax arrangement. The Supreme Court held that the contributed companies had to be regarded as flow-through companies which did not enjoy protection under the Interest/Royalty Directive or under the double taxation conventions. According to the information submitted by the parties, it could not be determined what had finally happened to the interest after it had flowed through the contributed companies, and therefore it could not be determined who was the rightful owner of the interest. The Supreme Court then held that the tax arrangements constituted abuse. Takeda under voluntary liquidation and NTC Parent should therefore have withheld interest tax of approximately DKK 369 million and DKK 817 million respectively. Click here for English translation Click here for other translation 116-117-2021-dom-til-hjemmesiden ...

A parent company resident in country Y1 was liable to tax on interest and dividends it had received from its Danish subsidiary. There should be no reduction of or exemption from withholding tax under the Parent-Subsidiary Directive or the Interest and Royalties Directive or under the double taxation treaty between Denmark and country Y1, as neither the parent company nor this company’s own Y1-resident parent company could be considered the rightful owner of the dividends and interest within the meaning of the directives and the treaty, and as there was abuse. The High Court thus found that the Y1-domestic companies were flow-through companies for the interest and dividends, which were passed on to underlying companies in the tax havens Y2-ø and Y3-ø. The High Court found that there was no conclusive evidence that the companies in Y2 were also flow-through entities and that the beneficial owner of the interest and dividends was an underlying trust or investors resident in Y4. The double taxation treaty between Denmark and the Y4 country could therefore not provide a basis for a reduction of or exemption from withholding tax on the interest and dividends. Nor did the High Court find that there was evidence that there was a basis for a partial reduction of the withholding tax requirement due to the fact that one of the investors in the company on Y3 island was resident in Y5 country, with which Denmark also had a double taxation treaty. Click here for English translation Click here for other translation ØLD Beneficial Owner CHP Airport ...

RRE and EBL Italia, belonged to the Belgian group ELECTRABEL SA (which later became the French group GDF Suez, now the Engie group); RRE, like the other Italian operating companies, benefited from a financing line from the Luxembourg subsidiary ELECTRABEL INVEST LUXEMBOURG SA (“EIL”). In the course of 2006, as part of a financial restructuring project of the entire group, EBL Italia acquired all the participations in the Italian operating companies, assuming the role of sub-holding company, and EIL acquired 45 per cent of the share capital of EBL Italia. At a later date, EBL Italia and EIL signed an agreement whereby EIL assigned to EBL Italia the rights and obligations deriving from the financing contracts entered into with the operating companies; at the same time, in order to proceed with the acquisition of EIL’s receivables from the operating companies, the two companies concluded a second agreement (credit facility agreement) whereby EIL granted EBL Italia a loan for an amount equal to the receivables being acquired. Both the tax commissions of first and of second instance had found the Office’s actions to be legitimate. According to the C.T.R., in particular, the existence of a “symmetrical connection between two financing contracts entered into, both signed on the same date (31/07/2006) and the assignments of such credits to EBL Italia made on 20/12/2006, with identical terms and conditions” and the fact that “EBL Italia accounted for the interest expenses paid to EIL in a manner exactly mirroring the interest income paid by Rosen, so as to channel the same interest, by contractual obligation, punctually to EIL’ showed that EBL Italia ‘had no management autonomy and was obliged to pay all the income flows, that is to say, the interest, obtained by Rosen immediately to the Luxembourg company EIL’, with the result that the actual beneficiary of the interest had to be identified in the Luxembourg company EIL. Judgement of the Court The Supreme Court confirmed the legitimacy of the notices of assessment issued by the Regional Tax Commission, for failure to apply the withholding tax on interest expense paid. According to the Court ‘abuse in the technical sense’ must be kept distinct from the verification of whether or not the company receiving the income flows meets the requirements to benefit from advantages that would otherwise not be due to it. One thing is the abuse of rights, another thing are the requirements to be met in order to be entitled to the benefits recognised by provisions inspired by anti-abuse purposes. “On the subject of the exemption of interest (and other income flows) from taxation pursuant to Article 26, of Presidential Decree No. 600 of 29 September 1973”, the burden of proof it is on the taxpayer company, which claims to be the “beneficial owner”. To this end, it is necessary for it to pass three tests, autonomous and disjointed” the recipient company performs an actual economic activity the recipient company can freely dispose of the interest received and is not required to remit it to a third party the recipient company has a function in the financing transaction and is not a mere conduit company (or société relais), whose interposition is aimed exclusively at a tax saving. The Supreme Court also ruled out the merely ‘domestic’ nature of the transaction as it actually consisted in a cross-border payment of interest. Click here for English translation Click here for other translation Italy vs Engie 28 Feb 2023 Supreme Court No 6045-2023 and 6079-2023 ...

The issue in the Danish beneficial ownership cases of NetApp Denmark ApS and TDC A/S was whether the companies were obliged to withhold dividend tax on distributions to foreign parent companies. The first case – NetApp Denmark ApS – concerned two dividend distributions of approximately DKK 566 million and DKK 92 million made in 2005 and 2006 to an intermediate parent company in Cyprus – and then on to NETAPP Bermuda. The second case – TDC A/S – concerned the distribution of dividends of approximately DKK 1.05 billion in 2011 to an intermediate parent company in Luxembourg – and then on to owner companies in the Cayman Islands. In both cases, the tax authorities took the view that the intermediate parent companies were so-called “flow-through companies” which were not the real recipients of the dividends, and that the real recipients (beneficial owners) were resident in countries not covered by the EU Parent-Subsidiary Directive (Bermuda and Cayman respectively). Therefore, withholding taxes should have been paid by the Danish companies on the distributions. Judgment of the Supreme Court The Supreme Court upheld the tax authorities’ assessment of additional withholding tax of 28 percent on a total amount of DKK 1,616 million plus a very substantial amount of interest on late payment. Only with regard to NetApp’s 2006 dividend payment of DKK 92 million did the court rule in favour of the company. Excerpts: “The Supreme Court agrees that the term “beneficial owner” must be understood in the light of the OECD Model Tax Convention, including the 1977 OECD Commentary on Anti-Abuse. According to these commentaries, the purpose of the term is to ensure that double tax treaties do not encourage tax avoidance or tax evasion through “artifices” and “artful legal constructions” which “enable the benefit to be derived both from the advantages conferred by certain national laws and from the tax concessions afforded by double tax treaties.” The 2003 Revised Commentaries have elaborated and clarified this, stating inter alia that it would not be “consistent with the object and purpose of the Convention for the source State to grant relief or exemption from tax in cases where a person who is resident of a Contracting State, other than as an agent or intermediary, merely acts as a conduit for another person who actually receives the income in question.” “The question is whether it can lead to a different result that NetApp Denmark – if the parent company at the time of the distribution had been NetWork Appliance Inc (NetApp USA) and not NetApp Cyprus – could have distributed the dividend to NetApp USA with the effect that the dividend would have been exempt from tax liability under the Double Taxation Convention between Denmark and the USA. On this issue, the CJEU’s judgment of 26 February 2019 states that it is irrelevant for the purposes of examining the group structure that some of the beneficial owners of the dividends transferred by flow-through companies are resident for tax purposes in a third State with which the source State has concluded a double tax treaty. According to the judgment, the existence of such a convention cannot in itself rule out the existence of an abuse of rights and cannot therefore call into question the existence of abuse of rights if it is duly established by all the facts which show that the traders carried out purely formal or artificial transactions, devoid of any economic or commercial justification, with the principal aim of taking unfair advantage of the exemption from withholding tax provided for in Article 5 of the Parent-Subsidiary Directive (paragraph 108). It also appears that, having said that, even in a situation where the dividend would have been exempt if it had been distributed directly to the company having its seat in a third State, it cannot be excluded that the objective of the group structure is not an abuse of law. In such a case, the group’s choice of such a structure instead of distributing the dividend directly to that company cannot be challenged (paragraph 110).” “In light of the above, the Supreme Court finds that the dividend of approximately DKK 92 million from NetApp Denmark was included in the dividend of USD 550 million that NetApp Bermuda transferred to NetApp USA on 3 April 2006. The Supreme Court further finds that the sole legal owner of that dividend was NetApp USA, where the dividend was also taxed. This is the case notwithstanding the fact that an amount of approximately DKK 92 million. – corresponding to the dividend – was not transferred to NetApp Cyprus until 2010 and from there to NetApp Bermuda. NetApp Bermuda had thus, as mentioned above, taken out the loan which provided the basis for distributing approximately DKK 92 million to NetApp USA in dividends from NetApp Denmark in 2006. Accordingly, the dividend of approximately DKK 92 million is exempt from taxation under Section 2(1)(c) of the Danish Corporate Income Tax Act in conjunction with the Danish-American Double Taxation Convention. NetApp Denmark has therefore not been required to withhold dividend tax under Section 65(1) of the Danish Withholding Tax Act.” Click here for English translation Click here for other translation Denmark vs Netapp and TDC 9 January 2023 case no 69-70-79-2021 ...

The issue was whether the benefits provided by the Argentina-Spain DTC were available to Empresa Distribuidora La Plata S.A., which was owned by two Spanish holding companies, Inversora AES Holding and Zargas Participaciones SL, whose shareholders were Uruguayan holding companies. The Argentine Personal Assets Tax provided that participations in Argentine companies held by non-resident aliens were generally subject to an annual tax of 0.5% or 0.25% on the net equity value of their participation. However, under the Argentina-Spain DTC, article 22.4, only the treaty state where the shareholders were located (Spain) had the right to tax the assets. On this basis, Empresa Distribuidora La Plata S.A. considered that its shares held by Spanish holding companies were not subject to the Personal Assets Tax. The tax authorities disagreed, finding that the Spanish holding companies lacked substance and that the benefits of the Argentina-Spain DTC were therefore not applicable. Judgement of the Tax Court The Tax Court ruled in favour of the tax authorities. The Court held that the treaty benefits did not apply. The Court agreed with the findings of the tax authorities that the Spanish companies had been set up for the sole purpose of benefiting from the Spain-Argentina DTC and therefore violated Argentina’s general anti-avoidance rule. Excerpt “According to the administrative proceedings, based on the background information requested from the International Taxation Directorate of the Spanish Tax Agency and other elements collected by the audit, it appears that: a) the company Inversora AES Americas Holding S.L., is made up as partners by AES Argentina Holdings S.C.A. and AES Platense Investrnents Uruguay S.C.A., both Uruguayan companies; b) the company Zargas Participaciones S.L., has as its sole partner ISKARY S.A., also a Uruguayan company. The purpose of the former is the management and administration of securities representing the equity of companies and other entities, whether or not they are resident in Spanish territory, investment in companies and other entities, whether or not they are resident in Spanish territory, and it has only three employees (one administrative and two in charge of technical areas) and has opted for the Foreign Securities Holding Entities Regime (ETVE). The second company, whose purpose is the management and administration of securities representing the equity of non-resident entities in Spanish territory, has had no employees on its payroll since its incorporation, and has also opted for the ETVE regime. Neither of the two companies is subject to taxation in their own country similar to that in the present case. According to the information provided by the Spanish Tax Agency (see fs. 34 of the Background Zargas Participaciones SL), there is no record that it has any shareholdings in the share capital of other companies. The evidence and circumstances of the case show that the Spanish companies lack genuine economic substance, with the companies AES Argentina Holdings S.C.A. and AES Platense Investments Uruguay S.C.A. (both Uruguayan) holding the shares of Inversora AES Americas Holding S.L. and the company ISKARY S.A. (also Uruguayan) holding 100% of the shares of Zargas Participaciones S.L. Thus, it is reasonable to conclude that the main purpose of their incorporation was to obtain the benefits granted by the Convention by foreign companies from a third country outside the scope of application of the treaty, without the plaintiff having been able to prove with the evidence produced in the proceedings that the Spanish companies carried out a genuine economic activity and that, therefore, they were not mere legal structures without economic substance (in the same sense CNCAF, Chamber I, in re “FIRST DATA CONO SUR S.R.L.” judgement of 3/12/2019). Consequently, the tax criterion should be upheld. With costs.” Click here for English Translation Click here for other translation Argentina-vs-Empresa-Distribuidora-La-Plata ...

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 ...

Since Arnoldo Mondadori Editore SpA’s articles of association prevented it from issuing bonds, financing of the company had instead been archived via an arrangement with its subsidiary in Luxembourg, Mondadori International S.A. To that end, the subsidiary issued a bond in the amount of EUR 350 million, which was subscribed for by US investors. The funds raised were transferred to Arnoldo Mondadori Editore SpA via an interest-bearing loan. The terms of the loan – duration, interest rate and amount – were the same as those of the bond issued by Mondadori International S.A. to the US investors. The Italian tax authority denied the withholding tax exemption in regards of the interest paid on the loan. According to the tax authorities Mondadori International S.A. had received no benefit from the transaction. The interest paid by Arnoldo Mondadori Editore SpA was immediately and fully transferred to the US investors. Mondadori International S.A. was by the authorities considered a mere conduit company, and the US investors were the beneficial owners of interest which was therefore subject to 12.5% withholding tax. Judgement of the Supreme Court The Supreme Court set aside the assessment of the tax authorities and decided in favor of Arnoldo Mondadori Editore SpA. The court held that the beneficial owner requirement should be interpreted in accordance with the current commentary on Article 11 of the OECD Model Tax Convention. On that basis Mondadori International S.A. in Luxembourg was the beneficial owner of the interest and thus entitled to benefit from the withholding tax exemption. Excerpt “First, the company must take one of the forms listed in the annex to Directive 2004/49; second, it must be regarded, under the tax legislation of a Member State, as resident there for tax purposes and not be regarded, under a double taxation convention, as resident for tax purposes outside the European Union; third, it must be subject to one of the taxes listed in Article 3(a)(iii) of Directive 2003/49, without benefiting from an exemption (cf. paragraph 147 of the aforementioned decision; also paragraph 120 of Court of Justice, 26 February 2019, Case C 116/16, T Danmark; No 117/18, Y Denmark). Nor is the national authority, then, required to identify the entity or entities which it considers to be the beneficial owner of the “interest” in order to deny a company the status of beneficial owner of the “interest” (paragraph 145). Finally, in its judgment of 26 September 2019 on Joined Cases C 115/16, C 118/16, C 119/16 and C 299/16, the Court of Justice expressed the principle that the beneficial owner is anyone who does not appear to be a construction of mere artifice, providing additional indicators or spy-indicators whose presence is an indication of exlusive intent. 4. Now, in the case at hand, it emerges from the principles set out above that the “actual beneficiary” of the interest on the Italian bond must be considered to be the Luxembourg company. And in fact, contrary to the case law examined above, in the case under examination, it is not disputed in the documents that Mondadori International s.a: 1) has existed for more than fifty years; 2) has its own real operational structure and does not constitute an “empty box 3) its corporate purpose is the holding and sale of shares in publishing companies; 4) it produced profits of over EUR 8 million in the tax year in question 5) it issued the bond six months before the Italian company when the latter could not do so and precisely because it could not do so: the two loans remain distinct by virtue of their negotiating autonomy and find different justification 6) the interest received by the Italian parent company was recognised in its financial statements and contributed to its income; 7) it has actual disposal of the sums, in the absence of contractually fixed obligations of direct (re)transfer 8) it issued its own bonds, discounting the relative discipline, placing its assets as collateral for the American investors. In particular, the breach and misapplication of the law emerges due to the examination of the contractual conditions, duly reported in the appeal for cassation, fulfilling the burden of exhaustiveness of the writing (see especially pages 134 – 136). There are no obligations, limits or conditions that provide for the transfer to the United States of the amounts received from Italy, thus leaving entrepreneurial autonomy and patrimonial responsibility in the hands of the Luxembourg company, which, moreover, has a vocation by statute for corporate operations of this type. These principles have misguided the judgment on appeal, which therefore deserves to be set aside and referred back to the judge on the merits so that he may comply with the aforementioned European and national principles, which we intend to uphold. 5. The appeal is therefore well-founded and deserves to be upheld, with the absorption of grounds 1, 2, 4, 6 and 7 of appeal r.g. no. 7555/2013 and the analogous grounds 2, 3, 4, 5, 7 and 8 of appeal r.g. no. 7557/2013, all of which focus on the same question of whether Mondatori Editore is the “beneficial owner” of the payment of interest on the bond loan.” Click here for English translation Click here for other translation Italy BO case_20220203_2022-3380 ...

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 ...

In 2003 Molinos Argentina had incorporated Molinos Chile under the modality of an “investment platform company” regulated by Article 41 D of the Chilean Income Tax Law. Molinos Argentina owned 99.99% of the shares issued by Molinos Chile, and had integrated the share capital of the latter through the transfer of the majority shareholdings of three Uruguayan companies and one Peruvian company. Molinos Argentina declared the dividends originating from the shares of the three Uruguayan companies and the Peruvian company controlled by Molinos Chile as non-taxable income by application of article 11 of the DTA between Argentina and Chile. On that factual basis, the tax authorities applied the principle of economic reality established in article 2 of Law 11.683 (t.o. 1998 and its amendments) and considered that Molinos Argentina had abused the DTA by using the Chilean holding company as a “conduit company” to divert the collection of dividends from the shares of the Uruguayan and Peruvian companies to Chilean jurisdiction, in order to avoid paying income tax in Argentina and similar income tax in Chile at the same time. The non-taxation in Argentina was due to the application of article 11 in the DTA which established that dividends were only taxed by the country in which the company distributing them was domiciled (in the case of Chile, because Molinos Chile was domiciled in Chile) and the non-taxation in Chile was verified – in turn – because the dividends originated in the Uruguayan and Peruvian companies did not pay income tax in that country because they were profits from investment platform companies which “will not be considered domiciled in Chile, so they will be taxed in the country only for Chilean source income”. The tax authorities considered that the incorporation of the holding company in Chile by Molinos Argentina was not justified from the point of view of the corporate structure, since it had no real economic link with the Uruguayan and Peruvian companies and lacked economic substance or business purpose, since the dividends distributed by those companies did not remain in Molinos Chile but was used as an intermediary to remit those profits almost immediately to Molinos Argentina. It was constituted with the sole purpose of eliminating the taxation and to conduct the income obtained in states that are not party to the DTA -Uruguay and Peru- through the State with which the double taxation treaty has been concluded and using the benefits offered by the latter. Judgement of the Supreme Court The Supreme Court’s ruled in favor of the tax authorities. Molinos’s conduct was not protected by the rules of the DTA. International standards must be interpreted in accordance with the principle of good faith. The conclusions reached by the National Tax Court and the National Chamber of Appeals in Federal Administrative Litigation was not seen as unreasonable or devoid of Foundation according to the doctrine of arbitrariness. Click here for English Translation Argentina FALLO CAF 001351_2014_CS001 ...

On 3 May 2021, the Danish High Court ruled in two “beneficial owner” cases concerning the question of whether withholding tax must be paid on dividends distributed by Danish subsidiaries to foreign parent companies. The first case – NETAPP Denmark ApS – concerned two dividend distributions of approx. 566 million DKK and approx. 92 million made in 2005 and 2006 by a Danish company to its parent company in Cyprus. The National Tax Court had upheld the Danish company in that the dividends were exempt from withholding tax pursuant to the Corporation Tax Act, section 2, subsection. 1, letter c, so that the company was not obliged to pay withholding tax. The Ministry of Taxation brought the case before the courts, claiming that the Danish company should include – and thus pay – withholding tax of a total of approx. 184 million kr. The second case – TDC A/S – concerned the National Tax Tribunal’s binding answer to two questions posed by another Danish company regarding tax exemption of an intended – and later implemented – distribution of dividends in 2011 of approx. 1.05 billion DKK to the company’s parent company in Luxembourg. The National Tax Court had ruled in favor of the company in that the distribution was tax-free pursuant to section 2 (1) of the Danish Corporation Tax Act. 1, letter c, 3. pkt. The Ministry of Taxation also brought this case before the courts. The Eastern High Court has, as the first instance, dealt with the two cases together. The European Court of Justice has ruled on a number of questions referred in the main proceedings, see Joined Cases C-116/16 and C-117/16. In both cases, the Ministry of Taxation stated in general that the parent companies in question were so-called “flow-through companies” that were not real recipients of the dividends, and that the real recipients (beneficial owners) were in countries that were not covered by the EU parent / subsidiary directive. in the first case – NETAPP Denmark ApS – the High Court upheld the company’s position that the dividend distribution in 2005 of approx. 566 million did not trigger withholding tax, as the company had proved that the distribution had been redistributed from the Cypriot parent company, which had to be considered a “flow-through company”, to – ultimately – the group’s American parent company. The High Court stated, among other things, that according to the Danish-American double taxation agreement, it would have been possible to distribute the dividend directly from the Danish company to the American company, without this having triggered Danish taxation. As far as the distribution in 2006 of approx. 92 million On the other hand, the High Court found that it had not been proven that the dividend had been transferred to the group’s American parent company. In the second case – TDC A/S – the High Court stated, among other things, that in the specific case there was no further documentation of the financial and business conditions in the group, and the High Court found that it had to be assumed that the dividend was merely channeled through the Luxembourg parent company. on to a number of private equity funds based in countries that were not covered by tax exemption rules, ie. partly the parent / subsidiary directive, partly a double taxation agreement with Denmark. On that basis, the Danish company could not claim tax exemption under the Directive or the double taxation agreement with Luxembourg, and the dividend was therefore not tax-exempt. Click here for English translation DK beneficial Owner HC 3 May 2021-b198012-og-b217312 ...

An assessment was issued where the tax administration denied the application treaty benefits, understanding that the dividends distributed by X S.A. a company with tax residence in Panama, to its shareholder NL Corp in the Netherlands did not qualify for the reduced rate provided for in the DTA because the latter was not the “beneficial owner” of the dividends. Judgement of the Tax Court The court upheld the assessment. “By virtue of the above, we consider that the possibility that the tax administration of the State in which the benefits of the Convention are requested, in this case Panama, also depends on the analysis of the body of evidence, and it is not apparent that the taxpayer has provided, in a timely manner, documentation related to the elements described above, therefore, we do not consider the request to be admissible, as it has not been duly supported by the taxpayer. By virtue of the foregoing considerations, and the fact that access to the benefits provided for in Article 10(a)(iii)(3) of the Panama-Netherlands Convention depends on compliance with all the requirements detailed in the preceding paragraphs, which have only been partially met, revealing significant evidentiary deficiencies, which lead us to conclude that there are insufficient reasons to revoke the contested acts, in light of the regulations, doctrine and case law analysed in this resolution.” Click here for English translation Panama BO Exp- 215-18 ...

“TELE SA” had applied a 15% withholding tax rate to lease payments for telecommunications equipment purportedly provided by a Chilean company that had been established by the Mexican parent of the “TELE” group. TELE SA claimed the payments qualified as royalties under Article 12 of the Peru-Chile double tax treaty. The Peruvian Tax Authority found the reduced 15 % rate did not apply to the lease payments because the Chilean entity was not the beneficial owner of the royalty payments. Hence an assessment was issued where withholding taxes had been calculated using a 30% rate under Peruvian domestic tax legislation. An appeal was filed with the Tax Court. Judgement of the Tax Court The Tax Court upheld the decision of the tax authorities and dismissed the appeal of “TELE SA”. The 15% withholding tax rate for royalty provided for in Article 12 of the double tax treaty between Peru and Chile did not apply to the payments as the Chilean company was not the beneficial owner, but a mere conduit. Click her for English Translation Click here for other translation Peru vs TELE SA 2020_9_03306 ...

The cases of T Danmark (C-116/16) and Y Denmark Aps (C-117/16) adresses questions related to interpretation of the EU-Parent-Subsidary-Directive. The issue is withholding taxes levied by the Danish tax authorities in situations where dividend payments are made to conduit companies located in treaty countries but were the beneficial owners of these payments are located in non-treaty countries. During the proceedings in the Danish court system the European Court of Justice was asked a number of questions related to the conditions under which exemption from withholding tax can be denied on dividend payments to related parties. The European Court of Justice has now answered these questions in favor of the Danish Tax Ministry; Benefits granted under the Parent-Subsidiary Directive can be denied where fraudulent or abusive tax avoidance is involved. Quotations from cases C-116/16 and C-117/16: “The general principle of EU law that EU law cannot be relied on for abusive or fraudulent ends must be interpreted as meaning that, where there is a fraudulent or abusive practice, the national authorities and courts are to refuse a taxpayer the exemption from withholding tax on profits distributed by a subsidiary to its parent company, provided for in Article 5 of Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, as amended by Council Directive 2003/123/EC of 22 December 2003, even if there are no domestic or agreement-based provisions providing for such a refusal.” “Proof of an abusive practice requires, first, a combination of objective circumstances in which, despite formal observance of the conditions laid down by the EU rules, the purpose of those rules has not been achieved and, second, a subjective element consisting in the intention to obtain an advantage from the EU rules by artificially creating the conditions laid down for obtaining it. The presence of a certain number of indications may demonstrate that there is an abuse of rights, in so far as those indications are objective and consistent. Such indications can include, in particular, the existence of conduit companies which are without economic justification and the purely formal nature of the structure of the group of companies, the financial arrangements and the loans.” “In order to refuse to accord a company the status of beneficial owner of dividends, or to establish the existence of an abuse of rights, a national authority is not required to identify the entity or entities which it regards as being the beneficial owner(s) of those dividends.” “In a situation where the system, laid down by Directive 90/435, as amended by Directive 2003/123, of exemption from withholding tax on dividends paid by a company resident in a Member State to a company resident in another Member State is not applicable because there is found to be fraud or abuse, within the meaning of Article 1(2) of that directive, application of the freedoms enshrined in the FEU Treaty cannot be relied on in order to call into question the legislation of the first Member State governing the taxation of those dividends.” Several cases have been awaiting the decision from the EU Court of Justice and will now be resumed in Danish courts. eur-lex.europa.eu_ ...

The cases of N Luxembourg 1 (C-115/16), X Denmark A/S (C-118/16), C Danmark I (C-119/16) and Z Denmark ApS (C-299/16), adresses questions related to the interpretation of the EU Interest and Royalty Directive. The issue in these cases is withholding taxes levied by the Danish tax authorities in situations where interest payments are made to conduit companies located in treaty countries but were the beneficial owners of these payments are located in non-treaty countries. During the proceedings in the Danish court system the European Court of Justice was asked a number of questions related to the conditions under which exemption from withholding tax can be denied on interest payments to related parties. The European Court of Justice has now answered these questions in favor of the Danish Tax Ministry; Benefits granted under the Interest and Royalty Directive can be denied where fraudulent or abusive tax avoidance is involved. Quotations from cases C-115/16, C-118/16, C-119/16 and C-299/16: “The concept of ‘beneficial owner of the interest’, within the meaning of Directive 2003/49, must therefore be interpreted as designating an entity which actually benefits from the interest that is paid to it. Article 1(4) of the directive confirms that reference to economic reality by stating that a company of a Member State is to be treated as the beneficial owner of interest or royalties only if it receives those payments for its own benefit and not as an intermediary, such as an agent, trustee or authorised signatory, for some other person.” “ It is clear from the development — as set out in paragraphs 4 to 6 above — of the OECD Model Tax Convention and the commentaries relating thereto that the concept of ‘beneficial owner’ excludes conduit companies and must be understood not in a narrow technical sense but as having a meaning that enables double taxation to be avoided and tax evasion and avoidance to be prevented.” “Whilst the pursuit by a taxpayer of the tax regime most favourable for him cannot, as such, set up a general presumption of fraud or abuse (see, to that effect, judgments of 12 September 2006, Cadbury Schweppes and Cadbury Schweppes Overseas, C‑196/04, EU:C:2006:544, paragraph 50; of 29 November 2011, National Grid Indus, C‑371/10, EU:C:2011:785, paragraph 84; and of 24 November 2016, SECIL, C‑464/14, EU:C:2016:896, paragraph 60), the fact remains that such a taxpayer cannot enjoy a right or advantage arising from EU law where the transaction at issue is purely artificial economically and is designed to circumvent the application of the legislation of the Member State concerned (see, to that effect, judgments of 12 September 2006, Cadbury Schweppes and Cadbury Schweppes Overseas, C‑196/04, EU:C:2006:544, paragraph 51; of 7 November 2013, K, C‑322/11, EU:C:2013:716, paragraph 61; and of 25 October 2017, Polbud — Wykonawstwo, C‑106/16, EU:C:2017:804, paragraphs 61 to 63)….It is apparent from these factors that it is incumbent upon the national authorities and courts to refuse to grant entitlement to rights provided for by Directive 2003/49 where they are invoked for fraudulent or abusive ends.” “In a situation where the system, laid down by Directive 2003/49, of exemption from withholding tax on interest paid by a company resident in a Member State to a company resident in another Member State is not applicable because there is found to be fraud or abuse, within the meaning of Article 5 of that directive, application of the freedoms enshrined in the FEU Treaty cannot be relied on in order to call into question the legislation of the first Member State governing the taxation of that interest. Outside such a situation, Article 63 TFEU must be interpreted as: –not precluding, in principle, national legislation under which a resident company which pays interest to a non-resident company is required to withhold tax on that interest at source whilst such an obligation is not owed by that resident company when the company which receives the interest is also a resident company, but as precluding national legislation that prescribes such withholding of tax at source if interest is paid by a resident company to a non-resident company whilst a resident company that receives interest from another resident company is not subject to the obligation to make an advance payment of corporation tax during the first two tax years and is therefore not required to pay corporation tax relating to that interest until a date appreciably later than the date for payment of the tax withheld at source; –precluding national legislation under which the resident company that owes the obligation to withhold tax at source on interest paid by it to a non-resident company is obliged, if the tax withheld is paid late, to pay default interest at a higher rate than the rate which is applicable in the event of late payment of corporation tax that is charged, inter alia, on interest received by a resident company from another resident company; –precluding national legislation providing that, where a resident company is subject to an obligation to withhold tax at source on the interest which it pays to a non-resident company, account is not taken of the expenditure in the form of interest, directly related to the lending at issue, which the latter company has incurred whereas, under that national legislation, such expenditure may be deducted by a resident company which receives interest from another resident company for the purpose of establishing its taxable income.” Several cases have been awaiting the decision from the EU Court of Justice and will now be resumed in Danish courts. EU-NXCZ ...

In 2011, a Korean company, CJ E&M Co., Ltd concluded a license agreement relating to the domestic distribution of Paramount films, etc. with Hungary-based entity Viacom International Hungary Kft (hereinafter “VIH”), which is affiliated with the global entertainment content group Viacom that owns the film producing company Paramount and music channel MTV. From around that time to December 2013, the Plaintiff paid VIH royalties amounting to roughly KRW 13.5 billion (hereinafter “pertinent royalty income”). CJ E&M Co., Ltd did not withhold the corporate tax regarding the pertinent royalty income according to Article 12(1) of the Convention between the Government of the Republic of Korea and the Government of the Hungarian People’s Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (hereinafter “Korea-Hungary Tax Treaty”). The Hungarian company was interposed between the Korean entertainment company and a Dutch company which previously licensed the rights to the Korean entertainment company. The Korean Tax Authorities (a) deemed that VIH was merely a conduit company established for the purpose of tax avoidance and that the de facto beneficial owner of the pertinent royalty income was Viacom Global Netherlands BV (hereinafter “VGN”), the parent company of VIH based in the Netherlands; (b) applied the Convention between the Government of the Republic of Korea and the Kingdom of the Netherlands for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (hereinafter “Korea- Netherlands Tax Treaty”), rather than the Korea-Hungary Tax Treaty; and (c) imposed the corporate tax withheld totaling KRW 2,391 million (including penalty tax) against the Plaintiff on May 2, 2014 and July 1, 2014, respectively (hereinafter “instant disposition”). The High Court ruled in favor of the tax authorities and held that the Hungarian company was a mere conduit used for treaty shopping purposes. The Korean Supreme Court reversed the High Court’s decision on the grounds that beneficial ownership should not be denied by the mere fact that tax benefits were derived from the relevant tax treaty if the foreign entity was otherwise engaged in genuine business activities in line with the entity’s business purpose. The Supreme Court decided that the Hungarian entity should be entitled to the treaty benefits because it did not bear any legal or contractual obligation to transfer the royalty income and thus should be regarded as the beneficial owner; and  it had the ability to manage and control the license rights that gave rise to the royalty income, and therefore the GAAR should not apply. 8-2017Du33008 ...

In this case the Tax Court analyses the application of clause 10 (2) of the DTA between Panama and Luxembourg. The case originated in an assessment issued 26 November 2014 by the Directorate General of Revenue through which the tax administration denied the application of the aforementioned clause, understanding that the dividends distributed by Banco Bilbao Vizcaya Argentaria (Panama), S.A. a company with tax residence in Panama, to its shareholder BBVA Luxinvest, S.A. did not qualify for the reduced rate provided for in the DTA because the latter was not the “beneficial owner” of the dividends, as required by the DTA. The tax administration concluded that application of the reduced rate required the recipient of the dividends to demonstrate not only its legal status as a shareholder (or “legal owner”) of the dividends, but also that it was the ultimate recipient of the dividend payments distributed by Banco Bilbao Vizcaya Argentaria (Panama), S.A.. According to the tax administration, the documents provided did not constitute sufficient evidence to prove that BBVA Luxinvest, S.A. was indeed the beneficial owner of such dividend payments. Judgement of the Tax Court The court set aside the assessment. According to the court it had been proven that in the case at hand, Banco Bilbao Vizcaya Argentaria (Panama), S.A., was entitled to benefit from the payment of tax on dividends received in 2013, at the rate of 5%, as provided for in Article 10, paragraph 2, numeral a, of the Convention between Panama and Luxembourg for the avoidance of double taxation. Click here for English translation Panama BO Dividend Lux Exp-005-15 ...

The Dutch company, Velcro Holdings BV (“VHBV”), licensed IP from an affiliated company in the Dutch Antilles, Velcro Industries BV (“VIBV”), and sublicensed this IP to a Canadian company, Velcro Canada Inc. (VCI). VHBV was obliged to pay 90% of the royalties received from VCI. within 30 days after receipt to VIBV. At issue was whether VHBV qualified as Beneficial Owner of the royalty payments from VCI and consequently would be entitled to a reduced withholding tax – from 25% (the Canadian domestic rate) to 10% (the rate under article 12 of the treaty between Canada and the Netherlands). The tax authorities considered that VHBV did not qualify as Beneficial Owner and denied application of the reduced withholding tax rate. Judgement of the Tax Court The court set aside the decision of the tax authorities and decided in favor of VCI. Excerpts: “VHBV obviously has some discretion based on the facts as noted above regarding the use and application of the royalty funds. It is quite obvious that though there might be limited discretion, VHBV does have discretion. According to Prévost, there must be “absolutely no discretion” – that is not the case on the facts before the Court. It is only when there is “absolutely no discretion” that the Court take the draconian step of piercing the corporate veil.” “The person who is the beneficial owner is the person who enjoys and assumes all the attributes of ownership. Only if the interest in the item in question gives that party the right to control the item without question (e.g. they are not accountable to anyone for how he or she deals with the item) will it meet the threshold set in Prévost. In Matchwood, the Court found that the taxpayer did not have such rights until the deed was registered; likewise, VIBV is not a party to the license agreements (having fully assigned it, along with its rights and obligations, to VHBV). It no longer has such rights and thus does not have an interest that amounts to beneficial ownership.” “For the reasons given above I believe that the beneficial ownership of the royalties rests in VHBV and not in VIBV and as such, the appeal is allowed and the matter is referred back to the Minister of National Revenue for reconsideration and reassessment on that basis and further, the 1995 assessment dated October 25, 1996 is referred back to the Minister for reconsideration and recalculation on the basis that VIBV was a resident of the Netherlands in 1995 and therefore entitled to the benefit of that treaty.” Canada vs Velcro 2012tcc57 ...