Tag: Conduit jurisdictions

Conduit jurisdictions are countries that are attractive as intermediate destinations in the routing of investments. These jurisdictions typically have low or zero taxes imposed on the transfer of capital to other countries, either via interest payments, royalties, dividends or profit repatriation. Typically these jurisdictions have highly developed legal systems that are able to support the needs of multinational corporations. Countries such as the Netherlands, Ireland and Luxembourg have been known for these types of activities.

Denmark vs Takeda A/S (former Nycomed A/S) and NTC Parent S.à.r.l., May 2023, Supreme Court, Cases 116/2021 and 117/2021

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 ...

Denmark vs Copenhagen Airports Denmark Holdings ApS, February 2023, High Court, Case No SKM2023.404.OLR

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 ...

Italy vs Engie Produzione S.p.a, January 2023, Supreme Court, Case No 6045/2023 and 6079/2023

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 ...

Denmark vs NetApp Denmark ApS and TDC A/S, January 2023, Supreme Court, Cases 69/2021, 79/2021 and 70/2021

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 ...

Uber-files – Tax Avoidance promoted by the Netherlands

Uber files – confidential documents, leaked to The Guardian newspaper shows that Uber in 2015 sought to deflect attention from its Dutch conduits and Caribbean tax shelters by helping tax authorities collect taxes from its drivers. At that time, Uber’s Dutch subsidiary received payments from customers hiring cars in cities around the world (except US and China), and after paying the drivers, profits were routed on as royalty fees to Bermuda, thus avoiding corporate income tax. In 2019, Uber took the first steps to close its Caribbean tax shelters. To that end, a Dutch subsidiary purchased the IP that was previously held by the Bermudan subsidiary, using a $16 billion loan it had received from Uber’s Singapore holding company. The new setup was also tax driven. Tax depreciations on the IP acquired from Bermuda and interest on the loan from Singapore will significantly reduce Uber’s effective tax rate in years to come. Centre for International Corporate Tax Accountability and Research (CICTAR) has revealed that in 2019 Uber’s Dutch headquarter pulled in more than $US5.8 billion in operating revenue from countries around the world. “The direct transfer of revenue from around the world to the Netherlands leaves little, if any, taxable profits behind,“. “Uber created an $8 billion Dutch tax shelter that, if unchecked, may eliminate tax liability on profits shifted to the Netherlands for decades to come.” According to the groups 10-Q filing for the quarterly period ended June 30, 2022, Uber it is currently facing numerous tax audits. “We may have exposure to materially greater than anticipated tax liabilities. The tax laws applicable to our global business activities are subject to uncertainty and can be interpreted differently by different companies. For example, we may become subject to sales tax rates in certain jurisdictions that are significantly greater than the rates we currently pay in those jurisdictions. Like many other multinational corporations, we are subject to tax in multiple U.S. and foreign jurisdictions and have structured our operations to reduce our effective tax rate. Currently, certain jurisdictions are investigating our compliance with tax rules. If it is determined that we are not compliant with such rules, we could owe additional taxes. Certain jurisdictions, including Australia, Kingdom of Saudi Arabia, the UK and other countries, require that we pay any assessed taxes prior to being allowed to contest or litigate the applicability of tax assessments in those jurisdictions. These amounts could materially adversely impact our liquidity while those matters are being litigated. This prepayment of contested taxes is referred to as “pay-to-play.†Payment of these amounts is not an admission that we believe we are subject to such taxes; even when such payments are made, we continue to defend our positions vigorously. If we prevail in the proceedings for which a pay-to-play payment was made, the jurisdiction collecting the payment will be required to repay such amounts and also may be required to pay interest. Additionally, the taxing authorities of the jurisdictions in which we operate have in the past, and may in the future, examine or challenge our methodologies for valuing developed technology, which could increase our worldwide effective tax rate and harm our financial position and operating results. Furthermore, our future income taxes could be adversely affected by earnings being lower than anticipated in jurisdictions that have lower statutory tax rates and higher than anticipated in jurisdictions that have higher statutory tax rates, changes in the valuation allowance on our U.S. and Netherlands’ deferred tax assets, or changes in tax laws, regulations, or accounting principles. We are subject to regular review and audit by both U.S. federal and state tax authorities, as well as foreign tax authorities, and currently face numerous audits in the United States and abroad. Any adverse outcome of such reviews and audits could have an adverse effect on our financial position and operating results. In addition, the determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment by our management, and we have engaged in many transactions for which the ultimate tax determination remains uncertain. The ultimate tax outcome may differ from the amounts recorded in our financial statements and may materially affect our financial results in the period or periods for which such determination is made. Our tax positions or tax returns are subject to change, and therefore we cannot accurately predict whether we may incur material additional tax liabilities in the future, which could impact our financial position. In addition, in connection with any planned or future acquisitions, we may acquire businesses that have differing licenses and other arrangements that may be challenged by tax authorities for not being at arm’s-length or that are otherwise potentially less tax efficient than our licenses and arrangements. Any subsequent integration or continued operation of such acquired businesses may result in an increased effective tax rate in certain jurisdictions or potential indirect tax costs, which could result in us incurring additional tax liabilities or having to establish a reserve in our consolidated financial statements, and could adversely affect our financial results. Changes in global and U.S. tax legislation may adversely affect our financial condition, operating results, and cash flows. We are a U.S.-based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions. U.S. tax legislation enacted on December 22, 2017, and modified in 2020, the Tax Cuts and Jobs Act (“the Actâ€), has significantly changed the U.S. federal income taxation of U.S. corporations. The legislation and regulations promulgated in connection therewith remain unclear in many respects and could be subject to potential amendments and technical corrections, as well as interpretations and incremental implementing regulations by the U.S. Treasury and U.S. Internal Revenue Service (the “IRSâ€), any of which could lessen or increase certain adverse impacts of the legislation. In addition, it remains unclear in some instances how these U.S. federal income tax changes will affect state and local taxation, which often uses federal taxable income as a starting point for computing state and local tax liabilities. Furthermore, beginning on ...

Italy vs Arnoldo Mondadori Editore SpA , February 2022, Supreme Court, Cases No 3380/2022

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 ...

Denmark vs Takeda A/S and NTC Parent S.a.r.l., November 2021, High Court, Cases B-2942-12 and B-171-13

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 ...

Denmark vs NETAPP ApS and TDC A/S, May 2021, High Court, Cases B-1980-12 and B-2173-12

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 companyâ€, 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 ...

Denmark vs T and Y Denmark, February 2019, European Court of Justice, Cases C-116/16 and C-117/16

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_ ...

Denmark vs N, X, C, and Z Denmark, February 2019, European Court of Justice, Cases C-115/16, C-118/16, C-119/16 and C-299/16

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 ...

Uncovering Low Tax Jurisdictions and Conduit Jurisdictions

By Javier Garcia-Bernardo, Jan Fichtner, Frank W. Takes, & Eelke M. Heemskerk Multinational corporations use highly complex structures of parents and subsidiaries to organize their operations and ownership. Offshore Financial Centers (OFCs) facilitate these structures through low taxation and lenient regulation, but are increasingly under scrutiny, for instance for enabling tax avoidance. Therefore, the identifcation of OFC jurisdictions has become a politicized and contested issue. We introduce a novel data-driven approach for identifying OFCs based on the global corporate ownership network, in which over 98 million firms (nodes) are connected through 71 million ownership relations. This granular firm-level network data uniquely allows identifying both sink-OFCs and conduit-OFCs. Sink-OFCs attract and retain foreign capital while conduit-OFCs are attractive intermediate destinations in the routing of international investments and enable the transfer of capital without taxation. We identify 24 sink-OFCs. In addition, a small set of countries – the Netherlands, the United Kingdom, Ireland, Singapore and Switzerland – canalize the majority of corporate offshore investment as conduit-OFCs. Each conduit jurisdiction is specialized in a geographical area and there is signifcant specialization based on industrial sectors. Against the idea of OFCs as exotic small islands that cannot be regulated, we show that many sink and conduit-OFCs are highly developed countries. Conduits-and-Sinks-in-the-Global-Corporate-Ownership-Network.pdf ...