Tag: Debt pushdown

Czech Republic vs Johnson Controls Czech s.r.o., December 2023, Municipal Court in Prague, Case No 6710 Af 29/2019

The matter of the dispute was an acquision witch had been financed by a debt push down resulting in interest payments that reduced the taxable income of a Czech subsidiary. The tax authortites disallowed the interest deductions. Decision of the Court The Court decided in favour of the tax authorities. Excerpt in English “The Court is in no doubt that the circumstances of the entire restructuring of the Johnson Controls group, with its impact on its members in the Czech Republic, as proven in the tax proceedings, lead to the conclusion that the purpose of Section 24(1) of the ITA was not achieved, since the acquisition loan or the interest payments arising therefrom do not, by their actual nature, constitute expenditure for the achievement, securing or maintenance of income generated by the production activities of JCAS (objective criterion). At the same time, the tax authorities have demonstrated, and the applicant has failed to demonstrate to the contrary, that obtaining a tax advantage was clearly the determining motive for the conduct of the parties involved, including the applicant (subjective criterion). According to the Court, the circumstances relating to the rationality of the transaction, in conjunction with the information concerning the interconnection of the parties involved, show that both the objective and subjective aspects of the abuse of rights are fulfilled, since it can be inferred from them that the applicant’s conduct was not motivated by a real and legitimate economic objective (it had no real economic justification), with the exception of the only visible result, which was precisely the acquisition of an unjustified tax advantage.” Click here for English Translation Click here for other translation 10 af 29-2019_210_20231128101941 ...

Australia vs Mylan Australia Holding Pty Ltd., June 2023, Federal Court, Case No [2023] FCA 672

Mylan Australia Holding is a subsidiary of the multinational Mylan Group, which is active in the pharmaceutical industry. Mylan Australia Holding is the head of the Australian tax consolidated group, which includes its subsidiary Mylan Australia Pty. In 2007, Mylan Australia Pty acquired the shares of Alphapharm Pty Ltd. and to finance the acquisition, a substantial loan (A$923,205,336) was provided by a group company in Luxembourg. In the following years interest expenses was deducted from the taxable income of Mylan’s Australian tax group. The tax authorities issued a notice of assessment for the years 2009 to 2020 disallowing the deduction of excessive interest expense incurred as a result of the financing arrangement. Initially the tax authorities relied on both transfer pricing provisions and the general anti-avoidance provision (Pt IVA), but subsequently they relied only on the latter as the basis for the assessment. Mylan Australia Holding filed appeals on 4 June 2021 in respect of the 2009-2019 assessment and on 6 April 2022 in respect of the 2020 assessment. During the subsequent proceedings, the tax authorities requested Mylan to provide certain documents (including a PwC email of 2 October 2008 referring to a “financial model which we modified continuously … to evaluate the US tax effectiveness …â€) related to the financial arrangement. Mylan however, refused to do so claiming that the documents were protected by Legal Professional privilege. Order of the Federal Court The Federal Court ordered Mylan Australia Holding to obtain and provide the requested documents. Excerpts “THE COURT ORDERS THAT: 1. By 14 July 2023, the Applicant take all reasonable steps available to it to obtain the documents, or copies thereof, which fall within the categories set out in Schedule 1, which are in the power, custody or control of Viatris Inc and/or Mylan Inc and/or Mylan Laboratories Inc. 2. Pursuant to r 20.15(1) of the Federal Court Rules 2011 (Cth), the Applicant give non-standard discovery of the categories of documents in Schedule 1 by 28 July 2023. 3. By 28 July 2023, the Applicant file and serve an affidavit as to the Applicant’s efforts made pursuant to order 1 and the nature of the searches made to locate documents responsive to the categories of documents in Schedule 1. …” Click here for translation 2023FCA0672 ...

Japan vs Universal Music Corp, April 2022, Supreme Court, Case No 令和2(行ヒ)303

An intercompany loan in the form of a so-called international debt pushdown had been issued to Universal Music Japan to acquire the shares of another Japanese group company. The tax authority found that the loan transaction had been entered for the principal purpose of reducing the tax burden in Japan and issued an assessment where deductions of the interest payments on the loan had been disallowed for tax purposes. The Tokyo District Court decided in favour of Universal Music Japan and set aside the assessment. The Court held that the loan did not have the principle purpose of reducing taxes because the overall restructuring was conducted for valid business purposes. Therefore, the tax authorities could not invoke the Japanese anti-avoidance provisions to deny the interest deductions. In 2020 the decision of the district court was upheld by the Tokyo High Court. The tax authorities then filed an appeal with the Supreme Court Decision of the Court The Supreme Court dismissed the appeal and set aside the assessment of the tax authorities. “The term “economic rationality” is used to refer to the economic rationality of a series of transactions. In examining whether or not the entire series of transactions lacks economic rationality, it is necessary to consider (i) whether the series of transactions is unnatural, such as being based on procedures or methods that are not normally assumed or creating a form that deviates from the actual situation, and (ii) whether there are other rational reasons for such a reorganisation other than a decrease in tax burden. (iii) Whether there are any business objectives or other reasons other than a reduction in the tax burden that would constitute a rational reason for such a reorganisation.” “However, the borrowings in question were made under an agreement to be used solely for the purchase price of the shares of the domestic corporations in question and related costs, and in fact the appellant acquired the shares and brought the domestic corporations under its control, and there is no indication that the amount borrowed was unreasonably high in relation to its intended use. In addition, the interest and repayment period of the loan were determined based on the expected profit of the appellant, and there is no evidence that the appellant is currently experiencing any difficulty in paying the interest on the loan. It is therefore difficult to say that the above points make the borrowing unnatural or unreasonable. (d) Considering the above circumstances as a whole, the borrowing in question cannot be said to be unnatural or unreasonable from an economic and substantive standpoint, i.e. to lack economic rationality. Therefore, the borrowing in question does not fall within the scope of Article 132(1) of the Corporate Tax Act, which states that “the borrowing is deemed to result in an unreasonable decrease in the corporate tax burden if it is permitted”.” Click here for English Translation Click here for other translation Japan vs Universal Music SC ...

Japan vs. Universal Music Corp, June 2019, Tokyo District Court, Case No å¹³æˆ27(行ウ)468

An intercompany loan in the form of a so-called international debt pushdown had been issued to Universal Music Japan to acquire the shares of another Japanese group company. The tax authority found that the loan transaction had been entered for the principal purpose of reducing the tax burden in Japan and issued an assessment where deductions of the interest payments on the loan had been disallowed for tax purposes. Decision of the Court The Tokyo District Court decided in favour of Universal Music Japan and set aside the assessment. The Court held that the loan did not have the principle purpose of reducing taxes because the overall restructuring was conducted for valid business purposes. Therefore, the tax authorities could not invoke the Japanese anti-avoidance provisions to deny the interest deductions. The case is now pending at the Tokyo High Court awaiting a final decision. Click here for English Translation Jap UM 2019 ...