In 2013, Viva Telecom Bulgaria EAD, as borrower/debtor, entered into a convertible loan agreement with its parent company in Luxembourg, InterV Investment S.a.r.l.. According to the agreement, the loan was non-interest bearing and would eventually be converted into equity. The tax authorities considered the arrangement to be a loan and applied an arm’s length interest rate and applied withholding tax to the amount of interest expense calculated. Vivacom appealed to the Administrative Court, which, in a judgment issued in 2019, agreed with the tax authorities’ argument for determining the withholding tax liability. Judgement of the Supreme Administrative Court The Bulgarian Supreme Administrative Court requested a ruling from the CJEU, which was issued in case C-257/20. The CJEU ruled that the applicable EU directives do not prevent the application of withholding tax on notional interest. On this basis, the Bulgarian Supreme Administrative Court issued its decision on the application of withholding tax on notional interest under an interest-free loan agreement. Relying on the conclusions of the CJEU, the court confirmed the withholding tax imposed on the notional interest determined under the concluded financial agreement. The SAC also rejected the local taxpayer’s request to recalculate the tax due under the net basis regime. However, the court relied on a separate transfer pricing benchmark study, which established a market rate in favour of the taxpayer compared to the one initially used by the tax administration, resulting in a reduction of the tax assessment. Click here for English Translation Click here for other translation ...

The Spanish tax authorities have published a report on the applicability of their domestic General Anti-Abuse Rule (GAAR). In the report, a conduit arrangement aimed at benefiting from an exemption at source on the payment of interest to EU residents is described. Click here for English translation ...