C. SA provides “services, in particular in the areas of communication, management, accounting, management and budget control, sales development monitoring and employee training for the group to which it belongs, active in particular in the field of “F”. C. SA is part of an international group of companies, G. group, whose ultimate owner is A. The G group includes H. Ltd, based in the British Virgin Islands, I. Ltd, based in Guernsey and J. Ltd, also based in Guernsey. In 2005, K. was a director of C. SA. On December 21 and December 31, 2004, an exclusive agreement for distribution of “F” was entered into between L. Ltd, on the one hand, and C. SA , H. Ltd and J. Ltd, on the other hand. Under the terms of this distribution agreement, L. Ltd. undertook to supply “F” to the three companies as of January 1, 2005 and for a period of at least ten years, in return for payment. Under a supply agreement C. SA agreed to sell clearly defined quantities of “F” to M for the period from January 1, 2005 to December 31, 2014. In the course of 2005, 56 invoices relating to sales transactions of “F” to M. were drawn up and sent to the latter, on the letterhead of C. SA. According to these documents, M. had to pay the sale price directly into two accounts – one held by H. Ltd and the other by J. Ltd. Part of this money was then reallocated to the supply of “F”, while the balance was transferred to an account in Guernsey held by J. Ltd. The result was, that income from C. SA’s sale of “F” to M was not recognized in C. SA but instead in the two off-shore companies H. Ltd and J. Ltd. Following an audit, the Swiss tax authorities issued an assessment where C. SA and A were held liable for withholding taxes on a hidden distribution of profits. A and C. SA brought this assessment to Court. Decision of the Court The Court decided – in accordance with the 2020 judgment of the Federal Administrative Court – in favor of the tax authorities and the appeal of C. SA and A was dismissed. Click here for English translation Click here for other translation ...

C. SA provides “services, in particular in the areas of communication, management, accounting, management and budget control, sales development monitoring and employee training for the group to which it belongs, active in particular in the field of “F”. C. SA is part of an international group of companies, G. group, whose ultimate owner is A. The G group includes H. Ltd, based in the British Virgin Islands, I. Ltd, based in Guernsey and J. Ltd, also based in Guernsey. In 2005, K. was a director of C. SA. On December 21 and December 31, 2004, an exclusive agreement for distribution of “F” was entered into between L. Ltd, on the one hand, and C. SA , H. Ltd and J. Ltd, on the other hand. Under the terms of this distribution agreement, L. Ltd. undertook to supply “F” to the three companies as of January 1, 2005 and for a period of at least ten years, in return for payment. Under a supply agreement C. SA agreed to sell clearly defined quantities of “F” to M for the period from January 1, 2005 to December 31, 2014. In the course of 2005, 56 invoices relating to sales transactions of “F” to M. were drawn up and sent to the latter, on the letterhead of C. SA. According to these documents, M. had to pay the sale price directly into two accounts – one held by H. Ltd and the other by J. Ltd. Part of this money was then reallocated to the supply of “F”, while the balance was transferred to an account in Guernsey held by J. Ltd. The result was, that income from C. SA’s sale of “F” to M was not recognized in C. SA but instead in the two off-shore companies H. Ltd and J. Ltd. Following an audit, the Swiss tax authorities issued an assessment where C. SA and A were held liable for withholding taxes on a hidden distribution of profits. A and C. SA brought this assessment to Court. Decision of the Court The Court decided in favor of the tax authorities. “The above elements relied on by the appellants in no way provide proof that the appellant carried out the said transactions on behalf of the other companies in the [G]B group. Moreover, they do not in themselves allow the conclusion that the appellant acted through the other companies in its group, as the appellants maintain. Insofar as, as has been seen (see recital 5.1 above), the contract for the sale of *** was concluded and the relevant invoices issued in the name of the appellant, which is moreover designated as the seller in the sales contract (see heading and point 9. 2(a) of that contract), and that the other companies in the group are never mentioned in the context of the transactions at issue, it is much more appropriate to hold that they were carried out, admittedly for the benefit of the appellant, but through the appellant acting in its name and on its behalf. Therefore, by renouncing the resulting proceeds to the appellant, the appellant did indeed make concealed distributions of profits, i.e. appreciable cash benefits subject to withholding tax” “In these circumstances and insofar as the proceeds from the sale of *** were paid directly by [C. SA.] O. to the companies [H Ltd and J Ltd.] Y. and X.     – which must undoubtedly be regarded as persons closely related to the appellant within the meaning of the case-law (cf. recital 3.2.1 above) -, without any equivalent consideration in favour of the appellant, and that part of those proceeds was reallocated to the supply of *** (cf. d above), the lower authority was right to find that there was a taxable supply of money (see recitals 3.2.1 and 3.2.2 above) and to calculate this on the basis of an estimate of the profit resulting from the purchase and resale of *** (see decision under point 4.3, pp. 10 et seq.)” “In the absence of any document attesting to an assignment to the appellant of the claims arising from the purchase contract with [L] M. and the supply agreements of November 2004 with [M] O.     In addition, there is no reason to consider that the allocation of the profit resulting from the purchase and resale of *** to the companies of the group based abroad constitutes the remuneration granted to the latter for the takeover of the two contracts (purchase and sale), nor is there any justification for deducting the value of those contracts from the amount retained by the lower authority. The appellant’s submissions to this effect (see the memorandum of 12 May 2015, pp. 22 et seq. [under para. 6]) must therefore be rejected. Accordingly, the court of appeal refrains from carrying out the expert assessment requested by the appellant in order to estimate that value (see the memorandum of 12 May 2015, p. 25 [under section V]; see also section 2.2.1 above).” “… it should be noted that, in view of the foregoing and the size of the amounts waived by the appellant, the taxable cash benefit was easily recognisable as such by all the participants. Consequently, and insofar as the appellant did not declare or pay the relevant withholding tax spontaneously, the probable existence of tax evasion must be accepted, without it being necessary to determine whether or not it was committed intentionally (see recitals 4.1 and 4.2 above). Accordingly, there can be no criticism of the lower authority’s application of the provisions of the DPA and, since a contribution was wrongly not collected, of Article 12 paras. 1 and 2 of that Act in particular.” “The contested decision must therefore also be confirmed in this respect. Finally, as the case file is complete, the facts sufficiently established and the court is convinced, the court may also dispense with further investigative measures (see section 2.2.1 above). It is therefore also appropriate to reject the appellant’s subsidiary claim that he should be required, by all legal means, to provide ...

The Australian Tax Office had obtained information from the Paradise Paper-leak and used the information in a tax assessment of Glencore. Glencore held that such leaked information was confidential (protected by legal professional privilege) and could not be used in a tax assessment. On that basis Glencore filed an appeal to the High Court. High Court Decision The Australien High Court dismissed the appeal and allowed use of the leaked information for tax assessment purposes. “In no way do these cases support the notion that common law courts elsewhere are granting injunctions with respect to privileged material on the basis only of the wrongfulness associated with its taking.  Certainly, it is necessary for an equity to arise that the person to be restrained must have an obligation of conscience, but the basis for an injunction is the need to protect the confidentiality of the privileged document. The plaintiffs’ case for the grant of relief on a basis other than confidentiality is simply this:  that any furtherance of the public interest which supports the privilege is sufficient to warrant the creation of a new, actionable right respecting privileged documents.  This is not how the common law develops.  The law develops by applying settled principles to new circumstances, by reasoning from settled principles to new conclusions, or determining that a category is not closed.  Even then the law as developed must cohere with the body of law to which it relates.  Policy considerations may influence the development of the law but only where that development is available having regard to the state of settled principles.  Policy considerations cannot justify an abrupt change which abrogates principle in favour of a result seen to be desirable in a particular case. In the absence of further facts it is not possible to say whether the plaintiffs are without any possibility of a remedy.  But if there is a gap in the law, legal professional privilege is not the area which might be developed in order to provide the remedy sought.” ...

On the basis of the detailed evidence provided by the tax administration, the defendant stated that the essence of the case is to assess whether the applicant has proved that the taxable supply declared in invoice No 2010036 took place, i.e. that Dosnetex plus s.r.o. provided the invoiced supply (production of graphic designs) to the applicant. However, it found that Dosnetex plus had become uncontactable at the end of 2010 and had filed a VAT return for the previous period, but that procedures for the removal of doubts had been initiated and that the company had not paid the actual tax assessed on the basis of those procedures. The company did not file an income tax return for 2010. It was established from the Commercial Register that on 12 November 2010 there was a change in the company’s composition, when the company’s managing director, Mr J.S., was replaced by Mr R.T., who also became the sole shareholder. Mr T. is a homeless person, without financial means and not contactable by the tax authorities; he could only be reached in the building of the District Social Security Administration in Přerov. Nevertheless, he was supposed to buy Dosnetex plus from Mr S. for the value of the contribution of CZK 200 000 (when he was supposed to hand this amount over to Mr S. personally, at the same time taking over all the accounting documents, all in the car park). Although Mr S. is virtually unknown to Mr T., he remains the general representative of Dosnetex plus. The applicant brought an action against the contested decision before the Regional Court. He disagreed with the defendant’s assessment of the various witness statements which showed that the applicant had obtained graphic work from Dosnetex plus. However, all the discrepancies found by the tax authority were not caused by the applicant but by its supplier, which were therefore in no way within the applicant’s control, particularly since he was unaware of them. It stressed that Dosnetex plus only became uncontactable at the end of 2010, which could not have been foreseen by the applicant in October 2010, when the invoice in question was submitted. The defendant breached its duty to correctly determine and assess the tax, as it did not correctly assess the evidence adduced, and therefore considered that the tax authority had not discharged its burden of proof with regard to challenging the witness statements and the applicant’s involvement in the VAT fraud. It was for the tax authorities to prove beyond doubt that the applicant knew or ought to have known that the delivery was part of a tax fraud committed by Dosnetex plus. The defendant argued that the principle of liability for tax, on which the defendant appears to rely, was introduced into the VAT Act only as from 1 April 2011 and therefore cannot apply to the present case. He therefore concluded that, in relation to Dosnetex plus, he had always acted in good faith in the correctness of its conduct. Judgement of the Court In view of all the above, the Supreme Administrative Court found no reason to depart from the judgment of 5 October 2016, No 6 Afs 170/2016-30, which concerned a similar situation, and therefore concluded that the appeal was manifestly unfounded and dismissed it in accordance with Article 110(1) in fine of the Code of Civil Procedure. Excerpt “The Supreme Administrative Court has consistently held that the conclusions that the taxable supply was not proven to have been effected by the taxable person and that the taxable person was involved in fraud are not compatible. Before the tax administration starts to investigate and prove any possible participation in tax fraud, it must be certain whether the taxable supply was actually carried out (cf. e.g. the above-referenced judgment No 6 Afs 170/2016 – 30). It is necessary to distinguish carefully between cases in which the taxpayer is not entitled to deduct VAT at all, because the taxpayer fails to prove that the taxable supply was carried out at all or to the extent declared, and situations in which the right to deduct does arise (because the taxable supply was actually carried out), but for certain reasons cannot be granted to the taxpayer (which, as the complainant correctly points out, would be in accordance with the case-law of the CJEU, particularly in the case of a claim for deduction made in an abusive manner or as a result of tax fraud). It is only if the taxpayer can prove that the transaction to which the deduction relates actually took place that it is appropriate to ask whether it was the result of abusive or fraudulent conduct. However, if the taxable supply did not take place at all, or the taxable person did not bear the burden of proof in this respect, it is unnecessary to deal with possible fraudulent conduct by the nature of the case, since there was no (abusive or other) tax-relevant conduct of the VAT payer. The conduct of a taxable person who declares a non-existent supply on the basis of which he subsequently claims a VAT deduction may also be regarded as fraudulent in a certain sense, but in that case his tax liability will be increased not because he has committed or participated in fraud, but because he has not been entitled to the deduction at all, since no taxable supply has actually been made. The appellant should therefore have first examined the tax authorities’ conclusion that no taxable supply had been made, a consideration which must necessarily be reflected in the grounds of the appeal decision. Only if the complainant had reached a conclusion contrary to that of the tax administrator, i.e. that the taxable supply had been effected, even if it was not certain from which supplier the applicant had obtained the graphic designs, could it have further examined the existence of circumstances giving rise to suspicion that the applicant had been involved in tax fraud (cf. By analogy, the judgment of ...