In 2009 and 2010 Global Nory, S.L. distributed a dividend of 7,000,000 euros to its parent company resident in Luxembourg, without declaring withholding taxes, as it considered that the dividend was exempt. In 2013, Global Nory, S.L. was notified of the commencement of general inspection proceedings, referring, among other items, to the dividend payments, and in 2014 the final assessment was issued, resulting in additional withholding taxes of 700,000 euros and 138,753.43 euros to late payment interest. The assessment was based on the following facts: The only relevant asset of Global Noray SL is a 5% stake in the listed company Corporación Logística de Hidrocarburos. This shareholding was acquired for a sum of 176,500,000 euros. Global Noray, S.L.’s income consists mainly of dividends received on these shares. Global Noray, S.L., is wholly owned by PSP Eur SARL, which in turn is wholly owned by PSP Lux SARL. The latter company is wholly owned by PSP IB. PSP stands for “Public Sector Investment Pension”. PSP IB stands for “Public Sector Pension Investment Board”, which is a Canadian Crown Corporation whose purpose is to manage the public pension funds of various groups of civil servants, military and police officers in Canada. PSP Eur SARL has provided a certificate of residence in Luxembourg. The tax authorities considered that the withholding tax exemption was not applicable, since those entities lacked any real economic activity, and considering that there were no economic reasons, but rather fiscal reasons, in the incorporation of the various European companies dependent on the Canadian parent company, since the ultimate owner of the group is a Canadian fund, eliminated the exemption in the settlement agreement. In the Inspectorate’s view, PSP Eur SARL has as its object the direction and management of the filial company without the appropriate organisation of material and personal resources, nor has it proved that it was set up for valid economic reasons, and not in order to take undue advantage of the scheme provided for in point (h). Since the filial company has no economic activity of any kind, merely collecting a dividend from CLH, there is no adequate organisation of human and material resources to manage an investee which does not carry out an economic activity. Appeals were filed by Global Noray but they were all subsequently dismissed by courts. Finally, an appeal was filed with the Supreme Court. Judgement of the Supreme Court The Supreme Court also upheld the assessment of additional withholding taxes and dismissed the appeal of Global Noray. The Court concluded that the Spanish anti-abuse clause which applies to dividend distributions by a Spanish subsidiary to its European parent company controlled, directly or indirectly, by shareholders not resident in the EU or in the EEA must be construed in such a way that the burden of proof of abuse falls on the tax authorities. However, in the case at hand the tax authorities had lifted this burden of proof. Click here for English Translation Click here for other translation ...

Coffee Machine Ltd. was founded in Ireland and responsible for the trademark and patent administration as well as the management of the research and development activities of the A group, the world’s largest manufacturer of coffee machines. A Swiss subsidiary of the A group reported payments of dividend to the the Irish company and the group claimed that the payments were exempt from withholding tax under the DTA and issued a claim for a refund. Tax authorities found that the Irish company was not the beneficial owner of the dividend and on that basis denied the companies claim for refund. The lower Swiss court upheld the decision of the tax authorities. Judgement of the Supreme Court The Supreme Court upheld the decision of the lower court and supplemented its findings with the argument, that the arrangement was also abusive because of the connection between the share transfer in 2006 and the distribution of pre-acquisition reserves in 2007 and the total lack of substance in the Irish company. “…the circumstantial evidence suggests with a probability bordering on certainty that the complainant and the other companies involved wanted to secure a tax saving for themselves with the transfer of the shareholding in the subsidiary and the subsequent distribution of a dividend to the complainant, which they would not have been entitled to under the previous group structure. The economic objective asserted by the complainant – locating the research and development function, including the shareholding in the subsidiary, under the Irish grandparent company responsible for overseeing the licensing agreements – does not explain why the complainant went heavily into debt in order to ultimately use this borrowed capital to buy the subsidiary’s liquid funds, which were subject to latent withholding tax. It would have been much simpler for all parties involved and would have led to the same economic result if the subsidiary had instead distributed these funds to the sister company immediately before the transfer of the shareholding and the sister company had thus recorded an inflow of liquidity in the form of a dividend instead of a purchase price payment. Against this background, the chosen procedure appears to be outlandish and the legal arrangement artificial. Since the arrangement chosen by the complainant mainly served to obtain advantages from the DTA CH-IE and the AEOI-A CH-EU and the three characteristics of tax avoidance are met, the complainant must be accused of abuse of law both from the perspective of international law and from the perspective of internal law. “ “A person who, like the complainant, fulfils the criteria of abuse of the agreement and tax avoidance as defined by the practice cannot invoke the advantage pursuant to Art. 15 para. 1 aAIA-A CH-EU. As a result, the lower court did not violate either federal or international law by completely refusing to refund the withholding tax to the complainant on the basis of Art. 15 para. 1 aAIA-A CH-EU.” Click here for English translation Click here for other translation ...