Tag: Guernsey

Netherlands vs Lender B.V., March 2021, Supreme Court, Case No ECLI:NL:GHAMS:2021:724

A Dutch company, Lender B.V., had acquired companies through a private equity structure. The Dutch company that had been set up for the purpose of the acquisition was financed by subordinated loans payable to related parties established on the island of Guernsey. In the tax return for the Dutch company interest in the amount of € 13,157,632 was deducted in the taxable income based on an interest rate of 11,5 – 14 percent. The tax authorities denied the deduction, as the financing arrangement was considered abusive. Decision of the Supreme Court The Court decided in favor of the tax authorities. The interest on the loans was determined to 2.5% (instead of the agreed 11.5 – 14%). This interest was not deductible, because granting of the loans was considered as abusive. Furthermore, an Arrangement Fee of € 8.4 mio. could not be charged at once, but had to be capitalised. Click here for English translation Click here for other translation ECLI_NL_GHAMS_2021_724 ...

Switzerland vs “Contractual Seller SA”, January 2021, Federal Supreme Court, Case No 2C_498/2020

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 Swiss-Bundesgericht-2C_498-2020 ...

Switzerland vs “Contractual Seller SA”, May 2020, Federal Administrative Court, Case No A-2286/2017

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 ...

Switzerland vs “Bank A SA”, December 2019, Federal Supreme Court, Case No 2C_1073/2018 and 2C_1089/2018

A Swiss bank had a subsidiary in Guernsey that administered a number of funds and received a management fee of 1.5% of the net value of the assets under management and a performance fee of 10–20% of the funds’ performance. The activities of the Guernsey company were delegated to the Swiss parent and third parties. Both the third parties and the Swiss parent received an management fee of 0.75%, but only the third parties also received a performance fee. The tax administration claimed that 70% of the performance fees and a remuneration for other activities should have been paid to the Swiss parent. Judgement of the Supreme Court The Court found that the agreed conditions with third-party service providers were at arm’s length, and should also have been applied in relation to the Swiss parent company. Hence, the court dismissed the appeal of Click here for English translation Click here for other translation SW FSC 2C_1073-2018 2C_1089-2018 ...

Switzerland vs. Y Holding AG, May 2013, Federal Supreme Court, Case No. 2C_1086/2012

A finance company registered in Guernsey was found to have effective place of management in Switzerland due to lack of functional substance in Guernsey. The Swiss Federal Supreme Court stated that the effective place of management is to be distinguished from the activity of the Board of Directors and the General Assembly and from mere administrative activity, such as accounting. Thus, the effective place of management of a company is where the company has its economic center. Management of the ongoing business in the context of the purpose of the company is decisive, including the decisions made in relation to the core business. According to the Federal Supreme Court, the only business of X Ltd was forwarding the start-up capital provided by Y Holding AG in the form of loans to Group companies. X Ltd activities in Guernsey were of a purely administrative nature, and in the exclusive interest of Y Holding AG. The decisions on the respective lending activities was made by the management of Y Holding AG in Switzerland. The low rent of the business premises in Guernsey, low telephone costs, and just two part-time employees with low pay supported the fact that the effective place of management was located in Switzerland and not in Guernsey. Click here for translation Swiss case law 2C_1086-2012 ...

South Africa vs. Tradehold Ltd, May 2012, Supreme Court of Appeal, Case No. 132/11

Tradehold is an investment holding company, incorporated in South Africa, with its registered office at 36 Stellenberg Road, Parow, Industria, and is listed on the Johannesburg Stock Exchange. During the tax year under consideration, being the year of assessment ended 28 February 2003, Tradehold’s only relevant asset was its 100 per cent shareholding in Tradegro Holdings which, in turn, owned 100 per cent of the shares in Tradegro Limited, a company incorporated in Guernsey which owned approximately 65 per cent of the issued share capital in the UK-based company, Brown & Jackson plc. On 2 July 2002, at a meeting of Tradehold’s board of directors in Luxembourg, it was resolved that all further board meetings would be held in that country. This had the effect that, as from 2 July 2002, Tradehold became effectively managed in Luxembourg. It nevertheless remained a ‘resident’ in the Republic notwithstanding the relocation of the seat of its effective management to Luxembourg by reason of the definition, at that time, of the term ‘resident’ in s 2 of the Act. This status changed with effect from 26 February 2003, when the definition was amended and Tradehold ceased to be a resident of the Republic. Relying on the provisions of para 12 of the Eighth Schedule to the Act, the Commissioner contended that when the respondent relocated its seat of effective management to Luxembourg on 2 July 2002, or when it ceased to be a resident of the Republic on 26 February 2003, it was deemed to have disposed of its only relevant asset, namely its 100 per cent shareholding in Tradegro Holdings, resulting in a capital gain being realised in the 2003 year of assessment in an amount of R405 039 083. This tax is colloquially referred to as an ‘exit tax’. Article 13(4) of the DTA provides as follows: ‘Gains from the alienation of any property other than that referred to in paragraphs 1, 2 and 3, shall be taxable only in the Contracting State of which the alienator is a resident.’ The Tax Court rejected the Commissioner’s argument that the reference in Art 13(4) of the DTA to gains from the alienation of property did not include a deemed disposal of property as contemplated in para 12(2)(a) of the Schedule. The Court concluded: DTA, art 13:‘Generally speaking when you talk of a thing being deemed to be something, you do not mean to say that it is that which it is deemed to be. It is rather an admission that it is not what it is deemed to be and that, notwithstanding, it is not that particular thing, nevertheless it is deemed to be that thing.’ Whether the term ‘alienation’ as used in the DTA includes within its ambit gains arising from a deemed (as opposed to actual) disposal of assets: It is of significance that no distinction is drawn in Art 13(4) between capital gains that arise from actual or deemed alienations of property. There is moreover no reason in principle why the parties to the DTA would have intended that Art 13 should apply only to taxes on actual capital gains resulting from actual alienations of property. Consequently, Art 13(4) of the DTA applies to capital gains that arise from both actual and deemed alienations or disposals of property. It follows therefore that from 2 July 2002, when Tradehold relocated its seat of effective management to Luxembourg, the provisions of the DTA became applicable and that country had exclusive taxing rights in respect of all of Tradehold’s capital gains. This conclusion renders it unnecessary to deal with the Commissioner’s other contentions. The Revenue Service had incorrectly included a taxable gain resulting from the deemed disposal of Tradehold’s investment in its income for the 2003 year of assessment. The Court found in favor of taxpayer. OK Tradehold Ltd (132-11) sca2012-061 ...