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 …”) 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 ...

A S.A. is 51% owned by B SA and 49% by C Corp. A S.A is active in development of energy efficiency projects. In 2015 A S.A took out loans from B and C at an annual interest rate of 3.22xEuribor 12 months, plus a spread of 14%. A S.A had also paid for services to related party D. The tax authorities issued an assessment related to the interest rate on the loan and the service purportedly received and paid for. A complaint was filed by A S.A. with the Administrative Tribunal (CAAD). Judgement of the CAAD The complaint of A S.A was dismissed and the assessment upheld. Excerpts regarding the interest rate “Now, regarding the first argument, it falls immediately by the base, since the Applicant has not proved that it had made any effort to finance itself with the bank and that this effort was unsuccessful. On the contrary, it seems to result from the request for arbitration award that the Claimant and its shareholders have immediately assumed that, given the financial situation that the country was still experiencing in 2014, any request for financing made by a newly created entity and without business expectations would be rejected outright by all banks. For that reason, the Claimant did not prove, nor could it, that the interest it contracted with its shareholders was more favourable to it than what the banks would demand from it. In short, it cannot but be stated that, in view of this, the Defendant could not assume any other position than to investigate whether the shareholders of the Claimant had taken advantage of the socio-financial context of the country to contract a fixed spread of 14%. … As the Respondent summarized very well in its allegations (no. 58) That is, if an independent bank agreed to provide financing to the Claimant, of similar amount and term to the shareholder loans, remunerated at an annual nominal interest rate (TAN) calculated according to the monthly average of the 6-month Euribor rate of the previous month, plus a spread of 3 percentage points, then nothing justifies that the partners require from the company a remuneration for the shareholder loans that includes a spread of 14 percentage points.” Excerpts regarding the services “But it was not only the formal issue that justified the position of the AT and that leads this Court to agree with it. The absence of material evidence that the work had been performed is further compounded by the fact that, during the inspection, the AT found invoices (which the Claimant has registered in its accounts under account “62213 – Specialized work”), issued by the accounting firm “H…, Lda, as well as other “Specialized work”, for services related to the execution and management of the contracts, issued by suppliers B… and I…, which indicates that entities other than D… were involved in the provision of services. The management services for the … and of …, which were ongoing in 2017, and whose invoicing started that year, were performed by B… and I… and not by D… . Thus, the association of all the facts necessarily leads to the non-deductibility of D…’s invoice, since it was up to the Claimant to prove that the work was performed by D… and it failed to do so. As recently decided by the South Administrative Central Court in its ruling of 27 May 2021 in case no. 744/11.1BELRA (available at www.dgsi.pt) I- Invoices are not only relevant documents for the purpose of exercising the right to deduct, but also relevant for the purpose of exercising the AT’s control powers. II- There is no hierarchy between the various requirements imposed on invoices. III- The CJEU has held that the right to deduct is admissible even if some formal requirements are not met by invoices, provided that the material situation is demonstrated. IV- The failure to scrupulously comply with the formalities required in terms of issuing invoices may not compromise the exercise of the right of deduction, provided that the substantive requirements have been complied with and that the AT has all the elements to substantively characterise the transaction, it being understood that the burden of proof will rest with the taxable person. V- As no documentary evidence has been submitted containing a content that enables the gaps in the invoices to be overcome, the right to deduct is not admissible. Therefore, as the Claimant has not complied with the provisions of nos. 3 and 4 of article 23 of the CIRC, by virtue of paragraph c) of no. 1 of article 23-A, the invoice for the provision of services in the amount of €30,000.00, which determines the correction of the taxable income in that amount, cannot be deductible.” “Based on these grounds, the Court decides to consider the request made by the Claimant as totally unfounded” Click here for English translation Click here for other translation CAAD - Jurisprudência 23 March 2022 ...

A SGPS S.A. is the parent company of Group A. In 2016, a subsidiary, B S.A., took a loan in a bank, amounting to 1,950,000.00 Euros, and incurred interest costs and Stamp Tax. However, the majority of the loan, an amount of €1,716,256.60, was transferred as an interest free loan to A SGPS S.A. The tax authorities issued an assessment related to costs incurred on the loan and deducted by B S.A. The tax authorities disallowed B S.A.’s deduction of the costs as they were not intended to protect or obtain income, and therefore did not meet the requirements for deductibility under the general provisions of the Tax Code; A complaint was filed by A SGPS S.A. with the Administrative Tribunal. According to A SGPS SA the tax authorities did not justify why it considered that the expenses incurred by B S.A. to an independent bank for a loan that was passed on to the parent company were not deductible. According to A SGPS SA, this was not an issue of requirements for deductibility , but rather a question of transfer pricing. Hence, the correct framework for an adjustment would be that of article 63 regarding pricing of controlled transactions and not the general provisions in Article 23 of the Tax Code. Therefore the tax authorities had erred in law. Judgement of the CAAD In regards of B S.A.s deductions of loan expenses, the complaint of A SGPS S.A was dismissed and the assessment upheld. According to the tribunal, expenses held by a subsidiary to grant a loan to a parent company could not be said to “protect or obtain income” of the subsidiary since it did not own the parent company. “…the basic rule of deductibility of expenses is stated in article 23, no. 1 of the IRC Code, which, in its normative hypothesis, contains the respective constitutive assumptions, of a substantive nature, requiring a connection between the expenses and the activity generating income subject to IRC. Note that this is not a requirement of a direct causal relation between expenses and income (see Judgments of the Supreme Administrative Court of 24 September 2014, Case No. 0779/12; of 15 November 2017, Case No. 372/16; and of 28 June 2017, Case No. 0627/16, of 28 June 2017 ). The latter judgement considers “definitively ruled out a finalistic view of indispensability (as a requirement for costs to be accepted as tax costs), according to which a cause-effect relation, of the type conditio sine qua non, between costs and income would be required, so that only costs for which it is possible to establish an objective connection with the income may be considered deductible”. The causal connection should be made between the expenses and the activity globally considered (going beyond the strict expense-income nexus), and the Administration cannot assess the correctness, convenience or opportunity of the business and management decisions of the corporate entities. As highlighted by the Judgment of the Supreme Administrative Court of 21 September 2016, Case No. 0571/13 “[t]he concept of indispensability of costs, to which article 23 of the CIRC refers, refers to the costs incurred in the interest of the company or supported within the scope of the activities arising from its corporate scope”. On the other hand, this construction requires a link of subjective imputation that is implicit in the relationship required between the expense and the activity. This link must be made with the specific activity of the taxpayer and not with any other activity, namely that of its partners or third parties. It is in this framework that the corrections under analysis are based and not on the transfer pricing regime (see article 63 of the IRC Code), or on the “anti-abuse” regime, for which reason the assessment of the latter does not belong here. The Court is limited to the knowledge of the reasons expressed in the contemporaneous grounds of the tax act and if a correction has several valid grounds, only those that have been invoked as grounds for the contested act may be assessed. In this case, the only basis of the addition to the taxable amount of the deducted financial costs respects to the non-compliance of the assumptions of article 23, no. 1 of the Corporate Income Tax Code. As the conditions that integrate the normative hypothesis are not met, one cannot but validly conclude, together with the Defendant, that the deduction is not admissible. This, without prejudice to the fact that the factual situation may possibly be subject to a concurrent framework in other rules, which, as said, it is not for us to assess if they are not part of the foundations of the tax acts. The point is that the legal-tax regime effectively applied is based on correct legal and factual assumptions. … Taking into account the criterion described, the granting of free loans by B…, S.A. to the parent company [the Claimant] does not appear susceptible of being regarded as an activity of management of a financial asset by the former, since it is not the latter that holds shares in the parent company, but the opposite. In effect, there is no asset of which B…, S.A. is the holder that underlies this financing operation to the parent company. Nor can the argument regarding the exercise of significant influence over management, usually measured (in relation to subsidiary companies) by a percentage holding of at least 20%, be invoked in these circumstances to judge that the interest in the investment has been verified. Here, the significant influence is exercised in the opposite direction, since the parent company holds 92% of the capital of the Claimant. Therefore, it is concluded that the non-interest bearing financing granted by B…, S.A. to the Claimant are not carried out within the scope of the activity of the former and in its economic interest, so, in agreement with the Defendant, the financial costs incurred do not pass the test of the necessary causal relation between the expenses incurred and the activity of ...

In 2013 and 2014, the Canadian tax authorities conducted the Transfer Pricing Audit of Bank of Nova Scotia. Prior to issuing tax assessment letters for FY 2007, 2008, 2009 and 2010, the Bank entered into a settlement agreement with the Minister of National Revenue in respect of the Transfer Pricing Audit. The settlement agreement provided for the Minister to reassess the Bank to include certain amounts in its income as transfer pricing adjustments in its 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013 and 2014 Taxation Years. In this regard, the agreement was to result in an increase of the Bank’s taxable income for the 2006 Taxation Year of $54,916,616. The Bank then wrote to the Minister to carry back $54,000,000 of non-capital loss that arose in the Bank’s taxation year ended October 31, 2008 to its 2006 Taxation Year in order to offset the pending $54,916,616 Transfer Pricing Adjustment. The Minister did so and as part of the reassessment, interest was calculated based on the date of the written request (i.e. March 12, 2015). The Bank of Nova Scotia was of the opinion that the interest should have been calculated based on the filing date of the loss year return (i.e. April 28, 2009). The Tax Court’s decision The Tax Court ruled in favor of the tax authorities and dismissed the appeal. “The wording of the provision is unambiguous and when applied to the present circumstances, the correct deemed payment date is April 11, 2015 which is 30 days after March 12, 2015, i.e. based on subparagraph 161(7)(b)(iv). For the purposes of the refund interest, the correct deemed overpayment date is also April 11, 2015, based on paragraph 164(5)(l). The Minister’s error in using March 12, 2015 for her calculation rather than April 11, 2015, resulted in 30 days’ less interest being assessed and this Court cannot put the taxpayer in a worse position” Canada vs Bank of Nova Scotia 2021 ...

The Oyu Tolgoi copper-gold mine is a joint venture between Turquoise Hill Resources (which is 50.8 per cent owned by Rio Tinto), and the Mongolian Government. The Mongolian government has not been satisfied by the result of the joint venture and has concerns that increasing development costs of the Oyu Tolgoi project has eroded the economic benefits it anticipated receiving. “It is calculated that Mongolia will not receive dividend payments until 2051 and will incur debts of US$22 billion,” said Mongolia’s deputy chief cabinet secretary, Solongoo Bayarsaikhan. “In addition, Oyu Tolgoi is estimated to pay profit taxes or corporate income taxes only in four years until 2051.” The Mongolian authorities has put forward proposals to coordinate and lower management services received from Rio Tinto and increase Mongolia’s benefits by reducing shareholder loan interest rates. On December 23, 2020 the Mongolian Tax Authority issued a press release concerning the results of a completed transfer pricing audit of Oyu Tologi LLC. “The Mongolian Tax Authority has recently completed an audit of Oyu Tolgoi LLC’s 2016-2018 tax returns and identified a number of violations and breaches of relevant laws and the International Rules. As a result, Oyu Tolgoi LLC was notified of MNT 649.4 billion (approximately US$228 million) of additional taxes, inclusive of penalty and default interests, that are due to be paid in cash to the Government of Mongolia. In addition, the MTA has reduced Oyu Tolgoi LLC’s operating loss carry forward balance by MNT 3.4 trillion (approximately US$ 1.2 billion). The Mongolian Tax Authority concluded that certain transactions between Oyu Tolgoi LLC and Rio Tinto and its affiliates were not done at an arm’s length basis and were in violation of the International Rules. Accordingly, the value of such transactions was adjusted, for tax purposes, to reflect the actual value that would have been paid had the transactions occurred between unrelated parties dealing at an arm’s length basis. Major adjustments were made to a series of transactions between Oyu Tolgoi LLC and affiliated entities of Rio Tinto whereby economic value was transferred.” The 2016-2018 audit of Oyu Tologi LLC follows up on a previous assessment for FY 2013-2015. According to an announcement from Turquoise Hill Resources, the previous assessment has now been referred to international arbitration. Turquoise Hill Mongolia 2020-12-23-trq-nr ...

This decision is about the jurisdiction of the Tax Court of Canada, or perhaps more accurately about the scope of an appeal of an assessment. It arises in the context of an appeal by Dow Chemical Canada ULC of a reassessment of its 2006 taxation year. The reassessment increased Dow Chemical’s income under the transfer pricing provisions in section 247 of the Income Tax Act. In reassessing Dow Chemical for its 2006 and 2007 taxation years, the tax authorities had increased Dow Chemical’s income in respect of certain transactions with non-residents to which Dow Chemical is related. The authorities initially indicated that the transfer pricing provisions also would result in a downward adjustment to Dow Chemical’s income in those taxation years in respect of another transaction. However, the most recent reassessment of Dow Chemical’s 2006 taxation year did not reflect the downward adjustment, although the reassessment of its 2007 taxation year did. Dow Chemical has appealed the 2006 reassessment. The problem was the tax authorities decision to deny Dow Chemical the benefit of the downward adjustment. While the amount of the adjustment is not in dispute, the authorities, determined that it is not appropriate in the circumstances to give effect to the adjustment. The dispute concerns whether that determination was proper. The issue faced by Dow Chemical was where to bring the remaining issue in dispute. The Tax Court has the jurisdiction to consider an appeal of an assessment. The Federal Court has jurisdiction to judicially review a decision of the Minister, but only if the matter is not otherwise appealable. The uncertainty concerning the proper forum for the dispute led the parties to submit a question of law to the Tax Court under section 58 of the Tax Court of Canada Rules (General Procedure). “Where the Minister of National Revenue has exercised her discretion pursuant to subsection 247(10) of the Income Tax Act (“ITA”) to deny a taxpayer’s request for a downward transfer pricing adjustment, is that a decision falling outside the exclusive original jurisdiction granted to the Tax Court of Canada under section 12 of the Tax Court of Canada Act and section 171 of the ITA?” The Tax Court’s decision “The Court has determined that where the Minister has decided, pursuant to subsection 247(10) of the Income Tax Act (Canada) [the ITA], to deny a taxpayer’s request for a downward transfer pricing adjustment, that decision is not outside the exclusive original jurisdiction granted to the Court under section 12 of the Tax Court of Canada Act and section 171 of the ITA provided that the assessment resulting from that decision has been properly appealed to the Court.” Canada vs DowChemical Dec 18 2020 ...

At issue was interest in relation to loans between related parties. Pursuant to Article 32(1) ZDDPO-2, interest on loans, except in the case of borrowers from banks and insurance companies, received from a shareholder or partner who, at any time during the tax period, directly or indirectly owns at least 25% of the shares or interests in the capital or voting rights of the taxable person, is not recognised as an expense if, at any time during the tax period, such loans exceed four times (in accordance with the transitional provision 81. The excess of loans is determined by reference to the amount and duration of the excess of loans during the tax period, unless the taxpayer proves that the excess of loans could have been obtained from a lender who is an unrelated person. The claimant argued in the proceedings that it could also have obtained the excess loans from an unrelated person, but failed to prove this. Click here for English translation Click here for other translation UPRS_Sodba_I_U_1570_2016-12-19.09.2017 ...