In 2005 an agreement was entered between the UK tax authority and GE Capital, whereby GE Capital was able to obtain significant tax benefits by routing billions of dollars through Australia, the UK and the US. HMRC later claimed, that GE Capital had failed to disclose all relevant information to HMRC prior to the agreement and therefore asked the High Court to annul the agreement. In December 2020 the High Court decided in favour of HMRC. GE Capital then filed an appeal with the Court of Appeal. Judgement of the Court of Appeal The Court of Appeal overturned the judgement of the High Court and ruled in favour of GE Capital ...

In 2005 an agreement was entered between the UK tax authority and GE Capital, whereby GE Capital was able to obtain significant tax benefits by routing billions of dollars through Australia, the UK and the US. HMRC later claimed, that GE Capital had failed to disclose all relevant information to HMRC prior to the agreement and therefore asked the High Court to annul the agreement. The High Court ruled that HMRC could pursue the claim against GE in July 2020. Judgement of the High Court The High Court ruled in favour of the tax authorities ...

General Electric (GE) have been routing financial transactions (AUS $ 5 billion) related to GE companies in Australia via the UK in order to gain a tax advantage – by “triple dipping” in regards to interest deductions, thus saving billions of dollars in tax in Australia, the UK and the US. Before entering into these transactions, GE obtained clearance from HMRC that UK tax rules were met, in particular new “Anti-Arbitrage Rules” introduced in the UK in 2005, specifically designed to prevent tax avoidance through the exploitation of the tax treatment of ‘hybrid’ entities in different jurisdictions. The clearance was granted by the tax authorities in 2005 based on the understanding that the funds would be used to invest in businesses operating in Australia. In total, GE’s clearance application concerned 107 cross-border loans amounting to debt financing of approximately £21.2 billion. The Australian Transaction was one part of the application. After digging into the financing structure and receiving documents from the Australian authorities, HMRC now claims that GE fraudulently obtained a tax advantage in the UK worth US$1 billion by failing to disclose information and documents relating to the group’s financing arrangements. According to the HMRC, GE provided UK tax officers with a doctored board minute, and misleading and incomplete documents. The documents from Australia shows that the transactions were not related to investments in Australian businesses, but part of a complex and contrived tax avoidance scheme that would circulate money between the US, Luxembourg, the UK and Australia before being sent back to the US just days later. These transactions had no commercial purpose other than to create a “triple dip” tax advantage in the UK, the US and Australia. HMRC are now seeking to annul the 2005 clearance agreement and then issue a claim for back taxes in the amount of $ 1 billion before interest and penalties. From GE’s 10 K filing “As previously disclosed, the United Kingdom tax authorities disallowed interest deductions claimed by GE Capital for the years 2007-2015 that could result in a potential impact of approximately $1 billion, which includes a possible assessment of tax and reduction of deferred tax assets, not including interest and penalties. We are contesting the disallowance. We comply with all applicable tax laws and judicial doctrines of the United Kingdom and believe that the entire benefit is more likely than not to be sustained on its technical merits. We believe that there are no other jurisdictions in which the outcome of unresolved issues or claims is likely to be material to our results of operations, financial position or cash flows. We further believe that we have made adequate provision for all income tax uncertainties.” The English High Court decision on whether the case has sufficient merit to proceed to trial: “150. For the above reasons, I refuse the application to amend in respect of paragraphs 38(b) and 38(e) of APOC and I will strike out the existing pleading in paragraph 38(e) of APOC. I will otherwise permit the amendments sought by HMRC insofar as they are not already agreed between the parties. Specifically, the permitted amendments include those in which HMRC seeks to introduce allegations of deliberate non-disclosure, fraud in respect of the Full Disclosure Representation, a claim that the Settlement Agreement is a contract of utmost good faith (paragraphs 49B and 53(ca) of APOC) and the claim for breach of an implied term (paragraphs 48 and 49 of APOC). 151. As to paragraph 68(b) of the Reply, I refuse the application to strike it out. To a large extent this follows from my conclusion in relation to the amendments to the APOC to add allegations of deliberate failure to disclose material information. In GE’s skeleton argument, a separate point is taken that paragraph 68(b) of the Reply is a free-standing plea that is lacking in sufficient particulars. I do not accept this: there can be no real doubt as to which parts of the APOC are being referred to by the cross-reference made in paragraph 68(b)(ii). 152. The overall result is that, while I have rejected the attempts to infer many years after the event that specific positive representations could be implied from limited references in the contemporaneous documents, the essential allegation which lay at the heart of Mr Jones QC’s submissions – that GE failed to disclose the complete picture, and that it did so deliberately – will be permitted to go to trial on the various alternative legal bases asserted by HMRC. I stress that, beyond the conclusion that there is a sufficient pleading for this purpose, and that the prospects of success cannot be shown to be fanciful on an interlocutory application such as this, I say nothing about the merits of the claims of deliberate non-disclosure or fraud.” ...

Bupa reaches $157m settlement with the Australian tax office after decade-long dispute The settlement was the result of a decade-long dispute with the ATO over a “number of different matters”, included transfer pricing issues with acquisitions in Australia in 2007 and 2008. Bupa’s tax affairs came under scrutiny last year in a report by the Tax Justice Network. The report alleged that Bupa frequently used related party loans and debts from a corporate restructure, among other things, to reduce its profits in Australia. According to the report, Bupa posted a total income of $7.5bn in Australia in 2015-16, but paid just $105m in tax on a taxable income of $352m. Its aged care business in Australia made more than $663m, about 70% of which was from government funding. At the time of the report’s release, Bupa denied it had breached any tax laws ...

This case is about a IP sale-and-license-back arrangement. The taxpayer acquired the shares in BV Z (holding). BV Z owns the shares in BV A and BV B (the three BVs form a fiscal unity under the CITA). BV A produces and sells shoes. In 1993, under a self-proclaimed protection clause, BV A sells the trademark of the shoes to BV C, which is also part of the fiscal unity. The protection clause was supposedly intended to protect the trademark in case of default of BV A. Taxpayer had created BV C prior to the sale of the trademark. In 1994, the taxpayer entered into a licensing agreement with BV C: the taxpayer pays NLG 2 to BV C per pair of shoes sold. Next, BV C is then moved to the Netherlands Antilles, which results in the end of the fiscal unity as of January 1, 1994. The roundtrip arrangement, the sale of an intangible and the subsequent payment of licensing fees, is now complete. In 1999 the royalty for use of the trademark was increased from fl. 2 per pair of shoes to fl. 2.50 per pair, resulting in annual royalty payments of fl. 300.000 from A BV to B BV. The Court disallowed tax deductions for the royalty payments. The payments were not proven to be at arm’s length. B BV had no employees to manage the trademarks. There were no business reasons for the transactions, only a tax motive. Hence the sale-and-license back arrangement was disregarded for tax purposes. Also, the licensing agreement were not found to produce effective protection of the brand and was therefore also considered part of a tax planning plan. Taxpayers often seek to maximise differences in tax rates through selling intangibles to a low- tax country and subsequently paying royalties to this country for the use of these intangibles, thereby decreasing the tax-base in the high-tax country. The arm’s length principle requires taxpayers to have valid business purposes for such transactions and requires them to make sure that the royalties are justified – why would an independent company pay royalties to a foreign company for an intangible it previously owned?’ To adress such situations a decree was issued in the Netherlands on August 11, 2004. The decree provided additional rules for transfers of intangibles when the value is uncertain at the time of the transaction (HTVI). It refers to situations in which an intangible is being transferred to a foreign group company and where this company furthermore licenses the intangible back to the transferor and/or related Dutch companies of this company. In these situations a price adjustment clause is deemed to have been entered. The deemed price adjustment clause prevents a sale at a very low price with a consequent high royalty fee to drain the Dutch tax base. Through the price adjustment clause the Dutch tax authorities are guaranteed a fair price for the sale of the intangible. Click here for translation ...