Tag: Tax avoidance

Chapter I paragraph 1.2

When independent enterprises transact with each other, the conditions of their commercial and financial relations (e.g. the price of goods transferred or services provided and the conditions of the transfer or provision) ordinarily are determined by market forces. When associated enterprises transact with each other, their commercial and financial relations may not be directly affected by external market forces in the same way, although associated enterprises often seek to replicate the dynamics of market forces in their transactions with each other, as discussed in paragraph 1.5 below. Tax administrations should not automatically assume that associated enterprises have sought to manipulate their profits. There may be a genuine difficulty in accurately determining a market price in the absence of market forces or when adopting a particular commercial strategy. It is important to bear in mind that the need to make adjustments to approximate arm’s length conditions arises irrespective of any contractual obligation undertaken by the parties to pay a particular price or of any intention of the parties to minimize tax. Thus, a tax adjustment under the arm’s length principle would not affect the underlying contractual obligations for non-tax purposes between the associated enterprises, and may be appropriate even where there is no intent to minimize or avoid tax. The consideration of transfer pricing should not be confused with the consideration of problems of tax fraud or tax avoidance, even though transfer pricing policies may be used for such purposes ...

Chapter I paragraph 1.23

Even if some countries were willing to accept global formulary apportionment, there would be disagreements because each country may want to emphasize or include different factors in the formula based on the activities or factors that predominate in its jurisdiction. Each country would have a strong incentive to devise formulae or formula weights that would maximise that country’s own revenue. In addition, tax administrations would have to consider jointly how to address the potential for artificially shifting the production factors used in the formula (e.g. sales, capital) to low tax countries. There could be tax avoidance to the extent that the components of the relevant formula can be manipulated, e.g. by entering into unnecessary financial transactions, by the deliberate location of mobile assets, by requiring that particular companies within an MNE group maintain inventory levels in excess of what normally would be encountered in an uncontrolled company of that type, and so on ...

Chapter IV paragraph 4.23

Civil monetary penalties for tax understatement are frequently triggered by one or more of the following: an understatement of tax liability exceeding a threshold amount, negligence of the taxpayer, or wilful intent to evade tax (and also fraud, although fraud can trigger much more serious criminal penalties). Many OECD member countries impose civil monetary penalties for negligence or willful intent, while only a few countries penalise “no-fault” understatements of tax liability ...

April 2013: Draft Handbook on Transfer Pricing Risk Assessment

The 2013 Draft Handbook on Transfer Pricing Risk Assessment is a detailed, practical resource that countries can follow in developing their own risk assessment approaches. The handbook supplements useful materials already available with respect to transfer pricing risk assessment. The OECD Forum on Tax Administration published a report entitled “Dealing Effectively with the Challenges of Transfer Pricing” in January 2012. One chapter of that report also addresses transfer pricing risk assessment. Draft-Handbook-TP-Risk-Assessment-ENG ...

UK Parliament, House of Commons, Committee of Public Accounts, Hearings on Tax Avoidance Schemes

Follow the work of the UK Parliament, House of Commons Committee of Public Account, on corporate tax avoidance schemes. http://www.parliament.uk/business/committees/committees-a-z/commons-select/public-accounts-committee/taxation/ Statements from Amazon, Google and Starbucks, November 2012 UK Parlement, September 2012 Google Amazon Starbucks Statement from Google June 2013 UK Parlement, June 2013, Tax Avoidance–Google ...

Australian Parliament Hearings – Tax Avoidance

In a public hearing held 22 August 2017 in Sydney Australia by the Economics References Committee, tech companies IBM, Microsoft, and Apple were called to the witnesses stand to explain about tax avoidance schemes – use of “regional headquarters” in low tax jurisdictions (Singapore, Ireland and the Netherlands) to avoid or reduce taxes. Follow the ongoing Australian hearings into corporate tax avoidance on this site: http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/Corporatetax45th Transcript from the hearing: Tax Avoidance, Australian Senate Hearing, 22 August 2017 ...

Tax avoidance in Australia

In May 2018 the final report on corporate tax avoidance in Australia was published by the Australian Senate. The report contains the findings, conclusions and recommendations based on 4 years of hearings and investigations into tax avoidance practices by multinationals in Australia. Australian-final-report-on-tax-avoidance ...

New Zealand vs Frucor Suntory, September 2020, Court of appeal, Case No [2020] NZCA 383

This case concerns application of the New Zealand´s general anti-avoidance rule in s BG 1 of the Income Tax Act 2004. The tax authorities issued an assessment to Frucor Suntory NZ Ltd where deductions of interest expenses in the amount of $10,827,606 and $11,665,323 were disallowed in FY 2006 and 2007. In addition, penalties of $1,786,555 and $1,924,779 for those years were imposed. The claimed deductions arose in the context of an arrangement entered into by Frucor Holdings Ltd (FHNZ) involving, among other steps, its issue of a Convertible Note to Deutsche Bank, New Zealand Branch (DBNZ) and a forward purchase of the shares DBNZ could call for under the Note by FHNZ’s Singapore based parent Danone Asia Pte Ltd (DAP). The Note had a face value of $204,421,5654 and carried interest at a rate of 6.5 per cent per annum. Over its five-year life, FHNZ paid DBNZ approximately $66 million which FHNZ characterised as interest and deducted for income tax purposes. The tax authorities found that, although such deductions complied with the “black letter” of the Act, $55 million of the $66 million paid was in fact a non- deductible repayment of principal. Hence only interest deduction of $11 million over the life of the Arrangement was allowed. These figures represent the deduction disallowed by the Commissioner, as compared to the deductions claimed by the taxpayer: $13,250,998 in 2006 and $13,323,806 in 2007. Based on an allegedly abusive tax position but mitigated by the taxpayer’s prior compliance history. In so doing, avoiding any exposure to shortfall penalties for the 2008 and 2009 years in the event it is unsuccessful in the present proceedings. The income years 2004 and 2005, in which interest deductions were also claimed under the relevant transaction are time barred. Which I will refer to hereafter as $204 million without derogating from the Commissioner’s argument that the precise amount of the Note is itself evidence of artifice in the transaction. As the parties did in both the evidence and the argument, I use the $55 million figure for illustrative purposes. In fact, as recorded in fn 3 above, the Commissioner is time barred from reassessing two of FHNZ’s relevant income tax returns. The issues The primary issue in the proceedings is whether s BG 1 of the Act applies to the Arrangement. Two further issues arise if s BG 1 is held to apply: (a) whether the Commissioner’s reconstruction of the Arrangement pursuant to s GB 1 of the Act is correct or whether it is, as FHNZ submits, “incorrect and excessive”; and (b) whether the shortfall penalties in ss 141B (unacceptable tax position) or 141D (abusive tax position) of the Tax Administration Act 1994 (TAA) have application. The key parties The High Court decided in favor of Frucor Suntory The decision was appealed to the Court of Appeal, where a decision in favor of the tax authorities has now been issued. The Court of Appeal set aside the decision of the High Court in regards of the tax adjustment, but dismissed the appeal in regards of shortfall penalties. “We have already concluded that the principal driver of the funding arrangement was the availability of tax relief to Frucor in New Zealand through deductions it would claim on the coupon payments. The benefit it obtained under the arrangement was the ability to claim payments totalling $66 million as a fully deductible expense when, as a matter of commercial and economic reality, only $11 million of this sum comprised interest and the balance of $55 million represented the repayment of principal. The tax advantage gained under the arrangement was therefore not the whole of the interest deductions, only those that were effectively principal repayments. We consider the Commissioner was entitled to reconstruct by allowing the base level deductions totalling $11 million but disallowing the balance. The tax benefit Frucor obtained “from or under” the arrangement comprised the deductions claimed for interest on the balance of $149 million which, as a matter of commercial reality, represented the repayment of principal of $55 million.” NZ v Frucor September 2020 ...

Finland vs A Group, April 2020, Supreme Administrative Court, Case No. KHO:2020:35

In 2008, the A Group had reorganized its internal financing function so that the Group’s parent company, A Oyj, had established A Finance NV in Belgium. Thereafter, A Oyj had transferred to intra-group long-term loan receivables of approximately EUR 223,500,000 to A Finance NV. In return, A Oyj had received shares in A Finance NV. The intra-group loan receivables transferred in kind had been unsecured and the interest income on the loan receivables had been transferred to A Finance NV on the same day. A Finance NV had entered the receivables in its balance sheet as assets. In addition, A Oyj and A Finance NV had agreed that target limits would be set for the return on investment achieved by A Finance NV through its operations. A Finance NV has reimbursed A Oyj for income that has exceeded the target limit or, alternatively, invoiced A Oyj for income that falls below the target limit. Based on the functional analysis prepared in the tax audit submitted to A Oyj, the Group Tax Center had considered that A Oyj had in fact performed all significant functions related to intra-group financing, assumed significant risks and used significant funds and that A Finance NV had not actually acted as a group finance company. The Group Tax Center had also considered that A Finance NV had received market-based compensation based on operating costs. In the tax adjustments for the tax years 2011 and 2012 submitted by the Group Tax Center to the detriment of the taxpayer, A Oyj had added as a transfer pricing adjustment: n the difference between the income deemed to be taxable and the income declared by the company and, in addition, imposed tax increases on the company. In the explanatory memorandum to its transfer pricing adjustment decisions, the Group Tax Center had stated that the transactions had not been re-characterized because the characterization or structuring of the transaction or arrangement between the parties had not been adjusted but taxed on the basis of actual transactions between the parties. The Supreme Administrative Court found that the Group Tax Center had ignored the legal actions taken by A Oyj and A Finance NV and in particular the fact that A Finance NV had become a creditor of the Group companies. It had identified the post-investment transactions between A Oyj and A Finance NV and considered that A Oyj had in fact performed all significant intra-group financing activities and that A Finance NV had not in fact acted as a group finance company. Thus, when submitting the tax adjustments to the detriment of the taxpayer, the Group Tax Center had re-characterized the legal transactions between A Oyj and A Finance NV on the basis of section 31 of the Act on Tax Procedure. As the said provision did not entitle the Group Tax Center to re-characterize the legal transactions made by the taxpayer and since it had not been alleged that A Oyj and A Finance NV had reorganized the Group’s financial activities for tax avoidance purposes, the Group Tax Center could not correct A Oyj taxes to the detriment of the taxpayer and does not impose tax increases on the company. Tax years 2011 and 2012. that A Oyj and A Finance NV had undertaken to reorganize the Group’s financial operations for the purpose of tax avoidance, the Group Tax Center could not, on the grounds presented, correct A Oyj’s taxation in 2011 and 2012 to the detriment of the taxpayer or impose tax increases on the company. Tax years 2011 and 2012. that A Oyj and A Finance NV had undertaken to reorganize the Group’s financial operations for the purpose of tax avoidance, the Group Tax Center could not, on the grounds presented, correct A Oyj’s taxation in 2011 and 2012 to the detriment of the taxpayer or impose tax increases on the company. Tax years 2011 and 2012. Click here for translation KHO-2020-35 ...

Netherlands vs Crop Tax Advisors, June 2019, Court of the Northern Netherlands, Case No 200.192.332/01

The question in this case is whether a tax adviser at Crop BV acted in accordance with the requirements of a reasonably competent and reasonably acting adviser when advising on the so-called royalty routing and its implementation and when giving an advice on trading. Click here for translation NL royalty routing1 ...