To the extent that a controlled participant’s tax rate is not materially affected by whether it enters into the cost sharing or licensing alternative (or reliable adjustments may be made for varying tax rates), the factor (that is, one minus the tax rate) may be cancelled from both sides of the equation of the cost sharing and licensing alternative present values. Accordingly, in such circumstance it is sufficient to apply post-tax discount rates to projections of pre-tax income for the purpose of equating the cost sharing and licensing alternatives. The specific applications of the income method described in paragraphs (g)(4)(ii) through (iv) of this section and the examples set forth in paragraph (g)(4)(viii) of this section assume that a controlled participant’s tax rate is not materially affected by whether it enters into the cost sharing or licensing alternative ...

In certain circumstances, post-tax income may be derived as the product of the result of applying a post-tax discount rate to pre-tax income, and a factor equal to one minus the tax rate (as defined in (j)(1)(i)). See paragraph (g)(2)(v)(B) of this section ...

In principle, the present values of the cost sharing and licensing alternatives should be determined by applying post-tax discount rates to post-tax income (including the post-tax value to the controlled participant of the PCT Payments). If such approach is adopted, then the post-tax value of the PCT Payments must be appropriately adjusted in order to determine the arm’s length amount of the PCT Payments on a pre-tax basis. See paragraph (g)(2)(x) of this section ...

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On 16 June 2022 McDonald’s France entered into an settlement agreement according to which it will pay €1.245 billion in back taxes and fines to the French tax authorities. The settlement agreement resulted from investigations carried out by the French tax authorities in regards to abnormally high royalties transferred from McDonald’s France to McDonald’s Luxembourg following an intra group restructuring in 2009. McDonald’s France doubled its royalty payments from 5% to 10% of restaurant turnover, and instead of paying these royalties to McDonald’s HQ in the United States, going forward they paid them to a Swiss PE of a group company in Luxembourg, which was not taxable of the amounts. During the investigations it was discovered that McDonald’s royalty fees could vary substantially from one McDonald’s branch to the next without any justification other than tax savings for the group. This conclusion was further supported by statements of the managers of the various subsidiaries as well as documentation seized which showed that the 100% increase in the royalty rate was mainly explained by a higher profitability of McDonald’s in France and a corresponding increase in taxes due. The investigations led the French tax authorities to question the overall economic substance of the IP company in Luxembourg and the contractual arrangements setup by the McDonald’s group. After being presented with the findings of the investigations and charged with tax fraud etc. McDonald’s was offered a public interest settlement agreement (CJIP) under Article 41-1-2 of the French Code of Criminal Procedure. The final settlement agreement between McDonald’s and the French authorities was announced in a press release from the Financial Public Prosecutor (English translation below). On 16 June 2022, the President of the Paris Judicial Court validated the judicial public interest agreement (CJIP) concluded on 31 May 2022 by the Financial Public Prosecutor (PRF) and the companies MC DONALD’S FRANCE, MC DONALD’S SYSTEM OF FRANCE LLC and MCD LUXEMBOURG REAL ESTATE S.A.R.L pursuant to Article 41-1-2 of the Criminal Procedure Code. under Article 41-1-2 of the Code of Criminal Procedure. Under the terms of the CJIP, MC DONALD’S FRANCE, MC DONALD’S SYSTEM OF FRANCE LLC and MCD LUXEMBOURG REAL ESTATE S.A.R.L, undertake to pay the French Treasury a public interest fine totalling 508,482,964 euros. Several French companies of the MC DONALD’S group have also signed a global settlement with the tax authorities, putting an end to the administrative litigation. The sum of the duties and penalties due under the overall settlement and the public interest fine provided for under the CJIP amounts to a total of EUR 1,245,624,269. Subject to the payment of the public interest fine, the validation of the CJIP extinguishes the public prosecution against the signatory companies. This agreement follows a preliminary investigation initiated by the PNF on 4 January 2016 after the filing of a complaint by the works council of MC DONALD’S OUEST PARISIEN. Opened in particular on the charge of tax fraud, the investigation had been entrusted to the Central Office for Combating Corruption and Financial and Fiscal Offences (OCLCIFF). This is the 10ᵉ CJIP signed by the national financial prosecutor’s office. The Financial Public Prosecutor Jean-François Bohnert Validated Settlement Agreement of 16 June 2022 English translation of the Validated Settelment Agreement France vs MCD Ordonnance_validation_CJIP_tjparis_macdo_20220616 Preliminary Settlement Agreement of 31 May 2022 with statement of facts and resulting taxes and fines English translation of the Preliminary Settlement Agreement of 31 May 2022 MCD vs France CJIP_TJ_paris_macdo_20220531 ...

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 ...

Swiss banking group, UBS, had set up a system aimed at facilitating tax evasion and money laundering of wealthy French taxpayers. Judgement of the Court of Appeal By judgment of the Paris Court of Appeal dated 13 December 2021, the Swiss parent, UBS AG, was found guilty of banking and financial canvassing and of facilitating tax evasion and money laundering. The Court Sentenced UBS AG to a fine of €3,750,000.00 and confiscation of €1,000,000,000.00. Furthermore UBS AG was ordered to pay €800,000,000.00 for damages to the French State. UBS FRANCE SA, the French subsidiary, was found guilty of complicity in banking and financial canvassing and sentenced to a fine of €1,875,000.00. Click here for English translation France vs UBS Dec 2021 ...

A new huge leak of financial records revealed by ICIJ, once again shows widespread use of offshore accounts, shell companies and trusts to hide wealth and/or avoid taxes. The new leak is known as the Pandora Papers and follows other recent leaks – lux leak, panama papers, paradise papers. The International Consortium of Investigative Journalists obtained 11.9 million confidential documents from 14 separate legal and financial services firms, which the group said offered “a sweeping look at an industry that helps the world’s ultrawealthy, powerful government officials and other elites conceal trillions of dollars from tax authorities, prosecutors and others.” “The key players in the system include elite institutions – multinational banks, law firms and accounting practices – headquartered in the U.S. and Europe.” The Consortium said the 2.94 terabytes of financial and legal data shows the “offshore money machine operates in every corner of the planet, including the world’s largest democracies,” and involves some of the world’s most well-known banks and legal firms. “The Pandora Papers provide more than twice as much information about the ownership of offshore companies. In all, the new leak of documents reveals the real owners of more than 29,000 offshore companies. The owners come from more than 200 countries and territories, with the largest contingents from Russia, the U.K., Argentina and China.” “Pandora Papers” leaks: Statement by Bob Hamilton, Chair of the Forum on Tax Administration and Chris Jordan, Chair of the FTA’s Joint International Task Force on Shared Intelligence and Collaboration On October 14, a statement was issued by the OECD The Forum on Tax Administration and its Joint International Task Force on Shared Intelligence and Collaboration (JITSIC) are already working collaboratively in response to the recent “Pandora Papers” leaks. This follows the model successfully adopted for the Panama and Paradise Papers leaks. 14/10/2021 – The International Consortium of Investigative Journalists (ICIJ) has recently released information relating to its review of data leaks referred to as the Pandora Papers. As a result of the strong partnerships established through its JITSIC Network, the OECD Forum on Tax Administration (FTA) is well positioned to enable a collaborative approach to identifying and addressing aggressive tax avoidance and tax evasion involving multiple jurisdictions once the data becomes available. The FTA is dedicated to tax transparency and tax co-operation through the delivery of its collaborative work programme, and its members have access to a range of tools and platforms to help tackle offshore tax evasion and avoidance, including: The FTA’s JITSIC network, which provides an effective and well-established platform to its 42 members to cooperate directly on individual cases, as well as sharing their experience, resources and expertise. This direct and immediate collaboration proved to be very effective following the Panama and Paradise Papers leaks. JITSIC, like tax administrations more generally, operates under strict rules designed to protect the confidentiality of information and the confidence of taxpayers. As a consequence much of the work of JITSIC is not always visible to the public. The OECD standard on the exchange of information on request, which provides a powerful framework for tax administrations to receive detailed information on taxpayers’ offshore affairs from 163 jurisdictions. The OECD Common Reporting Standard (CRS) under which there is automatic reporting of information between more than 100 jurisdictions on the offshore financial accounts of non-residents, to their jurisdiction of residence. Information on these financial accounts, as well as the requirements envisaged by the transparency and exchange of information on request standard, ensure greater transparency of ownership of companies, trusts, and other similar structures, the importance of which has been illustrated in the Pandora Papers. As has been the case with previous leaks, JITSIC members will continue to work together to pool resources, share information and rapidly develop a more accurate picture of potential wrong doing in order to facilitate further investigations. While the information contained in such leaks can be of value in investigations, the inclusion of information about an individual or entity in a data leak does not automatically mean that there has been non-compliance ...

A new huge leak of financial records revealed by ICIJ, once again shows widespread use of offshore accounts, shell companies and trusts to hide wealth and/or avoid taxes. The new leak is known as the Pandora Papers and follows other recent leaks – lux leak, panama papers, paradise papers. The International Consortium of Investigative Journalists obtained 11.9 million confidential documents from 14 separate legal and financial services firms, which the group said offered “a sweeping look at an industry that helps the world’s ultrawealthy, powerful government officials and other elites conceal trillions of dollars from tax authorities, prosecutors and others.” “The key players in the system include elite institutions – multinational banks, law firms and accounting practices – headquartered in the U.S. and Europe.” The Consortium said the 2.94 terabytes of financial and legal data shows the “offshore money machine operates in every corner of the planet, including the world’s largest democracies,” and involves some of the world’s most well-known banks and legal firms. “The Pandora Papers provide more than twice as much information about the ownership of offshore companies. In all, the new leak of documents reveals the real owners of more than 29,000 offshore companies. The owners come from more than 200 countries and territories, with the largest contingents from Russia, the U.K., Argentina and China.” ...

Redington India Limited (RIL) established a wholly-owned subsidiary Redington Gulf (RG) in the Jebel Ali Free Zone of the UAE in 2004. The subsidiary was responsible for the Redington group’s business in the Middle East and Africa. Four years later in July 2008, RIL set up a wholly-owned subsidiary company in Mauritius, RM. In turn, this company set up its wholly-owned subsidiary in the Cayman Islands (RC) – a step-down subsidiary of RIL. On 13 November 2008, RIL transferred its entire shareholding in RG to RC without consideration, and within a week after the transfer, a 27% shareholding in RC was sold by RG to a private equity fund Investcorp, headquartered in Cayman Islands for a price of Rs.325.78 Crores. RIL claimed that the transfer of its shares in RG to RC was a gift and therefore, exempt from capital gains taxation in India. It was also claimed that transfer pricing provisions were not applicable as income was exempt from tax. The Indian tax authorities disagreed and found that the transfer of shares was a taxable transaction, as the three defining requirements of a gift were not met – that the transfer should be (i) voluntary, (ii) without consideration and that (iii) the property so transferred should be accepted by the donee. The tax authorities also relied on the documents for the transfer of shares, the CFO statement, and the law dealing with the transfer of property. The arm’s length price was determined by the tax authorities using the comparable uncontrolled price method – referring to the pricing of the shares transferred to Investcorp. In the tax assessment, the authorities had also denied deductions for trademark fees paid by RIL to a Singapore subsidiary for the use of the “Redington” name. The tax authorities had also imputed a fee for RIL providing guarantees in favour of its subsidiaries. RIL disagreed with the assessment and brought the case before the Dispute Resolution Panel (DRP) who ruled in favour of the tax authorities. The case was then brought before the Income Tax Appellate Tribunal (ITAT) who ruled in favour of RIL. ITAT’s ruling was then brought before the High Court by the tax authorities. The decision of the High Court The High Court ruled that transfer of shares in RG by RIL to its step-down subsidiary (RC) as part of corporate restructuring could not be qualified as a gift. Extraneous considerations had compelled RIL to make the transfer of shares, thereby rendering the transfer involuntary. The entire transaction was structured to accommodate a third party-investor, who had put certain conditions even prior to effecting the transfer. According to the court, the transfer of shares was a circular transaction put in place to avoid payment of taxes. “Thus, if the chain of events is considered, it is evidently clear that the incorporation of the company in Mauritius and Cayman Islands just before the transfer of shares is undoubtedly a means to avoid taxation in India and the said two companies have been used as conduits to avoid income tax” observed the Court. The High Court also disallowed deductions for trademark fees paid by RIL to a Singapore subsidiary. The court stated it was illogical for a subsidiary company to claim Trademark fee from its parent company (RIL), especially when there was no documentation to show that the subsidiary was the owner of the trademark. It was also noted that RIL had been using the trademark in question since 1993 – long before the subsidiary in Singapore was established in 2005. Regarding the guarantees, the Court concluded these were financial services provided by RIL to it’s subsidiaries for which a remuneration (fee/commission) was required. India vs Ms Redington (India) Limited 10 Dec 2020 Madras High Court FY 09 10 ...

A Colombian taxpayer had filed an unconstitutionality complaint against Article 70 (partial) of Law 1819 of 2016, “Whereby a structural tax reform is adopted, mechanisms for the fight against tax evasion and avoidance are strengthened, and other provisions are enacted.” The Constitutional Court ruled that the Colombian GAAR legislation was not unconstitutional. Click here for English translation Click here for other translation (1) Corte Constitucional - Sentencia C-480 del 19 de noviembre de 2020 ...

The facts underlying the notice of assessment are undisputed: a) Casa di Cura Santa Rita s.p.a. grants a free loan to Spazio Immobiliare 2000 s.r.l.; b) the latter company, substantially lacking its own means and wholly controlled by the former, uses the parent company’s loan in full to purchase certain assets; c) said assets are rented to the parent company against payment of a consideration, partly due also for the year 2004; d) payment of the consideration for the years of rental is deferred until 31/12/2005. In view of these facts, the tax authorities makes the following contentions: (a) the parent company did not directly purchase the goods and services from the subsidiary because it would not have been able to deduct the VAT due to the fact that it carried out almost all exempt transactions; (b) the subsidiary benefited from a VAT credit for the year 2004 (arising from the purchase of the goods then leased) which was then included in the group VAT settlement, but which it should have offset against the VAT paid by the parent company on the rentals c) the payment of the hire was contractually delayed between the parties in such a way as not to permit the aforesaid set-off; d) in this context, in which the payment of the hire was contractually delayed, the free loan granted by the parent company was the true consideration for the hire transaction, with the subsidiary’s obligation to pay the VAT relating to the transactions already in 2004. Judgement of the Supreme Court The Supreme Court upheld the decision in regards of the assessment but remanded the the question of penalties to the court of first instance. Excerpts “17.4. The reconstruction of the case by the CTR is immune from the criticisms addressed to it both in terms of infringement of the law (fifth ground of appeal) and in terms of contradictory reasoning (ninth ground of appeal); with the result that the aforesaid grounds must be rejected (if not declared inadmissible). 17.4.1. The reasoning of the CTR is in no way contradictory, in that: (a) it classifies the financing as consideration for the hire contract; (b) it holds that that consideration, if paid on time, would have given rise to a VAT liability of SI 2000 (c) maintains that the rental agreement between the parent company and the subsidiary provided for the deferment of payment of the consideration solely for the purposes of evasion (surreptitious deferment of the time of taxation under Article 6 of Presidential Decree No 633 of 1972); (d) asserts the existence of VAT evasion by the subsidiary. 17.4.2. This is an entirely straightforward factual finding, legitimately made on the basis of the allegations of the parties and not affected by SI 2000’s objections. Nor can the appellant, in the context of legitimacy, substitute its own different reconstruction of the facts for that made by the CTR, free from the contested logical defects. 17.4.3. In view of the CTR’s legitimate findings of fact, there is not even a violation of the law complained of, a violation that would only arise from the different classification of the parent company’s disbursements as gratuitous loans and the legitimacy of the deferment of the rental fee, as claimed by the appellant. 17.4.4. In other words, the alleged breach of law follows from the different reconstruction of the case made by SI 2000, so that the fifth plea is inadmissible rather than unfounded. 17.5. The assessment made by the Regional Tax Commission leads to the conclusion that we are not dealing with a case of avoidance or abuse of law, but only with an evasion of tax, resulting from the qualification of the inter partes transaction made by the Regional Tax Commission, a qualification that is not called into question by the appellant’s complaints. 17.6 The issue has already been addressed by the S.C. in a recent judgment (Cass. no. 27550 of 30/10/2018), for which “the non-payment of taxes in relation to a transaction qualified in a legally correct manner by the financial administration integrates a hypothesis of tax evasion and not of tax avoidance, which occurs when a negotiating instrument is used for the purpose of obtaining a tax advantage through a distorted use of tax legislation, so that the provisions of law and the principles developed by the case law, both domestic and EU, on the subject of abuse of law cannot be applied”. 17.6.1. It is worth retracing the reasoning of the aforementioned judgment. 17.6.2. ‘It is well known that “in tax matters, according to the Community and national case law, an abusive practice is an economic transaction which, through the “improper” and “distorted” use of the negotiating instrument, has as its predominant and absorbing (though not exclusive) purpose the avoidance of the tax rule, while the mere abstract configurability of a tax advantage is not sufficient to integrate the abusive case, since the concomitant condition of the non-existence of economic reasons other than the mere saving of tax and the ascertainment of the effective will of the contracting parties to obtain an undue tax advantage is required” (so Cass. No. 25758 of 05/12/2014; see, also, Cass. No. 19234 of 7 November 2012; Cass. No. 21782 of 20/10/2011; Cass. S.U. No. 30055 of 23 December 2008). 17.6.3. With specific reference to direct taxes, then, the prohibition of abuse of rights translates into a general anti-avoidance principle that is grounded, first of all, in the same constitutional principles that inform the Italian tax system (Cass. no. 3938 of 19/02/2014; Cass. no. 4604 of 26/02/2014) and, above all, in Art. 37 bis of Presidential Decree No. 600 of 29 September 1973 (Cass. No. 405 of 14/01/2015; Cass. No. 4561 of 06/03/2015), which allows the tax authorities to disallow and declare non-enforceable transactions and acts, in themselves devoid of valid economic reasons and directed to the sole purpose of obtaining tax benefits that are otherwise not due.” Click here for English translation Click here for other translation Italy vs ...

AFRICAN BARRICK GOLD PLC (now Acacia Mining Plc), the largest mining company operating in Tanzania, was issued a tax bill for unpaid taxes, interest and penalties for alleged under-declared export revenues. As a tax resident in Tanzania, AFRICAN BARRICK GOLD was asked to remit withholding taxes on dividend payments amounting to USD 81,843,127 which the company allegedly made for the years 2010, 2011, 2012 and 2013 (this sum was subsequently reduced to USD 41,250,426). AFRICAN BARRICK GOLD was also required to remit withholding taxes on payments which the mining entities in Tanzania had paid to the parent, together with payments which was made to other non-resident persons (its shareholders) for the service rendered between 2010 up to September 2013. AFRICAN BARRICK GOLD argued that, being a holding company incorporated in the United Kingdom, it was neither a resident company in Tanzania, nor did it conduct any business in Tanzania to attract the income tax demanded according to the tax assessment issued by the tax authorities. In 2016, the Tax Revenue Appeals Tribunal upheld the assessment issued by the tax authorities. AFRICAN BARRICK GOLD then filed an appeal to the Court of Appeal. Judgement of the Court of Appeal The Court dismissed the appeal of AFRICAN BARRICK GOLD and upheld the assessment issued by the tax authorities. Excerpts “In light of our earlier finding that the appellant is a resident company with sources of mining income from its mining entities in Tanzania, this ground need not detain us long. We shall dismiss this ground because assignment of TIN and VRN registration numbers are legal consequences of the appellant’s tax residence in Tanzania. From the premise of our conclusion that the appellant became a resident company from 11th March 2010 when it was issued with a Certificate of Compliance for purposes of registering its place of business in Tanzania, the appellant had statutory obligation to apply to the respondent for a tax identification number within 15 days of beginning to carry on the business.” “We shall not trouble ourselves with the way the Board and the Tribunal interchangeably discussed “tax avoidance” and “tax evasion” while these courts were determining the salient question as to whether the dividend the appellant received from its Tanzanian entities and which was paid out to the appellant’s shareholders abroad was subject to withholding tax. As we pointed earlier, neither the Board nor the Tribunal made any actionable criminal finding against the appellant in respect of tax evasion. Otherwise, we agree with Mr. Tito in his submission that since the dividend which the appellant paid to its foreign shareholders had a source in the United Republic in terms of section 69(a) of the ITA 2004, the appellant had a statutory duty under section 54(1)(a) of the ITA 2004 to withhold tax from such dividends. Because the appellant failed to withhold that tax, the appellant is liable to pay that withholding tax in terms of sections 82(l)(a)(b) and 84(3) of the ITA 2004.” Click here for translation ocr-civil-appeal-no-144-2018-african-barrick-gold-plcappellant-versus-commissioner-general-tra-respo ...

A request for mutual agreement and arbitration procedure between Spain and Germany was denied due to highly punishable violation of tax regulations committed by the taxpayer. The mutual agreement procedure according to the EU Arbitration Convention is of a mandatory nature and therefore leads to the elimination of double taxation if the requirements are met. However, if it is determined through legal or administrative proceedings that one of the companies involved has committed a highly punishable violation of tax regulations that result in a profit adjustment, then there is no obligation to carry out the mutual agreement and arbitration proceedings. Rather, the competent authority then has to decide on the implementation of the procedure at its due discretion. When assessing whether there has been a serious punishable violation, the person responsible for the company must be taken into account. But whether this person was actually punished for the violation of tax regulations is not decisive. The judicial determination of a criminal or fined violation of the law by this person is sufficient, which, viewed abstractly, can lead to a punishment. The decision to carry out the procedure is also at the dutiful discretion of the competent authority even if the tax adjustment and the criminally determined violation of the tax regulations with regard to the tax periods and the tax amounts do not fully match. The Bundesfinanzhof issued a decision in favor of the tax authorities. Click here for English translation Click here for other translation Sep 25 2019 IR 82-17 Bundesfinanzhof ...

In March 2018 a special EU committee on financial crimes, tax evasion and tax avoidance (TAX3) was established. Now, one year later, The EU Parliament has approved a controversial report from the committee. According to the report close to 40 % of MNEs’ profits are shifted to tax havens globally each year with some European Union countries appearing to be the prime losers of profit shifting, as 35 % of shifted profits come from EU countries. About 80 % of the profits shifted from EU Member States are channelled to or through a few other EU Member States. The latest estimates of tax evasion within the EU point to a figure of approximately EUR 825 billion per year. Tax avoidance via six EU Member States results in a loss of EUR 42,8 billion in tax revenue in the other 22 Member States, which means that the net payment position of these countries can be offset against the losses they inflict on the tax base of other Member States. For instance, the Netherlands imposes a net cost on the Union as a whole of EUR 11,2 billion, which means the country is depriving other Member States of tax income to the benefit of multinationals and their shareholders. The Commission has criticised seven Member States – Belgium, Cyprus, Hungary, Ireland, Luxembourg, Malta and the Netherlands – for shortcomings in their tax systems that facilitate aggressive tax planning, arguing that they undermine the integrity of the European single market. Member States now calls on the Commission to currently regard at least these five Member States as EU tax havens until substantial tax reforms are implemented EU TAX3 ...

In March 2018 a special EU committee on financial crimes, tax evasion and tax avoidance (TAX3) was established. Now, one year later, The EU Parliament has approved a controversial report from the committee. According to the report close to 40 % of MNEs’ profits are shifted to tax havens globally each year with some European Union countries appearing to be the prime losers of profit shifting, as 35 % of shifted profits come from EU countries. About 80 % of the profits shifted from EU Member States are channelled to or through a few other EU Member States. The latest estimates of tax evasion within the EU point to a figure of approximately EUR 825 billion per year. Tax avoidance via six EU Member States results in a loss of EUR 42,8 billion in tax revenue in the other 22 Member States, which means that the net payment position of these countries can be offset against the losses they inflict on the tax base of other Member States. For instance, the Netherlands imposes a net cost on the Union as a whole of EUR 11,2 billion, which means the country is depriving other Member States of tax income to the benefit of multinationals and their shareholders. The Commission has criticised seven Member States – Belgium, Cyprus, Hungary, Ireland, Luxembourg, Malta and the Netherlands – for shortcomings in their tax systems that facilitate aggressive tax planning, arguing that they undermine the integrity of the European single market. Member States now calls on the Commission to currently regard at least these five Member States as EU tax havens until substantial tax reforms are implemented. Texts adopted - Report on financial crimes, tax evasion and tax avoidance - Tuesday, 26 March 2019 ...

A beneficial ownership toolkit was released 20. May 2019 in the context of the OECD’s Global Integrity and Anti-Corruption Forum. The toolkit, prepared by the Secretariat of the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes in partnership with the Inter-American Development Bank, is intended to help governments implement the Global Forum’s standards on ensuring that law enforcement officials have access to reliable information on who the ultimate beneficial owners are behind a company or other legal entity so that criminals can no longer hide their illicit activities behind opaque legal structures. The toolkit was developed to support Global Forum members and in particular developing countries because the current beneficial ownership standard does not provide a specific method for implementing it. The toolkit covers a variety of important issues regarding beneficial ownership, including: the concepts of beneficial owners and ownership, the criteria used to identify them, the importance of the matter for transparency in the financial and non-financial sectors; technical aspects of beneficial ownership requirements, distinguishing between legal persons and legal arrangements (such as trusts), and measures being taken internationally to ensure the availability of information on beneficial ownership a series of checklists that may be useful in pursuing a specific beneficial ownership framework; ways in which the principles on beneficial ownership can play out in practice in Global Forum EOIR peer reviews; why beneficial ownership information is also a crucial component of the automatic exchange of information regimes being adopted by jurisdictions around the world. beneficial-ownership-toolkit ...

A Swiss company manufactured and distributed pharmaceutical and chemical products. The Swiss company was held by a Dutch parent that held another company in France. R&D activities were delegated by the Dutch parent to its French subsidiary and compensated with cost plus 15%. On that basis the Swiss company had to pay a royalty to its Dutch parent of 2.5% of its turnover for using the IP developed. Following an audit the Swiss tax authorities concluded that the Dutch parent did not contribute to the development of IP. In 2006 and 2007, no employees were employed, and in 2010 and 2011 there were only three employees. Hence the royalty agreement was disregarded and an assessment issued where the royalty payments were denied. Instead the R&D agreement between the Dutch parent and the French subsidiary was regarded as having been concluded between the Swiss and French companies Judgement of the Supreme Court The Court agreed with the decision of the tax authorities. The Dutch parent was a mere shell company with no substance. Hence, the royalty agreement was disregarded and replaced with the cost plus agreement with the French subsidiary. The Court found that it must have been known to the taxpayer that a company without substance could not be entitled to profits of the R&D activities. On that basis an amount equal to 75% of the evaded tax had therefore rightly been imposed as a penalty. Click here for English translation Click here for other translation 2C_11-2018 ...

The Supreme Court of Spain ruling in the Afinsa Tangibles SA stamp-fraud case – a pyramid scheme that cheated 350,000 people out of billions of dollars. One of the biggest fraud cases in the history of Spain. In May 2016, the head offices of two investment firms, Forum Filatelico and Afinsa Tangibles, were sealed off by 300 police officers who seized documents, bundles of banknotes worth €10 million and various works of art. The directors of the companies was accused of fraud, embezzlement, criminal insolvency, money laundering and tax evasion. Although Forum Filatelico reported post-tax profits of nearly €90 million in 2004, investigations revealed that both companies were effectively bankrupt, with more than €3.5 billion unaccounted for. Click here for translation Spain 21112017 TP sag ...

Google Ireland licenses Google AdWords technology to its subsidiary in India and several other countries across the world. The Tax Tribunal in India found that despite the duty of Google India to withhold tax at the time of payment to Google Ireland, no tax was withheld. This was considered tax evasion, and Google was ordered to pay USD 224 million. The case has now been appealed by Google to the Supreme Court of India. India-vs-Google-28-oct-2017-TAX-APPELLATE-TRIBUNAL ...

The London-based gold mining firm, Acacia Mining Plc, the largest mining company operating in Tanzania, was in July 2017 issued a $190 billion tax bill. The bill is split into $40 billion in unpaid taxes and an additional $150 billion in interest and penalties. The case is based on the findings of government-appointed committees. Following the release of a government-ordered audit of the mining industry, Acacia Mining was  accused of operating illegally in the country and tax evasion. The charge covers alleged under-declared export revenues from the Bulyanhulu and Buzwagi mines over periods between 2000 and 2017. For its part, Acacia, while refuting the government’s findings, “re-iterates that it has fully declared all revenues” ...

By Javier Garcia-Bernardo, Jan Fichtner, Frank W. Takes, & Eelke M. Heemskerk Multinational corporations use highly complex structures of parents and subsidiaries to organize their operations and ownership. Offshore Financial Centers (OFCs) facilitate these structures through low taxation and lenient regulation, but are increasingly under scrutiny, for instance for enabling tax avoidance. Therefore, the identifcation of OFC jurisdictions has become a politicized and contested issue. We introduce a novel data-driven approach for identifying OFCs based on the global corporate ownership network, in which over 98 million firms (nodes) are connected through 71 million ownership relations. This granular firm-level network data uniquely allows identifying both sink-OFCs and conduit-OFCs. Sink-OFCs attract and retain foreign capital while conduit-OFCs are attractive intermediate destinations in the routing of international investments and enable the transfer of capital without taxation. We identify 24 sink-OFCs. In addition, a small set of countries – the Netherlands, the United Kingdom, Ireland, Singapore and Switzerland – canalize the majority of corporate offshore investment as conduit-OFCs. Each conduit jurisdiction is specialized in a geographical area and there is signifcant specialization based on industrial sectors. Against the idea of OFCs as exotic small islands that cannot be regulated, we show that many sink and conduit-OFCs are highly developed countries. Conduits-and-Sinks-in-the-Global-Corporate-Ownership-Network.pdf ...

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 ...

AFRICAN BARRICK GOLD PLC (now Acacia Mining Plc), the largest mining company operating in Tanzania, was issued a tax bill for unpaid taxes, interest and penalties for alleged under-declared export revenues from the Bulyanhulu and Buzwagi mines. Acacia Mining was accused of operating illegally in the country and for tax evasion. Decision of the Tax Revenue Appeals Tribunal The Tribunal decided in favour of the tax authorities. “The conclusion that can be drawn from the above definitions is that the explanation offered by ABG as the source of dividends, i.e., distributable reserves and IPO proceeds are far from being plausible. In the circumstances, it is fair to conclude that the respondent’s argument that the transactions were simply a design created by the appellant aimed at tax evasion was justified. One also wonders as to how could part of IPO proceeds, a one-off event, even if those proceeds were distributable as dividends (which in law they are not), could explain the payment of four-years, back-to-back dividends to the appellant’s shareholders. Since ABG’s only entities that carry on business anywhere in the world are the three Tanzanian gold-mining companies, ABG’s only source of revenue that could create net profits or retained earnings would be the three Tanzanian companies (or one or more of them). While none of them was allegedly making any profits, and since the appellant has no other subsidiary anywhere in the world engaged in business, one is compelled to further conclude that at least one, if not more or all, of the appellant’s three gold producing subsidiaries in Tanzania was making profit. We see no other plausible explanation. Ultimately, the fact that none of ABG’s subsidiaries is declaring any profit that could provide its holding company with such huge net profits sufficient to distribute to its shareholders four years in a row is what in our respectful opinion constitutes the evidence of a sophisticated scheme of tax evasion. To borrow the words of Lord Browne-Wilkinson, this Tribunal cannot accept to be relegated to a mere spectator, mesmerized by the moves of the appellant’s game, oblivious of the end result. The circumstances remind one of the wise words of Justice Benjamin Cardozo in Re Rouss, 116 N.E. 782 at 785, who stated: “Consequences cannot alter statutes but may help to fix their meaning.” We are thus of the respectful view that the Board was entitled to go beyond the mere plain meaning of the provisions of section 66 (4) (a) of the Income Tax Act. The circumstances fully justified the application of the purposive approach rule in construction of tax statutes, as promulgated by Lord Wilberforce in W. T. Ramsay and more elaborately explained by Lord Browne-Wilkinson in McGuckian. Hence, by recognizing the scheme behind the facade that ultimately enabled it to uncover the true source of the dividends that ABG was able to pay to its shareholders for four consecutive years, the Board took the correct view of the law. With these findings we see no merit in the first and second grounds of appeal, and we would dismiss both of them. This conclusion would allow us to now determine the third ground of the appeal to the effect that the Commissioner General was justified in invoking his powers under section 133 (2) of the Income Tax Act , 2004 and section 19 (4) of the Value Added Tax Act to register the appellant under the two Acts and issue it with TIN and VRN Certificates. In the ultimate result, we find no merit in this appeal. We dismiss it with costs.” Click here for translation african barick ...

This case is about extensive tax evasion set up by the tax manager of the Asian Agri Group. According to the tax authorities income from export sales had been manipulated. Products were sent directly to the end buyer, whereas the invoices recorded that the products were first sold to companies in Hong Kong and then sold to a company in Macau or the British Virgin Islands before they were finally sold to the end buyer. The intermediary companies were proven to have been used only for the purpose of lowering the taxable income by under-invoicing the sales prices compared to the sales price to the end buyer. Various fees had also been deducted from the companies income to further lower the tax payment. These included a “Jakarta fee”, a Hedging fee and a Management fee. Judgement of the Supreme Court The court ruled that the tax manager was guilty of submitting an incorrect or incomplete tax return. On that basis the tax manager was sentenced to a probationary imprisonment for two years on condition that, within one year, Asian Agri Group’s 14 affiliated companies paid a fine of twice the underpaid tax amount – 2 x Rp. 1.259.977.695.652,- = Rp. 2.519.955.391.304,-. Click here for translation (Hundreds of pages from the judgement containing lists of thousands of invoices and payments have been omitted in the translated version) putusan_2239_k_pid.sus_2012_20220425 ...

A holding company of an international Group was established in Spain and in it and in the Group’s operating entity, which was made dependent on it and with which it was fiscally consolidated, intra group loans were requested, for the acquisition of shares in other Group companies, which were mere asset relocations without any economic or business substance, with the sole objective of reducing taxation in Spain: Both in the Spanish holding company and in the operating entity, financial expenses were deducted as a result of that indebtedness, which lead to a drastic reduction in profits in the operating company and losses in the holding company, with the final result that this income remains untaxed. On this background an assessment was issued by the tax authorities where the financial expenses were disallowed under Spanish “fraud by law” provisions. As stated in Article 6.4 of the Civil Code: “Acts carried out under the protection of the text of a rule which pursue a result prohibited by the legal system, or contrary to it, shall be considered to have been carried out in fraud of law and shall not prevent the due application of the rule which it was sought to circumvent“. This, transferred to the tax sphere, is equivalent to the text of Article 24 of the LGT, in the wording given by Law 25/1995, of 20 July 1995 (applicable to the case in question), which states: “In order to avoid tax evasion, it shall be understood that there is no extension of the taxable event when tax is levied on events, acts or legal transactions carried out for the purpose of avoiding payment of the tax, under the cover of the text of rules issued for a different purpose, provided that they produce a result equivalent to that derived from the taxable event. Fraud of tax law must be declared in special proceedings in which the interested party is heard. 2. Events, acts or legal transactions carried out in fraudulent evasion of tax law shall not prevent the application of the evaded tax rule nor shall they give rise to the tax advantages that were intended to be obtained through them. 3. In the settlements made as a result of the tax evasion case, the tax rule that has been evaded shall be applied and the corresponding late payment interest shall be paid, without the imposition of penalties for these purposes alone“. Decision of the TEAC The TEAC confirmed the existence of fraud by law and upheld the assessment. All the actions are legal and real; there is no simulation, but from the set of all the circumstances, without proof that there is a substance and economic business reality, it is concluded that it is a simple exchange of shares within the Group, with the sole purpose of generating the financial expenses in the Spanish entities of the Group, all of which is declared in fraud of law, and the situation is regularised by not admitting the financial expenses involved. There are no international tax reasons for the alleged fraud of law (application of DTAs, infringement of Community Law, etc.) as the application of the concept of fraud of law should have been applied in the same way in the case of a Group with a national parent company and article 24 of the LGT, the provision from which the application of fraud of law derives, does not contain any distinction or restriction depending on whether residents or non-residents are involved. The rules on related-party transactions or transfer pricing do not apply, as it is not disputed that the transactions were carried out at market value; indeed, it is acknowledged that this was the case. It is from the set of circumstances analysed that the existence of fraud by law can be concluded. If it were possible to correct it through the mere application of a specific rule (either related-party transactions or thin capitalisation, etc.) we would no longer be dealing with a case of fraud by law. Click here for English translation Click here for other translation Spain vs X SL Rec 656-2007 ...

SA Etablissements Brepols, which had a profitable commercial activity in Belgium, transferred its entire activity to an new company, the SA Usines Brepols. At the same time, a loan was granted to the new company. The interest charge on that loan was so high that almost all of the profits of SA Usines Brepols were used to finance the loan and therefore no taxes were paid. However, S.A. Etablissements Brepols was taxed on the interest received, which at the time was at a reduced rate in Belgium. The tax administration considered that the taxpayer had only entered into the transactions for the main purpose of reducing the tax burden and disallowed the reduced taxation. The Court of Appeal agreed and held that the agreements concluded between the parties constituted evasion of the law. The Belgian Supreme court overturned the decision in its judgment of 6 June 1961 and stated the following: “There is no simulation prohibited in the field of taxation, nor does it prohibit fraudulent tax practices, when, in order to benefit from a more favorable tax regime, the parties, using the freedom of conventions, without violating any legal obligation, establish acts of which they accept all the consequences, even if the form they give them is not the most normal”. Click here for Translation Belgium vs Brepols 1961-4fr ...