A refund of withholding tax on dividend payments from an Italien subsidiary, CDC srl, was claimed by the parent company in Luxembourg, CDC Net SA. The parent company had been subject to income tax in Luxembourg as required by the EU Directive, but in Luxembourg there were no actual taxation of the dividends. The refund was denied as, according to the authorities, the Luxembourg company did not meet the requirements of the EU Directive due to lack of actual taxation of the dividends in Luxembourg. The Court ruled in favor of the tax authorities and denied the refund of withholding taxes under the European Parent Subsidiary Directive (Directive 90/435/EEC, Article 5, paragraph 1, ) as no double taxation existed due to the dividend exemption regime in Luxembourg. Click here for English translation Click here for other translation ...

This case was about a cross border financing arrangement used by Chevron Australia to reduce it’s taxes – a round robin. Chevron Australia had set up a company in the US, Chevron Texaco Funding Corporation, which borrowed money in US dollars at an interest rate of 1.2% and then made an Australian dollar loan at 8.9% to the Australian parent company. The loan increased Chevron Australia’s costs and reduced taxable profits. The interest payments, which was not taxed in the US, came back to Australia in the form of tax free dividends. The US company was just a shell created for the sole purpose of raising funds in the commercial paper market and then lending those funds to the Australian company. Australian Courts ruled in favor of the tax administration and the case was since appealed by Chevron. In April 2017 the Federal Court decided to dismiss Chevron’s appeal. (Following the Federal Court’s decision, Chevron appealed to the High Court, but in August 2017 Chevron announced that the appeal had been withdrawn.) ...