Check Point Software Technologies was assessed administrative penalties by the tax authorities (FIRS) for failure to file a country-by-country report, and a complaint was filed with the Tax Appeal Tribunal by the company. Decision of the Tribunal The Tax Appeal Tribunal held that the administrative penalties issued by the FIRS in enforcement of the CbCR Regulations were unconstitutional and void because the Board of the Federal Inland Revenue Service, which was legally empowered to make the regulations, did not exist between 2012 and 2020. Since the FIRS Board did not exist during the said period, the exercise of the delegated powers under the provisions of the Nigerian CbCR regulations was not possible – any step, process or action taken in the name of the Board would be null and void. Excerpts “A careful consideration of the provisions of Section 61 as exposed above shows that the National Assembly has delegated its powers specifically to the Board of the Federal Inland Revenue Service to make these rules, guideline and regulations and to no any other person or authority. By necessary implications therefore, it is only the Board of FIRS and legally constituted and properly composed that can exercise the said powers donated by the National Assembly in Section 61. In the course of prosecuting this Appeal, the Appellant had presented concrete evidence before this Honourable Tribunal that during the period under consideration the Boards of all federal parastatals and agencies (including that of the Federal Inland Revenue Service) were dissolved and had not been reconstituted. This fact was not disproved or contradicted by the Respondent before this Honourable Tribunal. The non-existence of a Board during the said period under consideration would mean that a legal and legitimate exercise of the delegated powers under the provisions of Section 61 was not possible meaning that any step, process or action done in the name of the Board will be null and void. … It is therefore the decision of this Honorable Tribunal that the purported Regulation on CBC of 2018 was not made by the Board of the Federal Inland Revenue Service that was legally constituted and properly composed, since it was dissolved and had not been reconstituted by the government at the time when the said regulation was made.” “In line with the above position, it is the decision of this Honourable Tribunal that the Notices of the Administrative Penalties served on the Appellants by the Respondent in the enforcement of the CBC Regulation 2018 are unconstitutional and void. It is therefore, hereby quashed by this Honourable Tribunal and the Respondent is hereby directed to raise fresh Notices of the Penalties based on the relevant provisions of the Federal Inland Revenue Service (Establishment) Act, 2007 and relevant laws.” Click here for translation ...

A GmbH provided funding in the form of a clearing account to its Belgian subsidiary. The account was unsecured and carried an interest of 6% p.a. In 2005, A GmbH and the Belgian company agreed on a debt write-off which was deducted for tax purposes. The tax authorities issued an assessment where the write-off was denied as a tax deductible expense. According to the tax authorities, independent third parties would have agreed on some kind of security. The lack thereof was a violation of the arm’s length principle. A GmbH brought the assessment to court. The Federal Fiscal Court (I R 73/16) found the assessment of the tax authorities to be lawful. This decision was then appealed to the Constitutional Court by  A GmbH, alleging violation of the general principle of equality as well as a violation of its fundamental procedural right to the lawful judge. Decision of the Constitutional Court The Federal Constitutional Court decided in favour of A GmbH and found the constitutional complaint well-founded. “…the decision of the Federal Fiscal Court violates the complainant’s fundamental procedural right to the lawful judge (Article 101.1 sentence 2 of the Basic Law) due to the way it chooses to handle its obligation to make a reference pursuant to Article 267.3 TFEU.” Click here for English translation ...

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 ...

In February 2019, Colegio de Abogados de La Libertad (CALL) in Peru filed an appeal before the Constitutional Court claiming that tax debts of at least 9 billion soles (USD 2,5 billions) owed by 158 large companies could not be collected by the tax authorities (SUNAT) due to the statute of limitation in Legislative Decree 1421. By four votes against and one vote for, the Constitutional Court rejected the claim. Language/Year202220172010200919951979 English French German Spanish Chinese Turkish Czech Italien Hungarian Ukranian Slovenian Serbian Click here for English Translation ...

In this case a complaint was filed requesting that Legislative Decrees Nos. 762, 763 and 764, approved at the Plenary Session of the Legislative Assembly on 30-VIII-2014, which ended on 31-VII-2014, be declared unconstitutional on procedural grounds, for the alleged violation of art. 135 inc. 1 of the Constitution of the Republic. The fundamental reason for the declaration of unconstitutionality is that there was no real possibility for parliamentary deliberation and discussion. Decision of the Supreme Court The court declared certain legislative decrees relating to the income tax law and the tax on financial transactions to be unconstitutional with effect as of December 2018. Among the tax measures affected by the decision were Alignment of El Salvador’s transfer pricing rules with the OECD guidelines; Ability of the El Salvador tax authorities to exchange information with other tax jurisdictions; In its reasoning the court refers to procedural flaw in the legislative process, because the decrees were not deliberated or debated by the parliament, which is in violation of article 135(1) of the El Salvador constitution. The Financial Transactions Tax Law was declared unconstitutional as well, since it was enacted through Legislative Decree No. 764. Excerpts “Given the circumstances verified, it should be noted that the parliamentary discussion phase presupposes that the deputies have had the bills to be approved within their reach with sufficient time to allow them to adequately know their content, otherwise it would imply an obstacle to the potential discussion that must precede the approval of a law, as required by art. 135 Cn. There cannot be a proper debate on that which has not been made known in depth, nor can a proper decision be taken on topics whose convenience or inconvenience has not been weighed up or considered. Therefore, not giving reasonable time for the study of the referred bills, despite the fact that the deputies themselves pointed out the impossibility of carrying out an acceptable analysis due to the lack of time, implied an obstacle for the particular deliberation of the deputies. Therefore, although the text of the contested decrees was read in the legislative plenary, such a reading does not replace the prior analysis that should have taken place and which, given the complexity of the content of such decrees, could not reasonably be carried out in the time allowed for it. Consequently, although the intervention of several deputies was permitted – 12 of them were denied – by preventing them from having access to the bills with the time that would reasonably allow them to study them, they were also prevented from discussing them, in violation of the provisions of art. 135 inc. 1º Cn. Thus, it is concluded that, given that the deputies did not have the necessary advance notice of the contested decrees for their knowledge and study, there was also no real possibility of their deliberation and parliamentary discussion during which they had the opportunity to express their opinions on the decrees passed, and thus the process of law formation was violated. 3. Having established the aforementioned constitutional violation with respect to all of the challenged decrees, it is unnecessary to examine the constitutionality of the exemption from the procedure, which is why this chamber – as indicated at the beginning of this section – will omit to rule on the matter. “. “RULES: 1. Declare the unconstitutionality, in a general and mandatory manner, of Legislative Decrees Nos. 762, 763, 764, approved in the Plenary Session of the Legislative Assembly of 30- VII-2014, which ended on 31-VII-2014, published in the Official Gazette number 142, Volume 404, of 31-VII-2014, by which the Legislative Assembly reformed the Income Tax Law and the Tax Code, and approved the Financial Operations Tax Law, respectively. The fundamental reason for the declaration of unconstitutionality lies in the fact that there was no real possibility for parliamentary deliberation and discussion, which contravenes the content of art. 135 inc. 1º Cn. However, in order to avoid a possible situation of insolvency in the budget in execution which, in turn, could affect the achievement of public policies and the protection of fundamental rights of a social nature, which could result from the invalidation of the taxes contemplated in the decrees declared unconstitutional, the effects of the present decision are deferred until the thirty-first of December of the current year, during which time the challenged legislative decrees may continue to be applied. Once this period has expired, the legislative decrees declared unconstitutional shall be expelled from the legal order and their application shall no longer be possible.” Click here for English translation Click here for other translation ...

The Supreme Tax Court has requested the Constitutional Court to rule on the conformity of the interest limitation with the constitutional requirement to tax like circumstances alike. The interest limitation disallows net interest expense in excess of 30% of EBITDA. However, the rule does not apply to companies with a total net annual interest cost of no more than €3 m or to those that are not part of a group. There are also a number of other exemptions, but the overall effect is to render the actual impact somewhat arbitrary. In particular, the asserted purpose of the rule – prevention of profit shifts abroad through deliberate under-capitalisation of the German operation – seemed somewhat illusory to the Supreme Tax Court in the light of the relatively high threshold and of the indiscriminate application to cases without foreign connotations. The court also pointed out that interest, as such, is a legitimate business expense and that the limitation rule can penalise financing arrangements generally seen as reasonable. Start-ups and crisis management were quoted as examples. Overall, the court found that the interest limitation rule does not meet the constitutional requirements of equal treatment and consistency of application. It has laid the question before the Constitutional Court for a ruling, together with a detailed explanation of its objections. These are a mixture of doubts on the legitimacy of some of the stated aims of the rule and on its suitability as an instrument in meeting others that are legitimate. Click here for English translation Click here for other translation ...

The French Supreme Tax Court has ruled on 2 March 2011 that the transfer pricing legislation is in conformity with the French Constitution. “The plea of SOCIÉTÉ SOUTIRAN ET COMPAGNIE, that the article 57 of code general of the taxes infringing the rights and freedoms guaranteed by the Constitution must be regarded as not serious” Click here for translation ...

A Const S.A. filed an appeal with the Central Administrative Court against a corrections made by the Tax Administration for FY 1990 under application of the arm’s length principle (contained in article 57 of the CIRC in Portugal). The Central Administrative Court dismissed the appeal. An appeal was then filed against this decision to the Supreme Administrative Court. By Judgment of 4 February 2004, the appeal was also dismissed at this instance. Dissatisfied with that decision A Const S.A. filed an appeal with the Constitutional Court. Grounds for the appeal was stated as follows “In compliance with the provisions of nº 2 of art. 75-A of the LTC it is moreover expressly stated that the present appeal is based on the concrete review of the constitutionality of art. 57 of the CIRC (in the wording in force on the date of the facts of the case, applicable in casu) taking into account its applicability in the contested decision: a. either because it is a blank provision, containing vague and imprecise concepts, without any definition of criteria of positive law for its concretisation, its application being based on the arbitrary filling by the Tax Authorities of indeterminate general clauses, which violates the constitutional principles and rules of tax legality (art. 106, no. 2, CRP, in the wording in force at the time of the facts of the case, applicable in casu), certainty, legal security and confidence (art. 2 of the CRP); b. because the contested decision, in its interpretation and application of the aforementioned rule (Article 57 of the CIRC) violated the constitutional principles of certainty, legal security, confidence, good faith, equality and impartiality enshrined in Articles 2, 13, 266(1) and (2) of the Constitution.” Decision of Constitutional Court The Court dismissed the appeal of “A Const S.A.” and concluded that the rule contained in no. 1 of article 57 of the Corporate Tax Code, in the original wording, in force at the time of the facts of the case, was not unconstitutional. Excerpts “… In fact, although the delimitation of the assumptions for the application of that regulation depends on a judgment of interpretation and valuation of elements of a technical nature – existence of “special relationships” and a deviation from “normal” prices – and the use of maximum of experience, it does not appear that, as stated in the aforementioned judgment n.º 233/94, “from the constitutional imposition contained in the principle of tax legality, it follows that such presuppositions for the application of the contested regulations legally established are shown to be insufficiently densified, taking into account the specificities of the tax field, where often, and in the exercise of control powers, if will have to resort to indeterminate legal concepts and the contribution of elements of a technical nature to base the decisions of the Administration in the pursuit of the public interest expressed in the correct taxation of economic agents ”. In fact, in this case, the individual knows, in view of the normative postulate, that not every situation will justify the realization of the necessary corrections to determine the taxable profit: this will only happen when we are faced with situations that, terms of the law, whether arising from the existence of special relationships of dependence , causing distortion in relation to market prices and having a direct influence on the determination of that profit. Furthermore, since the criterion adopted by the legislator is objectively related to the market, the administration is left tax, which is responsible for determining the taxable amount under the terms of article 57 of the CIRC, linked to the establishment of the arm’s length price, and this criterion does not include subjective assessments. And if it is true that the questioned rule, similarly to what also happens in other legal systems, does not materialize the valuation criterion that will govern the determination of the arm’s length price, the fact is that the reference to the prices established between independent entities it ends up establishing the objective limits within which such a criterion can be set. In fact, this is what the new transfer pricing regulation – Article 58 of the CIRC- came to clarify, bringing a greater degree of certainty, security and, above all, greater efficiency to the action of the tax administration. However, this does not imply that, previously, article 57, no. 1, of the CIRC did not have sufficient density for taxable persons to determine the presuppositions for the performance of the Administration and for the Courts to proceed with the control of the adequacy and proportionality of the administrative activity. Therefore, it must be concluded that the questioned rule allows the taxable person to fully know and control which quantitative expression of the tax fact is taken into account. It contains a sufficient normative density that conditions administrative activity and binds the administration to the verification of its application assumptions, allowing that the courts can syndicate the administrative decision that this norm makes application. In addition, article 80 of the Tax Procedure Code in force at the time of the facts of the case, which already contained additional requirements for reasons (currently included in article 77, paragraph 3, of the General Tax Law) for cases in which the Administration proceeds to carry out corrections motivated by the existence of special relationships, ends up reinforcing the guarantees that the principle of legality, namely in its dimension of tax typicality, postulates. … Pursued from the knowledge of the appeal, by a decision passed in the meantime, the assessment of the unconstitutionality of the contested decision, for violation of the ” constitutional principles, certainty, legal certainty, trust, good faith, equality and impartiality, enshrined in arts. 2, 13, 266, nº 1, nº 2, of the Constitution”, the appellant, who, in the application for filing an appeal to this Court, had invoked the violation, by the questioned rule – art. 57, no. 1, of the CIRC , in the wording in force at the time of the facts of the case -, of the principles of certainty, legal certainty and trust (art. to this same rule the violation of “constitutional principles of taxation of real income, ...

ALP S.A. filed an appeal with the Central Administrative Court against a corrections made by the Tax Administration for FY 1992 under application of the arm’s length principle (contained in article 57 of the CIRC in Portugal). The Central Administrative Court dismissed the appeal. An appeal was then filed against this decision to the Supreme Administrative Court. By Judgment of 6 June 2001, the appeal was also dismissed at this instance. Dissatisfied with that decision ALP S.A. filed an appeal with the Constitutional Court. ALP S.A grounds for the appeal was: By virtue of the Principle of Tax Legality, the rules of incidence must be predetermined in their content, and the elements that comprise it must be formulated in a precise and determined manner. Determining the content of the levy tax rule excludes the use of undetermined concepts, as well as certain normative concepts, whose application to the specific case is based on subjective or personal assessment of the enforcement body, under penalty of postponing legal certainty. According to Nuno Sá Gomes, in Manual of Tax Law, Vol. II, 2000, p. 39, “… In turn, it is said that we are facing an absolute reservation of the law when it is established, as among us, that the formal law must contain not only the foundation of the administration’s conduct, but also the criteria for decisions in concrete cases. , not giving rise to any discretion or availability of a tax type by the tax administration ”. In the specific case, the corrections made result from the application of art. 57.º, no. 1, of the CIRC and the understanding by the tax administration agent of the existence of special relationships between the taxpayer and another person as a result of that legal precept. However, “special relationships” and “relationships that establish conditions different from those agreed between different persons” are vague, undetermined concepts that give the tax administration discretionary powers to correct the taxable amount. However, this is not a matter of technical discretion, as the law does not call for its application to non-legal or artistic or professional scientific knowledge, but to the appreciation of established relationships, whether the profit presented is different from normal and how the actual amount on which the correction was based is quantified. It is the ordinary law – art. 103, nos. 2 and 3, and art. 268 of the CRP – which must establish the parameters in which this activity is regulated under penalty of unconstitutionality. And these criteria do not exist nor are they established by law, so the great breadth and indeterminacy of the content of those concepts allow the enforcement agency to include any and all gains in the norm, thus sacrificing legal certainty!!! Thus, the rule of art. 57.º, no. 1, of the CIRC, being formulated in vague and imprecise terms, using pure normative concepts, without any concreteness and determination, it is a materially unconstitutional norm for breach of the principle of legality and tax typicality. According to Nuno Sá Gomes, ob. cit., p. 193 “…the aforementioned art. 57.º does not clarify what is to be understood by special relationships, only touching on the criterion of dependence, therefore, it seems that there are special relationships whenever the entities in question are dependent on each other”. Hence, from the outset, a broad indeterminacy that amounts to attributing to the tax administration the discretionary power to decide when there is a special relationship of dependence, which, as we said, is unconstitutional. The fact that the tax law does not define what is to be understood by SPECIAL RELATIONS and the vague, elastic nature of this concept leads us to conclude that the formula used, right there, violates art. 106, no. 2 of the CRP, which requires that “the law determines… the incidence”. Thus, while the tax legislation does not set out the following criteria, it must be considered that art. 57 of the CIRC is unconstitutional, as it gives the Tax Administration discretionary powers to correct the taxable matter. Therefore, the norm of paragraph 1 of art. 57 of the CIRC be declared unconstitutional!” Decision of Constitutional Court The Court dismissed the appeal of ALP S.A. Following a thorough description of the provisions forming the basis for application of the arm’s length principle in other countries, the Court concluded that the  “arm’s length principle” as implemented in Portugal in art. 57 of the CIRC was not unconstitutional. Excerpts “… Thus, in the specific case, taking into account the above considerations, it will have to be concluded that the union norm not only presents a sufficient normative density – in terms of containing, in its formulation, a sufficient significant aptitude, capable of cutting a framework of administrative action legally presupposed and conditioned -, as it allows the courts to syndicate the goodness and correctness of administrative judgment. In other words, it can be said that the legally outlined framework does not allow the determination of the practical-normative meaning of the precept, materialized in its application, as a result of the consideration of the problem, to be carried out outside the legal command set out in the norm, as a result , therefore, of a freedom of administrative action that is judicially indiscriminate. On the contrary, the rule does not reflect any juridical-political option of the legislator for the granting of discretionary powers, it also refers the administrative decision to the (linked) verification of the application assumptions from the consideration of the concrete legal problems, being able, therefore, in this measure, the tax courts assess the verification of the assumptions of administrative action and determine, in the face of a specific problem, We can thus conclude, in summary, that we are dealing, in this case, with undetermined concepts whose content does not demand the attribution of any constitutive power to the tax administration in terms of determining the taxable amount, since only that objective meaning that results from directly from tax law. This, contrary to what happened in the rule indicated by Judgment no. of taxation. On the other hand, the tax administration is now only recognized with a competence of ...

At issue in this case was whether Belgian arm’s length provision in article 344 infringed Article 170 of the Belgian constitution, according to which a tax in favor of the State may only be introduced by law. “Does Article 344(1) of the Income Tax Code 1992, in the version applicable to the assessment years 1996, 1997 and 1998, infringe Article 170 of the Constitution, in particular Article 1 of that article, which provides that a tax for the benefit of the State may be introduced only by a law, in that Article 344(1) gives the executive authority the task of determining the taxable circumstances or at least makes it possible to determine taxable circumstances either by means of a standard to be laid down by the State itself or by means of a blank form to be filled in?» The Decision of the CourtIn accordance with the principle of legality in tax matters, as set out in Article 170(1) of the Constitution, a person may be subject to a tax only if it has been decided by a democratically elected consultative assembly which alone has the power to introduce that tax. The legislature itself has laid down the strict conditions, set out in B.3.2 to B.3.5, under which the measure referred to in Article 344(1) of the 1992 Income Tax Code may be applied in order to achieve a legitimate objective, namely to combat tax avoidance, without however affecting the principle that the least taxed option may be chosen (B.3.1). The measure cannot be regarded as a general enabling provision which would allow the administration to determine the taxable object itself by means of a general measure, but as a means of evidence to assess specific situations individually in specific cases, if necessary, under the control of the judge. In this case, the constitutional principle of legality in tax matters does not require the legislature to specify in greater detail the substantive conditions for the application of the measure, since this is impossible by the very nature of the phenomenon it is intended to combat. For these reasons the court finds that article 344(1) of the Income Tax Code 1992 does not infringe Article 170 § Section 1 of the Constitution. Click here for translation ...

On 17 February 2003, the President of the Polish Supreme Administrative Court and the Ombudsman requested the Constitutional Court to declare that Article 24b par. 1 of the Tax Ordinance of 29 August 1997 – by giving the tax authorities and fiscal control bodies, while resolving a tax case, the right to disregard the effects of legal transactions which may give the taxpayer an advantage in the form of reduction of tax liability, increase of overpayment or refund of tax – violates the principle of citizens’ trust in the state and the created law resulting from Article 2 of the Constitution of the Republic of Poland and violates the principle of freedom of economic activity expressed in the freedom to arrange one’s civil law relations, i.e. Article 22 of the Constitution of the Republic of Poland. Article 24b of the Tax Ordinance had the following wording: “Art. 24b par. 1. Tax authorities and tax inspection bodies, when settling tax cases, shall disregard the tax consequences of legal actions, if they prove that from the performance of these actions one could not expect any significant benefits other than those arising from a reduction in the amount of tax liability, increase in loss, increase in overpayment or refund of tax. Par. 2. If the parties, by performing a legal transaction referred to in par. 1, have achieved an intended economic result for which another legal transaction or transactions is appropriate, the tax consequences are derived from that other legal transaction or transactions”. Judgement of the Constitutional Court In a split decision, the Court declared the provision in Article 24b § 1 of the Tax Ordinance inconsistent with the Constitution of the Republic of Poland. Excerpts “The infringement of the Constitution consists in enacting unclear and ambiguous provisions, which do not allow a citizen to foresee the legal consequences of his actions” /Judgement of 22 May 2002, K 6/02 – OTK ZU 2002 nr 3/A poz. 33 p. 448/. It follows from the principle of determinacy that “every legal regulation should be constructed correctly from the linguistic and logical point of view – it is only when this basic condition is met that it can be assessed in terms of the remaining criteria”.” “Phrases such as: “could not have been expected”, “other significant benefits”, “benefits resulting from the reduction of the amount of the liability” definitely do not allow to assume that “their jurisprudential interpretation will indeed be uniform and strict” and that “from their wording it will not be possible to derive a law-making power of the applying bodies”. It is worth noting here, that the aforementioned reservation, that a provision using indefinite phrases should not become the object of law-making activity of organs applying the law, has been formulated by the Constitutional Tribunal first and foremost in relation to the normative provisions applied by the courts” “In the opinion of the Constitutional Tribunal, such a statutory solution does not withstand criticism in the light of art. 93 clause 2 of the Constitution. On the one hand, it leads to a dangerous and undesirable blurring of the distinction between lawmaking and its interpretation, which results from giving the value of extended validity to the official interpretation, which is supposed to perform exclusively the function of subjectively limited ordering and unification of the jurisprudential activity. On the other hand, it makes acts addressed formally only to the internal structure of the state apparatus a means of influencing the sphere of taxpayers’ rights and freedoms, i.e. the sphere which may be regulated only by acts included in the closed category of sources of universally binding law. This kind of impact is not permissible either through sources of law of an internal character, or even less so through acts, which only seemingly have the value of purely interpretative actions, but in practice assume features similar to those displayed by normative acts. Therefore, apart from the inconsistency with art. 93 sec. 2 sentence 2 of the Constitution, the solution adopted in art. 14 par. 2 of the Tax ordinance may lead to “disruption” of the whole concept of the system of sources of law adopted by the legislator.” NB. A new Polish anti-avoidance clause was introduced by the Act of 13 May 2016 amending the Tax Ordinance and has been in force since 15 July 2016. Pursuant to the amended anti-avoidance provision in Article 119a § 1 o.p. – an act performed primarily for the purpose of obtaining a tax benefit, contradictory in given circumstances to the object and purpose of the provision of the tax act, does not result in obtaining a tax benefit if the manner of action was artificial (tax avoidance). Click here for English translation. Click here for other translation ...