CASES Reviewed This Week (27November 2024)
Dr Daniel N Erasmus (PhD USTCP Int'l Tax Attorney)
International Tax Litigation Attorney | Transfer Pricing Specialist | Tax Academic
This week we take a look at a brand new case as well as 2 older cases that are similar in various aspects. These include: Inter-company Transactions, Interpretation of the Arm’s Length Principle, Economic Substance Over Form, Reliance on Comparable Data and Transfer Pricing Documentation to mention a few.
I will give you my opinion on this in an article to be posted tomorrow, 27 November 2024.
Please note: Case summaries generated by The Academy of Tax Law.
CASE #1
UK vs Refinitiv & Others
The Court of Appeal’s decision in Refinitiv v HMRC is a defining moment in the intersection of transfer pricing and Diverted Profits Tax (DPT). The case revolved around DPT notices issued to three UK-resident companies within the Thomson Reuters group for the 2018 tax period, totaling over ￡167 million. The dispute arose from conflicting interpretations of an expired Advance Pricing Agreement (APA) between the companies and HMRC.
At the heart of the case was the APA, concluded in 2013, which governed the pricing of intra-group services for the period 2008–2014. This agreement specified the Transactional Net Margin Method (TNMM) as the applicable transfer pricing methodology, determining remuneration for UK entities using a cost-plus markup. HMRC’s later application of DPT involved recalculating profits for the 2018 period, employing a profit-split method instead. Refinitiv contended that the APA principles should govern these calculations, given their relevance to services provided during the APA’s duration.
CASE #2
UK vs Glencore Energy
This case examines the boundaries of judicial review in tax disputes involving the Diverted Profits Tax (DPT), a tax introduced by the Finance Act 2015 to prevent profit shifting by multinationals. Glencore Energy UK Limited (GENUK), a subsidiary of the Swiss-based Glencore International AG (GIAG), was assessed under the DPT framework after HMRC deemed the service fees paid by GENUK to GIAG under a Risk and Services Agreement (RSA) to be excessive. The arrangement allegedly diverted profits from the UK to Switzerland, reducing GENUK’s tax liability.
CASE #3
Canada vs General Electric Capital Canada
The case of Canada v. General Electric Capital Canada Inc. (2010 FCA 344) revolved around whether guarantee fees paid by GE Canada to its parent company, GECUS, adhered to the arm’s length principle under Canadian tax law. GE Canada claimed deductions for these fees in its income calculations for the 1996–2000 taxation years. The Minister of National Revenue reassessed these deductions, arguing that the fees exceeded arm’s length amounts and provided no tangible benefit to GE Canada, and thus were superfluous.
The Federal Court of Appeal upheld the earlier decision by the Tax Court of Canada in favour of GE Canada. The Tax Court had found that the guarantee fees reflected economic value and adhered to arm’s length pricing. It concluded that GE Canada derived significant financial benefits from the explicit guarantee provided by GECUS, such as enhanced credit ratings and reduced borrowing costs.
For more cases and articles go to my website at www.taxriskmanagement.com
POSTGRADUATE EDUCATION
These topics are dealt with in depth in the following Postgraduate Programmes offered by Middlesex University in partnership with the Academy of Tax Law and Informa Connect:
!!NEW PROGRAMME!!
POSTGRADUATE CERTIFICATE in the Mechanics of Tax Risk Management
The Tax Risk Management programme is meticulously designed to equip professionals with the expertise required to navigate the complexities of tax risk and dispute resolution in a global business environment.
This programme offers a comprehensive curriculum that delves deep into identifying, assessing, and mitigating tax risks while providing practical skills for effective tax governance. Participants will explore key areas such as tax risk assessment, transfer pricing challenges for multinational enterprises, and strategies for managing tax audits and disputes.
APPLICATIONS NOW BEING ACCEPTED (Closes End of November 2024)
EXISTING PROGRAMMES
Postgraduate Programmes in Transfer Pricing:
APPLICATIONS NOW BEING ACCEPTED (Closes End of March 2025)
Postgraduate Programmes in International Taxation:
APPLICATIONS NOW BEING ACCEPTED (Closes End of March 2025)
Have some questions about the programmes?
Please don't hesitate to contact our Education Consultant, Ben Ellis, at [email protected] or call us on +44(0)2080522710.