Hornbach-Baumarkt v Finanzamt Landau: German Transfer Pricing Legislation Is Compatible with Freedom of Establishment
The CJEU concluded in Hornbach-Baumarkt v Finanzamt Landau (C-382/16) that German legislation taxing a guarantee given without corresponding consideration for loans incurred by non-resident subsidiaries is not in breach of the freedom of establishment.
Hornbach, a German company, gave its Dutch subsidiaries a guarantee for their loans, but did not charge them any consideration. The German tax authorities took the view that unrelated third parties would have agreed on remuneration for the guarantees, and decided to increase the income of Hornbach by the presumed remuneration amount and tax it accordingly.
The CJEU held that this approach was a restriction on the freedom of establishment as the deemed profit increase and corresponding tax charge would not have been applied if the loan guarantee had been given for a German company. However, the CJEU further held that this restriction was justified based on the need to maintain the balanced allocation of power to tax between Member States. Allowing companies resident in a Member State to transfer their profits (in the form of unusual or gratuitous advantages) to companies in other Member States and with which they had a relationship of interdependence may undermine such balanced allocation. This was the case in the present scenario, and the German legislation permitted the exercise of the power to tax. Nonetheless, the CJEU noted there was potentially a commercial justification in the present case for granting a guarantee gratuitously, since Hornbach was a shareholder in the Dutch borrowers. The CJEU added that it was for the referring court to determine whether Hornbach could provide a satisfactory commercial justification for the gratuitous guarantee.
This article appears in the JHA June 2018 Tax Newsletter, which also features:
- Fidelity Funds: Danish Withholding Tax on Dividends Breaches EU Law
- A/S Bevola Applies Marks & Spencer to the Losses of a Foreign Permanent Establishment
An Assessment to Tax is never ‘stale’, but it might be out of date: HMRC v Tooth
This article briefly discusses the key points arising out of the decision of the UK Supreme Court in HMRC v Tooth  UKSC 17. The case considered (1) whether a discovery assessment could become “stale” and (2) the meaning of the phrase “deliberate inaccuracy”.
VATA 1994 s.47, Agency, Onward Supply Relief, & Double Taxation
On 12 July 2021, the First-tier Tribunal (Tax Chamber) (“FTT”) released its decision in Scanwell Logistics (UK) Limited v HMRC  UKFTT 261 (TC), rejecting the taxpayer’s claim for onward supply relief (“OSR”).
Whilst OSR is now limited, post-Brexit, to goods imported into Northern Ireland for onward supply to the EU, the FTT’s discussion of agency under section 47 of the Value Added Tax Act 1994 (“VATA”) is of broader interest.
The case serves as a reminder of the significant financial consequences that can result from errors in tax planning, as Scanwell was ultimately held liable for £5.7 million in unpaid import VAT despite the fact that the imported goods almost immediately left the UK (which, if properly planned, could have meant Scanwell was relieved from liability to import VAT).
Draft Finance Bill 2022—tax avoidance measures
Helen McGhee, senior associate at Joseph Hage Aaronson LLP, considers the draft Finance Bill 2022 clauses published on 20 July 2021 in relation to tax avoidance and recent updates to the tax avoidance regime.
Getting Closer: A Global Minimum Tax on Corporations
On 1 July 2021, US Treasury Secretary Janet Yellen announced that countries representing over 90% of global GDP had agreed to a global minimum tax on corporations (“GMCT”). The GMCT seeks to put a floor on tax competition on corporate income through the introduction of a minimum corporate tax of at least 15%. Whilst certain elements give rise to positive expectations, some caveats should be noted. Much will depend on (1) the outcome of future political negotiations and (2) the detail of the drafting at international and national levels.
The DBKAG & K (CJEU) decision: an opportunity for investment funds?
On 17 June 2021, the European Court decided the joint cases K (C-58/20) and DBKAG (C-59/20) regarding whether the supply of certain services constituted the “management of special investment funds”, benefiting from the VAT exemption enshrined in Article 135(1)(g) of Council Directive 2006/112/EC.