Tax Avoidance

Transfer Pricing Tax Avoidance

Transfer Pricing as Tax Avoidance: Considering the interactive application of Sections 34D and 33

Transfer pricing and general anti-avoidance: two of the most feared weapons in the Revenue’s arsenal. Most scenarios on the tax planning spectrum may be addressed and countered by the Revenue’s exercise of either provision. But what of fact patterns which fall under the possible ambit of both provisions? How would the two interact? More pertinently, what are the considerations which a taxpayer should take into account when faced with the uncertain prospect of having to defend against either or both provision(s)?

This topic is a technical and narrow one on which there has been precious little guidance from either the courts or the Revenue. As such, the analysis must begin from first principles – the proper statutory interpretation of sections 34D and 33 of the Income Tax Act. A comparative analysis reveals there to be differences between the two provisions along the dimensions of intitation power, subject, trigger, analytic (i.e. the operative test), actions and exceptions (i.e. taxpayer’s defence). 

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Director of Income Tax v. KLM Royal Dutch Airlines

The interpretation of air transport articles in double tax avoidance agreements (DTAA) was clarified by the High Court of Delhi in the Indian case of Director of Income Tax v. KLM Royal Dutch Airlines LNIND 2017 DEL 292. The taxpayers in this case are international airlines, Lufthansa and KLM. Both taxpayers are members of the International Airlines Technical Pool (IATP) and had extended technical facilities to other member airlines at the New Delhi airport and other Indian airports.

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Tax avoidance: shift of profits from a profitable entity to a loss-making one

In the New Zealand case of Honk Land Trustees Ltd v Commissioner of Inland Revenue [2017] NZCA 54; BC201760307, the Court of Appeal considered a tax avoidance scheme relating to a shift of profits from a profitable entity to a loss-making one. The appellant (HLT) is the trustee of the Honk Land Trust (Trust), which owned Honk Land Group Limited. Honk Land Group Limited in turn owned various other companies, including Honk Land Limited (HLL).

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