Tax Treaty Case Law around the Globe 2017

1. S. 40Introduction

On 19 May 2016 the Supreme Administrative Court of Finland (KHO) delivered two judgments concerning the allocation of subsidiary shares and the loans related to the acquisition of the shares in a permanent establishment. In order for the interest on such loan to be deductible in the taxation of the permanent establishment, the shares and the related loans have to be allocated to the permanent establishment.

However, it is not always clear as to when subsidiary shares and related loans should and can be allocated to a permanent establishment. The question of the proper allocation arises especially when the permanent establishment allocation means a considerable tax benefit to the company.

The proper allocation is primarily a question of general domestic tax law allocation rules and different anti-tax avoidance provisions. The impact of an applicable tax treaty depends on the impact of article 7 of the OECD Model concerning business profits and article 9 concerning associated enterprises and on how these tax treaty allocation provisions are interpreted.

2. Facts of the Cases

Both cases concerned a debt push-down arrangement in which a non-resident company had acquired an a...