Transcript IATJ – WASHINGTON

IATJ – WASHINGTON
TAX HAVEN
Marco Polo Case
João Francisco Bianco
2014
Marco Polo Case
• FACTS
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Marco Polo is a truck manufacturer in Brazil
It sells trucks to China
Trucks are delivered directly to clients in China
Trucks are sold to Trading Co in BVI and are resold to clients in China
Profit margin of 15%
China
CLIENT
Resale
BVI
$ 115
TRADING CO
Sale
$ 100
Brazil
MARCO POLO
Delivery
Marco Polo Case
• ARGUMENTS OF THE TAX ADMINISTRATION
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Artificial transaction (sham)
Formal (not real) intermediation of Trading Co
Trading Co has no substance
Transaction disregarded for tax purposes
Omission of income ($ 15)
Tax evasion (crime)
Marco Polo Case
• ARGUMENTS OF THE TAX PAYER
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Legitimate business purpose
Structure is not artificial
Trading Co was correctly created
The use of tax havens is not – by itself – evidence of simulation
Trading Co operates with representatives all over the world
Trading Co is a CFC and its profit was taxed in Brazil
Income was not omitted (was taxed) in Brazil
The sale of the trucks to Trading Co was in accordance with TP rules
Marco Polo Case
• LOWER ADMINISTRATIVE COURT
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Trading Co did not make any commercial effort
Trading Co exists but did not intermedite sales
The sale of the trucks to the Trading Co was simulated
The profit of the Trading Co is Marco Polo’s
It has to be taxed in Brazil
Marco Polo Case
• SUPERIOR ADMINISTRATIVE COURT
– Trading Co had representatives in many countries
– The intermediation activity was proved (representatives)
– There was not omission of taxable income because:
• Trading Co’s profit was taxed according to CFC legislation
• Marco Polo’s profit was taxed according to TP rules
– Specific anti avoidance rule:
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Sales to tax havens have a minimum profit margin (TP)
What hapens afterwards does not matter
Off-shore companies do not have regular structures
That is why there are TP rules
Marco Polo Case
• DISCUSSION
– Presumed (or minimim) tax base X reality
– Specific anti avoidance rule X simulation
– Can we consider the Marco Polo structure tax evasion (crime)?