SUPREME COURT (NORWAY) | Tax Treaty | Ireland and Norway | Relevant Cases in the field of international taxation

SUPREME COURT (NORWAY) | Tax Treaty | Ireland and Norway | Relevant Cases in the field of international taxation

SUPREME COURT (NORWAY)

Dell Products

v.

State

UTGARD, ØIE, KALLERUD, FALKANGER, AND TJOMSLAND, JJ.

SUPREME COURT HR-2011-2245-A

CASE NO. 2011/755

DECEMBER 2, 2011

†NORWAY - Article 5 of the Tax Treaty between Ireland and Norway dated 22-11-2000 - Permanent Establishment - Years 2003 to 2006 - Whether paragraph 5 of Article 5 contains expressions 'on behalf of' and 'have authority to conclude contracts on behalf of' which mean that contracts concluded by an agent must legally bind principal, and activities only from a person having authority to conclude contracts can provide a basis for 'permanent establishment' - Held, yes - Whether further according to language of article 'functional approach' could not be adopted so as to find whether it could bind principal in reality - Held, yes - Assessee-company was a Irish tax resident - With a view to sell its products in Norway, assessee appointed Norwegian company Dell AS as its 'commissionaire' - Agreement showed that relationship between principal and commissionaire was regulated by Norwegian Commission Act of 1916 - Dell AS sold assessee's products after entering into agreements with customers in its own name - However, assessee was not legally bound by agreements which Dell AS entered with its customers - Assessee contended that it was not taxable there because Dell AS could not be treated as its 'Dependent Agent-Permanent Establishment (DAPE)' as Dell AS had no legal authority to enter into contracts with customers in name of assessee and, therefore, Dell AS could not bind assessee legally - However, Revenue viewed that Dell AS constituted a PE - Court of Appeal dismissed appeal of assessee - Whether assessee did not have permanent establishment in Norway and decision of Court of Appeal was to be reversed - Held, yes

Stale R. Kristiansenfor the Appellant.Morten Gollerfor the Respondent.

JUDGMENT

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1. Judge Utgard: The case debt-examination of tax decisions in which the Irish company Dell Products are taxed in Norway for the years 2003 to 2006. The spring duck point is whether Dell Products had a permanent place in this country after the tax treaty between Ireland and Norway of 22 November 2000 Article 7, paragraph 1, cf Article 5, paragraph 5

2. Dell Group produce and sell computers and computer equipment all over the world. Dell Computer Corporation is the tip of the group and belong in the United States. The other companies that are presented, the whole-owned group company. When I identify as the organization of the group, do I do it out from the situation in the relevant skatteara.

3. Dell Products (Europe) BV is a company with limited liability which is founded and registered in the Netherlands, but that does not drive activities there. The company has production facilities in Ireland, is controlled from there and taxes there. Dell Products (Europe) BV is the daughter company Dell Products, which in similar manner as the parent company is a company with limited liability, registered in the Netherlands, and the rest belong in Ireland. Dell Products, the Group's unit for distribution of Dell products in Europe, the Middle East and Africa. The company buys products from Dell Products (Europe) BV and also supplementary products from other suppliers.

4. In the relevant years had Dell Products are not employees, but bought services from the parent company and others. It is stated that the parent company had about 4,000 employees.

5. Dell Products sales as the principal product of special commissioners in the respective countries, who then sell to end users. Commissioner of Norway AS is Dell, who is also a group company. Sales by Commissioner debt sale to private companies with more than 200 employees and the public. Dell Products (Europe) BV companies to smaller companies and private individuals in Norway using the Internet and telephone from an office in Denmark.

6. To show the extent of activity in Norway mentions me that the annual report for Dell AS for 2003 show a gross revenue of more than 1.4 billion and a taxable income of 10.1 million. For 2004 the corresponding figures in excess of 1 billion and just under 10.3 million.

7. Dell AS have calculated the tax liability to Norway for income gained by the agency as the commissioner and has been taxed in accordance with it. The Irish company Dell Products are not counted as taxable to Norway, and send therefore originally not even notice. Following orders from the Norwegian tax authorities have Dell Products later sent tax return for the relevant years, where it was brought up 0 in income.

8. Akershus County Tax Office started in 2002 tax audit at Dell AS, leading to a final tax audit report in 2005. As a result of tax audit was Dell Products in September 2005 announced that the tax authorities had come to the lay the tax liability to Norway. It was also given notice of change of the equations for 2003 and 2004. After a comprehensive case management did tax Appeals for the Tax Office decision 8 October, 2008. The equations were based on the Dell Products in 2003 and 2004 had a permanent place in Norway for tax treaty article 5, paragraph 5, so that the company was liable to tax here. 60 percent of Dell Products, net earnings on the part of production that was sold here, were assigned to the permanent site in Norway.

9. In a letter dated 8 September 2008 was Dell Products announced a change of equations for income wounded in 2005, 2006 and 2007. Tax Administration stated in a letter dated 10 February 2009 that the company still would not be assessed for income in Norway for tax year 2007. By decision of 25 February 2009, later amended on 1 July 2009, was the taxable income in Norway for Dell Products set to 10.0 million and 7.8 million of income wounded in 2005 and 2006. The decision was based on the same right understanding and factual basis that the decision for the first two years.

10. Dell Products rose 24 April 2009 issue of the Oslo District Court for review of tax decisions.

11. Oslo City Court said the ruling 16 December 2009 (TOSLO-2009-66493) with the following rendition:

"1.  The State v / Tax East acquitted.

 2.  The costs will pay Dell Products to the State v / Tax East 707 314 - syvhundreogsyvtusentrehundreogfjorten - million within 2 - two - weeks from the announcement of the verdict.

12. The district court concluded that Dell Inc. - as commissioner - was entitled to conclude contracts that actually were binding on Dell Products - principal - and that this satisfied the conditions for tax treaty article 5, paragraph 5 The court came on to the Dell AS clearly was not any independent, so that this part of the conditions in Article 5, paragraph 5 were met.

13. How the court saw it, was it not done any wrong to assign the proportion of Dell Products, their income tax would be added in the country.

14. Dell Products appealed to the High Court. The Court of Appeal said the sentence 2 March 2011 (LB-2010-32855) with the following rendition:

"1.  The appeal is dismissed.

 2.  The legal costs of the appellate court will pay Dell Products 369 312 - trehundreogsekstinitusentrehundreogtolv - allocated to the state v / Tax East within two weeks after service of this sentence.

15. The Court of Appeal looked at primarily medical in the same way the questions that the court had done.

16. Dell Products appealed further to the Supreme Court and made current, the same synsmatane as for the former bodies, however, that it was not appealed, that the Court of Appeal had come to the Dell AS was not an independent agent. The Appeals Committee pictured promoting the appeal relating to the issue of the low cause permanent place and about the general interpretation of Article 7 of the treaty, see HR-2011-1127-U.

17. Appeals majority - Dell Products - has essentially continue:

18. The tax treaty shall be interpreted according to ordinary principles of conventional interpretation. The tax treaty article 5, paragraph 5 cannot be understood so that Dell Products has a permanent place in the country. The starting point is the wording. Both the Norwegian and the English language version must be understood so that it only lies the permanent place where the main man legally be bound to third parties. It is therefore not under the provisions of the treaty when the Dell AS acted in its own name, and it was not established any legal relation between the person concerned a third party and Dell Products, which is principal.

19. Objectives views - who else goes in both directions - cannot have particular importance in a situation where a negotiated agreement is so clear. Such views have limited importance in that the understanding of Article 5, paragraph 5 can clarify through other legal sources.

20. It must be added emphasis on the tax treaty is in accordance with the OECD Model Convention. Beliefs in other OECD countries must also be emphasized. Dell Products has the same arrangement in 15 states, and it is only Norway, which has meant that the company has a permanent place in the land commissioner. The situation in Spain is unclear yet

21. A ruling from the French administrative supreme add due to the view that Dell Products has. Case law from other countries' supreme courts should be weighted by interpretation.

22. Although the Supreme Court would come to that Dell Products has a permanent place in Norway, the decision may still not be left out when it comes to the attribution of income to the country.

23. Attribution of income must be made by a functional analysis. First is the question of what is occurring in each of the states. Secondly, there are questions about how the revenue shall be divided by the tax treaty article 7. As long as it does not happen any more in Norway than it is going through Dell AS, is the value of the sales function to be assigned. Use of the principle of the tax treaty article 7, paragraph 4 assign in this case proceeds to the wrong tax entity.

24. Dell Products has set the following claim:

"1.  The equation of Dell Products for the fiscal years 2003-2006 is repealed.

 2.  Dell Products awarded costs for the District Court, Court of Appeal and the Supreme Court.

25. The respondent - the state by Tax - have largely continue:

26. Principles of interpretation of the Vienna Convention, Article 31 must be founded on the interpretation of tax treaty. This is where the importance that it should be a purpose-oriented text understanding.

27. The tax treaty article 5, paragraph 5 uses the phrase "on behalf of." This is an open text. It is not in the wording required for authorization to enter into agreements that are legally binding or the like. This speaks for a functional assessment of the principal, in reality, is bound by the agreement.

28. The purpose of this provision is that an enterprise should tax where value is created. This source principle also supports the purpose of preventing Bypass. The rules must not be interpreted so that the tax for a permanent place can be avoided by a formality. Pervasive interpretation must be such that it provides a sensible and rational solution to the omgaingsproblemet, also from the legal traditions of each country.

29. The OECD's comments are based on the Commissioner must involve the principal in the State for it to occur a permanent place. It speaks of a functional understanding. The comment shows that the OECD is aware that the commission agreements may represent a problem.

30. The French Supreme Court verdict can not have a particular weight. Among other things, it is in France - unlike with us - not allowed to lay emphasis on recent changes in the OECD Commentary. And it is also unclear whether kommisjonslovgivinga is similar in France and Norway.

31. Just springs shows the total observed that there must be a functional assessment of concrete foundation. It must, as the Court of Appeal did, assessed the association between the parties is such that the terms of the treaty article 5, paragraph 5 are met. In this case, there is no real difference to an arrangement with one branch - the only difference is that it is said in the agreement between Dell and Dell Products AS that it is a commission agreement. It can not be NOK.

32. Dell AS volumes thus, in reality, Dell Products. All sales occur under the brand Dell. Sales is the standard set of Dell Products unless the case is negotiated special terms, which also must be approved by Dell Products. In practice, it is not Noka testing at Dell Products of the individual sala, and the reality is when the sala of the economic and practical sense, the final when Dell AS has implemented them.

33. When Dell Products has a permanent place in Norway, the income allocated to Norway. The tax treaty article 7, paragraph 4 opens to use the indirect method with the distribution of discretion. Dell Products have no problem creator that makes it possible to use a direct method. Such distribution of discretion is common in Norway. The method provides a solution in accordance with the arm's length.

34. The State of Tax Office has set up such a claim:

"1.  The appeal is dismissed.

 2.  The State v / Tax awarded the costs of the Supreme Court.

35. I walk it over to explain my views on the matter.

36. Tax liability to Norway for persons and companies that do not belong in this country, is governed by the Tax Act § 2-3. After the provision, first paragraph b shall pay tax on "wealth and income of the business which he carries on or participates in and operated in or managed from here." The right to Norwegian taxation can be limited by tax agreements with other countries, cf double tax agreement Act of 28 July 1949 No. 15 § 1 Such an agreement is signed between Norway and Ireland. The agreement signed on 22 November 2000, done in two equivalent versions, in Norwegian and English. Tax duty under tax law is more extensive than under the tax treaty, and the content of the treaty is therefore crucial for Dell Products's tax liability to Norway.

37. It follows from the tax treaty article 7, paragraph 1 that an enterprise in Ireland may tax be added only where, unless the entity conducts business activities "through a permanent establishment" in the country. The question of a permanent place is regulated in Article 5. The parties agree that the issue of Dell Products has a permanent place in Norway must be settled based on an interpretation of the treaty article 5, paragraph 5, first sentence, which reads as follows:

"When a person, not an independent status to whom paragraph 6 applies is acting on behalf of an enterprise and has and habitually exercises in a Contracting State an authority to conclude contracts on behalf of the enterprise, that enterprise shall be in the points 1 and 2 are considered to have a permanent establishment in that State of any activities which that person undertakes for the enterprise.

38. The Supreme Court is not disputed that Dell AS is not an independent mediator. The question is how the phrase "on behalf of" and "have authority to conclude contracts on behalf of" in Article 5, paragraph 5 shall be understood. As I have worked out for, says Dell Products that in this lies a requirement that contracts must be legally binding. The government believes that it must be founded on a functional understanding between different based on the purpose of the treaty, and that the crucial need to be if there is an agreement that in real terms - but not necessarily legal - is binding. In the primarily medical, the state acceded to the reason given by the Court of Appeal. For the record, I put her to the government neither has made the current that lies the pro forma or that there is a basis for the tax legally through the intersection.

39. It is the pure and not disputed that Dell Products are not legally bound by the agreements Dell AS do with customers. Between Dell Products and Dell AS lies lead a commission agreement, dated 1 February 1995. By agreement, we show that the relationship between principal and commissioner are regulated by the Norwegian Commission Act of 1916. After this Act is an agreement with the Commissioner makes a third party is not binding for the principal. It is not arrived at anything that points in the direction of the commission agreement has a content that deviate from the normal situation after the Commission Act. Dell AS has agreements with customers not informed that there was talk of a kommisjonssal, and thus neither that Dell Products was the principal.

40. The state has made the current that the condition is that Dell AS effectively bind Dell Products. I will not now on what the case must be the critical factor in an assessment for such a criterion. The appeal must, in fact, lead treaty if Article 5, paragraph 5 must be understood so that he set up a condition that Dell Products have to be legally bound.

41. There is also the understanding of the tax treaty article 5, paragraph 5, which is crucial. The interpretation of tax agreements satisfied I myself preliminary to refer to what is said in the Rt-2008-577, see later Rt-2011-755 Section 36 It is called the 2008-sentence:

"(46) Tax Agreement shall be construed in accordance with international law rules on interpretation of the Treaties. Although Norway has not ratified the Vienna Convention on treaty law, it must be founded on the Vienna Convention, Article 31, paragraph 1 gives the expression of the legal custom, cf-2004-957. The article reads:

'A treaty Shall ask interpreted in good faith in accordance with the ordinary meaning to Be merry to the terms of the treaty in Their context and in the light of its object and purpose.'

(47) After the Vienna Convention, Article 31, paragraphs 2, 3 and 4 will also be placed in other circumstances related to the agreement. After practice's comments on the articles weight made by interpretation, cf-1994-752, Rt-1997-653 and Rt-2004-957. Also, comments that are newer than the current double tax treaty is tillagde weight. As point out in Rt-2004-957 paragraph 49 will change in the comments aim to give expression to change practices among OECD countries, even where the articles themselves are standing unchanged.

42. I have already quoted the Norwegian version of the tax treaty. After this is it - that there should be a permanent place - required that the intermediary has acted "on behalf of an entity" and has "authority to conclude contracts on behalf of the entity." In the English language version is the equivalent figures for "acting Wed behalf of an enterprise" and "authority two conclude contracts in the name of the enterprise."

43. In my view, speak a pure language understanding of these expressions clearly that it is required to legally binding agreements for the enterprise as a middle man mission. This applies to the Norwegian version, where "on behalf of" directly translated closest equivalent to "On behalf of." But it also applies to the English, where the expression is "in the name of". It is not said anything at the agreement included no between Ireland and Norway to suggest that it was accused in a deviant opinion. The question is if there is a other legal sources who speaks for a different solution than the wording alone indicates.

44. The tax treaty between Ireland and Norway is based on the OECD Model Convention for tax on income and capital. The English language version of the tax treaty article 5, paragraph 5 is completely identical to the pattern agreement, Article 5, paragraph 5. Thus it must be founded that the two contracting states have not had any wish for a deviant regime with regard to the pattern agreement.

45. The comment on the articles have emphasized the interpretation, see the quoted from Rt-2008-577, see further Rt-2004-957 Section 46 I start by referring to the comment on the articles dated 1 September 1992. It is called there in paragraph 32:

"It would not have been in the interest of international economic relations two Provide That the maintenance of Any dependent person Would lead to a permanent establishment of the enterprise. Such treatment is to Be limited to individual WHO in view of the scope of Their authority or the nature of Their activity involved in the matter the enterprise to a Particular Extent in business activities in the State Concerned. Therefore, paragraph 5 proceed on the basis That only person HAVING the authority conclude two contracts Can lead to a permanent establishment of the enterprise Maintaining retardation. In such a case the person ha Sufficient authority two volumes the enterprise's Participation in the business activity in the State Concerned.

46. These formulations are likelydande in later editions, also from 2010. The commentary focuses on what will be the best for the sake of international economic relations. At this point it is pronounced that only activities from "person HAVING the authority two conclude contracts" may provide a basis for a permanent place.

47. By a decision from the Council of the OECD 28 January 2003 received comment on the articles a new section 32.1, which reads as follows:

"Also, the phrase 'authority two conclude contracts in the name of the enterprise' does not Confine the application of the paragraph two possible agent WHO patients' into contracts literally in the name of the enterprise; the paragraph applie equally two possible agent WHO concludes contracts Which are binding on the enterprise even if Those contracts are not Actually in the name of the enterprise. Lack of active involvement by an enterprise in transactions May Be Indicative of a grant of authority two an agent. For example, an agent May Be Considered two possess Actual authority two conclude contracts elsewhere he solicits and receiver (but does not formally finalize) Which orders are sent Directly to a warehouse from Which goods are Delivered and elsewhere the foreign enterprise routinely approve the transactions.

48. Addition of the first sentence up to the semicolon relate to a note from the United Kingdom where it was made aware that the common law principal is bound by an agreement made by the Commissioner, regardless of whether a sale has taken place in the name only to the Commissioner. It's worked out for the circumstances of this in an article by John F. Avery Jones and David A. Ward in European Taxation, IBFD, 1993, p. 154 The reason for and purpose of the note was thus mainly to clarify the special problems commission concept in common law travels, and who therefore have a different content than under Norwegian law.

49. For taxation in Norway to "commission" understood based on the content of the concept under Norwegian law, see Tax Treaty Article 3, paragraph 2 I reminiscent of what I have said before about the Norwegian scheme. It appears to be in accordance with what is known as civil law.

50. The remainder of Section 32.1 debts middlemen - "agents" - pure public. I perceive what is said there that a discussion of the evidence required for other situations than ours - especially where a sales agent will take up orders for enterprise he is dependent. There is thus no question of a change in what is required to make a dependent mediator shall bind the person concerned represents enterprise, but what is pure concrete necessary for the binding to the lie.

51. By understanding the tax agreements that are based on the OECD Model Convention, it is naturally also of interest how the person concerned article is understood in other countries. And not least of a case where lies the decisions from the highest courts in a state. The Supreme Court is informed of such a verdict, the verdict in the so-called Zimmer-case of 31 March 2010, Decision 304715, from the administration's highest court in France, the Conseil d'Etat. An unofficial translation into English is income in International Tax Law Reports 12

52. Judgment debt a commission opportunity, and there is talk of actual circumstances that are largely parallel to those in our case. Conseil d'Etat to assume that a commissioner can not bind a principal in relation to third parties in the meaning of the Convention, but has an additional remark. In the French text shows that these clarifications debt where "des Termes memes you contrat de commission, soit de tout autre élément de l'instruction" provides the basis for authorization to third parties. The unofficial English translation is similar to that shown initially on non-bond debt, "unless it Appears Either from the express terms of the contract of commission, or from Other Factual elements Relating to its appointment." I perceive this precise definitions to apply to situations where authorization follows the wording of the commission agreement or the factual circumstances related to the part no of this. It must thus the French Supreme Court's vision come to some agreement in the relationship between commissioner and principal out of a regular commission agreement, that the Commissioner should be able to bind the principal legal in relation to third parties.

53. After it announced it has in many other states been made similar assessments with us about the tax liability of Dell. It follows from the District Court ruling that Dell Corporation has similar agreements in 15 states, without any of the others has meant that the commission arrangement formed the basis for a permanent place in the state commissioner. It is still unclear how the tax authorities in Spain considering the question. In particular, it must be mentioned that the Tax Agency in Sweden in the decision of 24 November 2010 found that Dell AB should be taxed for revenue commissioner, unless the question of a permanent place was taken up.

54. The State has the power emphasized that the purpose of Article 5, paragraph 5 of the particular degree is to secure the tax base for the source state. For this I will say that the agreement states here have chosen a scheme where it is essential if there is a legally binding one. It is also chosen the same arrangement as found in the articles. The wording is clear and the solution is also supported by other legal sources. For my part I can not see that førsemålssynsmåtar here can break through in relation to the clear legal source image that lies lead.

55. When I thus have come to that appeal leads, I also add a certain weight on the right technical and practical considerations. An alternative criterion would have to be established without support in the text of the treaty or in the articles. It would in itself be uncertain. I point out that there is talk of formulations that must be considered to go back in very many tax agreements. With such a fairly loose definition of the criterion, there would be major practical and legal technical difficulties in getting to a fairly uniform practice.

56. Tax authorities have chosen not to resemble Dell Products for a permanent place for the fiscal year 2007. It appears from the letter dated 10 February 2009 from the Tax Office that this was done "following an overall assessment of the information in the case, with particular emphasis on the actual conditions in 2007." The actual change in 2007 was that the organization in Ireland was changed by Dell Products had been transferred from the parent company responsible for the staff there who worked for Dell Products. The state has made the current Dell Products in Ireland has emerged as a "gjennomstrøymingsselskap" no independent activity. Given my legal opinion do I need not go further into this. But I add that it is not easy to see that a changed organization in Ireland to have effects on whether it is a permanent place in the country. This also shows the problem in establishing a real bond, or real financial bind, as decisive criterion.

57. It is then not necessary to go into the other issues raised in the case.

58. With the legal vision I have, the result without further be that Dell Products, did not have a permanent place in the country. I am therefore come to that appeal leads.

59. Dell Products should then be awarded legal costs to all bodies, cf Disputes Act § 20-2 first paragraph. Dell Products has demanded legal costs plus VAT. It must be founded on that Dell Products, which are foreign-employed, are entitled to a refund of input VAT for current VAT Act § 10-1. VAT should not be awarded, cf-2011-852.

60. Saks cost requirement for the district court in all 893 918 NOK, where 834 100 million is the fee and 59 818 million outlay. Respondent has not had any objections to the amount that is not particularly deviations from the state demanded and got accepted your in court. The demand from Dell Products for the district court should accept the roll.

61. The Court of Appeal, Dell Products demanded in all, 1,021,380 crowns, where the 993 000 million debt premium and 28 NOK 380 court fees. As you can tell by the end described in detail in the High Court, demanded the state in which substantially less. I have come to that amount goes beyond what is reasonable and necessary, and that the fee should be reduced to 600 000. It is then taken into account that Dell Products found it necessary to go deeper in some circumstances for the Court than the Court, and also that Dell Products are of no organization in this country that could support the legal representative. The Court of Appeal is therefore subject costs set to 628 380 crowns.

62. The Supreme Court is demanded 203,220 crowns, where 180 000 is the fee and the court fees. The requirement should accept the roll.

63. After this, the legal costs be set at 1,725,518 crowns.

64. I vote for this for such a sentence:

 1.  The equations of Dell Products for the fiscal wounds 2003-2006 is repealed.

 2.  The legal costs for the District Court, Court of Appeal and Supreme Court, the central government at the Tax Office to Dell Products 1,725,518 - einmillionsjuhundreogtjuefemtusenfemhundreogatten - million within 2 - two - weeks from the preaching of this sentence.

65. Judge Øie: I am on the whole and the results agree with the first voting.

66. Judge Kallerud: Likewise.

67. Judge Falkanger: Likewise.

68. Judge Tjomsland: Likewise.

69. After the referendum said the Supreme Court to

Judgment:

 1.  The equations of Dell Products for the fiscal wounds 2003-2006 is repealed.

 2.  The legal costs for the District Court, Court of Appeal and Supreme Court, the central government at the Tax Office to Dell Products 1,725,518 - einmillionsjuhundreogtjuefemtusenfemhundreogatten - million within 2 - two - weeks from the preaching of this sentence.

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