A Spanish tribunal (Audiencia Nacional de Madrid) just made available its decision regarding the Praxair Case in which elaborate corporate structures where relied upon to organise large scale fiscal fraud.

There is not much to comment at this stage because the decision only states the facts and concludes on the acts of the corporate staff. However, the recognition that 13 crimes were committed in order to evade tax is adds to the corporate veil lifting debate.

The decision describes how an international group, by relying on complex corporate structures, managed to commit a large scale 146 million Euros fraud. Various entities, in short, organised a series of commercial operations consisting in transmitting participations intended to seek tax exemptions. A profitable branch of the group would sell parts of its capital to another branch, which by the same token would declare charges related to the acquisition. This, in turn, would allow the later branch to reduce the amount of taxable profits, etc. Overall, this internal selling and purchasing of entities was orchestrated through holding firms and various corporations incorporated in Europe, Canada, Luxembourg and Switzerland. The parent firm of the group, however, was US based.

The consideration granted to corporate veil lifting is worth commenting.

In fact, in appears that the US parent firm could have been indicted as the  entity responsible for the orchestration of the crime among a number of its branches, given that it is clear to the Spanish prosecution and the Spanish court that the Spanish branch couldn’t have possibly directed the other European and Canadian branches. Having considered the potential charges, however, the parent firm accepted to pay a 300 million lumpsum to escape the risk of an indictment.

By admitting a lesser punishment, both the group and the Court therefore suggest that corporate veil lifting  might have overall constituted a risk for the former. The Court, in fact, ignored the independent nature of the Canada/Europe-spread entities and considered that two Spanish citizens in charge of the deals were to be found guilty of the international alleged frauds. The Court, however, limited this ‘veil ignorance’ to a local / regional level. Although it is recognised that the fraudulent deals were orchestrated transnationally, the involvement of the US-incorporated parent firm remains judicially unconsidered despite the payment of the lumpsum.

The decision (in Spanish), can be found here.

%d bloggers like this: