Taxation in the Future – A New EU: Vision and Impact

The Change of Scenery

On 1 December 2019, the von der Leyen Commission took over for the coming 5 years, and it is called to deliver on a most challenging mandate. The European identity is questioned more than ever before, with Brexit being just one of the several signs. The established structures of the EU and global economy are also questioned. Unprecedented technological developments threaten with unemployment millions of people and demand rapid evolution of new skills, while promising widespread prosperity and unknown potential for humankind. Digitalization keeps alleviating cultural differences; at the same time though, nationalist movements are getting stronger and stronger. Climate change is present, undeniable reality, already in the process to overhaul the face of our planet.

Published in: Kluwer International Tax Blog - December 16, 2019

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Evaluating TP Policies in Loss-Making Companies

During tax audits, tax authorities frequently focus on companies within multinational groups that book steady losses over several years. In these companies, behind the losses authorities often find transfer pricing policies that are not in compliance with the arm’s-length principle. This observation is supported by the 2017 OECD Transfer Pricing Guidelines 2017 (para 1.129 – 1.131).

According to the OECD Guidelines, when a company that belongs to a multinational group consistently books losses while its multinational parent remains profitable, authorities must analyse its tax practices, paying particular attention to the TP policies.

Published on: ITR - International Tax Review - 05 December 2019

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Italy Amends its Patent Box Regulation

The patent box regime was introduced in Italy with the Legge di Stabilità 2015 and has been subject to amendments over subsequent years. The aim of this regime is to provide for tax relief on income deriving from intangible assets like industrial patent and intellectual property designs and models.

The original regulation provided for the obligation to undergo a ruling procedure by the Italian tax authority to identify methods of determining the qualified income deriving from the direct use of intangible assets (in the case of indirect use of intangible assets, this ruling was not mandatory).

Published on: ITR - International Tax Review - 30 October 2019

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Let's Meet in Matera and Celebrate IAFEI's 50th Anniversary

In the year in which IAFEI celebrates its 50th anniversary, the 49th Congress of IAFEI will take place in Italy in Matera (2019 European capital of culture) on October 25th and 26th.
The main topic is quite inviting: “An holistic view of the enterprise in a changing world - Cultural heritage, basic value and forward guidance for driving change in business and growth models“.
The scope is to discuss how shall the today’s enterprises evolve towards the one of the future.

Published in: 45th Issue IAFEI Quarterly - 1 October 2019

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Mobility Monday’s - Transfer Pricing, How Costs of Employees is Born and Cross Charged

Tax issues and global mobility go hand in hand. There can be tax matters for the employee and for the employer. The corporate tax implications (tax matters that relate to the employer entities) are generally less well understood in the world of Mobility/HR, than the payroll and employee and employer issues.

Within the corporate tax area is transfer pricing. In the context of employee mobility, this is an area that concerns itself with how the cost of employees is borne and cross charged within a group. Mobility often has to work in partnership with finance and tax departments around this issue.

Published on: Mobility Mondays - Crowe UK

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Blockchain Technology: Driving Towards the Next Industrial Revolution?

New technologies have provoked a new revolution in human history: the so-called “digital revolution” or “next production revolution”. It marks the passage from the mechanical or analogue electronic technology to digital electronic technology, with primary impact on the area of communication but also, subsequently, in production.
It is revolution, because it has the capacity to overhaul established social structures.
In fact, it is already doing so: starting with business and trade, new technologies are now shaping labour, governance, culture.
The dominant trend is towards a global village: everyone and everything is a few steps – or rather a few clicks – away; cultures intermingle in an explosive mix, while national borders keep losing ground and relevance – mere remnants of a fading past.
This is where we are heading and each new development, e.g. every new platform, novel application, promising social network or innovative robot is one more (cyber-) brick for the construction of the global village.

Published in: Legal Perspective on Blockchain - Theory, Outcomes, and Outlooks

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The Impact of TP Policies on Managing a Company in Crisis

The Italian government, with Legislative Decree No. 14 on January 12 2019, approved the new Code of Business Crisis and Insolvency (the Code).

The novelties of this Decree are the tools and mechanisms included for warning and preventing the crisis. In this way, the Legislator has tried to comply with the guidelines expressed by the European Commission on a new approach to manage business failures and insolvency (2014/135/EU).

According to Article 13 of the Code, any income, equity or financial imbalances, in relation to the specific characteristics of the company and the entrepreneurial activity carried out by the company, are identified as “crisis indicators”, taking into account the date of incorporation and the start of the activity.

Published in: TPWeek - 31 May 2019

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The Data Economy: On Evaluation and Taxation

While data-centred business models are claiming an ever-growing share of worldwide revenue, regulatory efforts to identify proper tax rules for the relevant activities are intensifying. It is questionable whether or not the proposals currently on the table capture the distinctive features of the data economy. The formulation of appropriate tax rules requires a thorough understanding of the mechanics of data processing activities and due consideration of the difference between information, which is an intangible asset, and tangible assets.

It is widely acknowledged in the areas of business, legislation and policymaking, as well as administration and human rights protection, that the dominion of data is increasing. This is clearly illustrated by the series of legislative initiatives launched and/or adopted in order to provide a legal framework applicable to the unstoppable flow of data.

Data collection and analysis are not, however, new processes. In particular, data processing is deemed to encompass:

any operation or set of operations which is performed on personal data or on sets of personal data, whether or not by automated means, such as collection, recording, organisation, structuring, storage, adaptation or alteration, retrieval, consultation, use, disclosure by transmission, dissemination or otherwise making available, alignment or combination, restriction, erasure or destruction.

Published in: European Taxation, 2019 (Volume 59), No. 5 - 15 April 2019

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Italy Clarifies Key Transfer Pricing Tenants

During Telefisco 2019, Italy’s annual tax conference, Italy’s tax authority clarified several transfer pricing (TP) tenants. Notably, the most important include:

• Clarification regarding when penalty protection may be applied to TP documentation; and

• The inapplicability of penalties for filing discrepant tax returns in the TP area.

Penalty protection
In accordance with Article 1, Paragraph 6, and Article 2, Paragraph 4 of Legislative Decree No. 471/1997, if a taxpayer provides the authorities with adequate documentation that shows TP policy was applied appropriately within intercompany transactions, penalties for administrative violations related to tax return discrepancies may not apply (i.e. “penalty protection”).

Published in: TP Week - 1 May 2019

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International Tax Dispute Resolution: New EU Rules

lnternational tax disputes arise, in principle, where

1. there is a bilateral or multilateral treaty for the avoidance of double taxation (hereinafter "Double Tax Convention" or "DTC") or an equivalent instrument and

2. the contracting jurisdictions exercise their taxing power in a manner resulting in violation of its provisions.

In addition, such disputes can also arise without violation of the DTC (including equivalent instruments), if there  is disagreement or uncertainty in relation to the correct application of its provisions. In a nutshell, international tax disputes can arise, if there is a framework agreed between two or more jurisdictions regarding the exercise of their taxing power in cases involving both of them (in principle in a DTC).

In their vast majority, existing DTCs previde for the resolution of the above disputes through the so-called mutuai agreement procedure or MAP, following the respective provisions of the OECD Model Tax Convention (hereinafter the "OECD Model"). MAP aims at dispute resolution through agreement between  the national tax authorities involved, on the basis of dialogue and cooperation, following request by the taxpayer affected.

Published in: IAFEI Quarterly (43rd Issue) - 11 April 2019

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Geotaxation and the Digital: Janus in the Mirror

Geopolitics has been defined as ‘great power competition over access to strategic locations and natural resources’.
In essence, it focuses on the impact of geography on international political relations and vice versa.
The principal actor in international political relations is the state. And the effective power to tax is historically a constitutive element of the state. Tax revenue is, in fact, one of the fundamental resources for the modern state to perform its role, i.e. to ensure security of the people in its territory and to deliver its policy objectives.
Tax policy can, therefore, be considered of key relevance for national sovereignty. In this light, geotaxation can be understood as the study of the interactions between geography and the international tax framework.

It focuses on international tax relations and their development under the influence of geographical factors. Thus, it considers collaborations among different states at various levels, such as the League of Nations, the OECD, the BEPS Inclusive Framework, the UN, the IMF and the European Union, and their impact on national and international tax policy.

Published in: Intertax (Vol.47) - 18 March 2019

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Competitive Taxation and Tax Competition: The Winner Takes it All?

The Debate

What makes a tax system competitive?
How can countries multiply the competitiveness of the existing system?
These question-marks are attracting substantial research by today’s policy makers, at national and international level as well as by business lobbyists. Most importantly, their potential replies entail significant impact for taxpayers and the society in general. Indicatively, one of the principal objectives of European Commission’s 2015 Action Plan for A Fair and Efficient Corporate Tax System was to create “a competitive and growth-friendly corporate tax environment for the EU”. On a similar pattern, the 2018 Digital Tax Package seeks to enhance the competitiveness of the Single Market. At the other side of the Atlantic, the fiercely debated U.S. tax reform had one clear-cut objective, to increase the competitiveness of the U.S. tax system.

Published in: Kluwer International Tax Blog - 4 March 2019

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Resolving Cross-Border Tax Disputes: Developments in the EU and Around the Globe

Cross-border dispute resolution mechanisms have been evolving rapidly in recent years.
The importance of an effective process for enforcing bilateral double tax agreements and for avoiding double tax issues more generally cannot be understated. Two critical tools in this regard are the mutual agreement procedure and arbitration.
The final report on action 14 of the OECD’s base erosion and profit-shifting project focuses on the improvement of tax dispute resolution. Along with the changes that the multilateral instrument makes to article 25(5) of the model convention, the OECD’s work is inspiring international change.

Published in: TAX NOTES INTERNATIONAL - February 25, 2019

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Cyber-Diplomacy and Digital: Some Legal and Economic Aspects

For thousands of years the human species was constrained to limit its activities and creativity in the planetary space. Today, the Digital Revolution has opened a new space: the cyber-space, removing the limits once and for all.

Cyber-space is understood as a virtual world, a notional environment existing in and due to the network of telecommunication technologies. Although untouchable; it interacts with the physical world in the most dynamic manner with material consequences in the latter. The distinctive features of the cyberspace, deriving from its virtual nature, include:

1. the lack of physical borders and hence also of national frontiers;

2. the lack of distance or unification of physical space, meaning potential multiple presence of the event in any number of physical locations;

3. the nullification of time, since any event can happen in zero-time with a simple click and expanded impact;

4. anonymity or potential anonymity through the creation of profiles (even multiple ones) by the users.

Published in: Kluwer International Tax Blog - 8 January 2019

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Do the EU’s Open Internet Regulation And Proposed Digital Services Tax Threaten the Digital Single Market?

The EU’s digital single market serves as the framework for its efforts to exploit digital opportunities and achieve sustainable growth and development in the modern era. Some of the EU’s undertakings have sparked heated debates regarding their suitability for effectively pursuing their stated objectives.

This article examines two of these initiatives — the Telecommunications Single Market Regulation, adopted in 2015, and the recently proposed digital services tax (DST) — and the risks they may pose to the digital single market.

Published in: TAX NOTES INTERNATIONAL - October 15, 2018

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