European practices of harmful tax competition management by uncooperative or preferential tax regimes

Transcription

1 European practices of harmful tax competition management by uncooperative or preferential tax regimes The experience of Italy Giuliana Polacco, Partner, Baker & McKenzie, Italy Studio Professionale Associato a Baker & McKenzie is a member firm of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organisations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an "office" means an office of any such law firm Studio Professionale Associato a Baker & McKenzie

2 The approach of Italian Minister of Economy It is many years that Italian Minister of Economy focuses on issuance of anti abusive provisions aimed at preventing the shifting of profits abroad (anticipating the BEPS approach) In 2002, the so called black list legislation was issued Scope of the legislation was preventing that revenues deriving from activities exercised in Italy are illegitimately transferred to black-list countries, i.e., low tax jurisdictions A list of low tax jurisdictions was approved 2015 Studio Professionale Associato a Baker & McKenzie 2

3 Main features of the black list legislation It applies to all transactions (goods and services) concluded between an Italian tax resident entity (branch or subsidiary) and an entity located in a low tax jurisdiction Low tax jurisdictions are those that enjoy a special tax regime and that are included in a black list published by the Ministry of Economy Costs related to transactions performed with entities located in such jurisdictions are not deductible, unless certain conditions are met The restrictions apply to both related and unrelated parties A box in the tax return has to be checked in order to inform tax authorities that transactions had been performed with black list countries 2015 Studio Professionale Associato a Baker & McKenzie 3

4 Conditions for deductions of costs Restrictions regarding the deduction of costs paid to enterprises based in low-tax jurisdictions do not apply when the Italian entity is able to prove that: the foreign entity carries out an actual commercial or industrial activity in the countries in which it is incorporated or, in alternative, that the transactions with the foreign entity are supported by an actual economic interest and have been really performed An advanced ruling could be requested to the Revenue Agency 2015 Studio Professionale Associato a Baker & McKenzie 4

5 Comments and observations Italian Revenue Agency has focused on transactions aimed at shifting revenues out of Italy since many years Notice of presence of transactions with black list countries is present in the tax return with consequent possibility for tax authorities to be informed and be in the position to scrutinize transactions Costs could initially be fully deductible, but disallowed in case the conditions for deductibility are not met 2015 Studio Professionale Associato a Baker & McKenzie 5

6 Comments and observations Italian Revenue Agency is entitled to deeply scrutinize the transactions In case of audit, they are obliged to ask the prove of the conditions provided by the law with a Questionnaire. The taxpayer has 90 days to answer. The first condition is normally very difficult to be proven especially if the supplier is a third party, since a significant number of documents are requested (including leasing agreement, financial statements, list of employees, etc.) The second condition is normally focused on the correctness of transfer pricing policy (to ensure full remuneration of the transactions) 2015 Studio Professionale Associato a Baker & McKenzie 6