International taxation and BEPS

Paolo Besio (Grant Thornton) declared: “Over a short period of time, BEPS have transformed international tax, but the path is still a long one and it is necessary to make sure that all the amendments agreed upon are implemented promptly and consistently with the commitments taken on. It is worth understanding how the OECD and the EU are proceeding, the issues emerged during the implementation phase and which new projects are underway”. 

Regarding the dispute resolution, he declared: “The risk related to the implementation of BEPS resulting in an increase in double taxation cases is real, as shown by the increase in the number of procedures opened in the last few years. The aim to eliminate double taxation in two years’ time is challenging, but it is key to rebalance the relationship between tax authorities; moreover, this would also help to overcome taxpayers’ reluctance, which still regard this instrument with groundless and excessive scepticism despite the increase in the number of procedures started”.

Milan, 19 November 2019 – “Taxation of groups after BEPS and UE Directives” is the topic of the conference organised by Grant Thornton at Università Cattolica in Milan. An occasion to share views and exchange ideas on the changes in international taxation following to the introduction of the BEPS (Base Erosion and Profit Shifting) project, whose provisions influence both the States’ tax policy and the MNE’s tax planning, in a scenario where the economy is growing more globalised and international transactions more complex.

In addition to five Grant Thornton representatives - i.e. Alessandro Dragonetti, Managing Partner and Head of Tax, Simonetta La Grutta, Partner and Head of VAT, Gianni Bitetti, Transfer Pricing and International Tax Partner, Paolo Besio, Partner and Head of International Tax and Transfer Pricing and Lorenzo Carminati, Principal.

Various authoritative speakers intervened in the conference, among which Maurizio Logozzo, Professor of Tax Law at Cattolica University, Cinzia Sforza, Officer of the Ministry of Economics and Finance, Franco Roccatagliata, Officer at the European Commission, Directorate-General Taxation and Customs Union and Professor of European Tax Law at Bruges College of Europe, Massimo Cremona, Professor of Business Tax Planning at Cattolica University and Antonio Barbera, Head of Group Tax Ferrari.

The speakers provided an overview of the status of the various project at a domestic, EU and international level, and gave insights on specific topics, such as the compliance instruments available to taxpayers and the multilateral tool. Other specific matters, analysed from a transfer pricing point of view, included the evaluation of intangibles, the financial operations and the year-end adjustments for direct tax purposes.

In particular, the BEPS project - launched by the OECD following to the 2013 G20 and whose first phase was completed in the last quarter of 2015 with the publication of the final version of the 15 actions - lead to significant changes in the domestic tax systems, in the international tax conventions and in the best practices approved by all participating Countries. The main targets of the project were, and still are (1) consistency in international taxation, (2) realignment between substance and form and (3) transparency and certainty.

The actions transposition and implementation process, as regards the amendments to international conventions, is to occur mainly  through the multilateral instrument which should guarantee the amendment of most international conventions over a brief period of time, much quicker than what it usually takes to introduce amendments to a single convention. The actions transposition and implementation in the domestic tax systems is up to each State.

To make sure that each State adopts the new norms, the OECD devised a monitoring system, the so-called peer review, aimed at evaluating, in each State, the norms that need to be amended, the amendments introduced and the possible further corrections that may be necessary. Should these changes not be consistent with what agreed within the project, the OECD indicates the further changes to be introduced. The OECD work, nonetheless, is not finished yet: there are various projects underway, both to deepen some topics analysed in the actions and to face new topics.

The actions, actually, have provided tax authorities with important tools to tackle international tax avoidance and, of course, tax evasion. Despite the efforts made during the discussion and approval of the actions and monitoring activities, the amendments introduced in the national legislations do not coincide and are not simultaneous. This inevitably results in double taxation cases, which the OECD wishes to avoid.

With this specific risk in mind, the OECD envisaged, within the specific action, some changes to the existing international conventions to guarantee to the taxpayers that the double taxation is actually eliminated. As known, this target, which could be reached by introducing a mandatory arbitration clause in all conventions, has not been achieved, but notwithstanding this, there are elements to hope that the phenomenon can be tackled and thus the double taxation eliminated.

“BEPS - commented Paolo Besio - have transformed international taxation in less than two years, from when the project was first launched to when it was approved - a very short timeframe for such a wide and thorough project. Starting from 2016, all Countries started to adjust their domestic legislation, but the path is still a long one and requires time and, moreover, it is then necessary to make sure that all the amendments agreed upon are then implemented promptly and consistently with the commitments taken on.

Aim of the conference is then to understand how the OECD and the UE are acting, which problems emerged during the implementation phase and which new projects are underway”.

Another extremely important topic, to which a specific action of the project is dedicated and discussed during the conference, is that of the dispute resolution, both domestically and internationally, with specific reference to transfer pricing.

“As far as the dispute resolution is concerned - continued Paolo Besio - as assumed by the OECD itself, the risk that the BEPS implementation could result in an increase in double taxation is real as reflected by the increase in the number of procedures opened in these last few years (on average, more than 2,100 per year starting from 2013, compared to approx. 1,600 in the previous ones). The tax administrations’ difficulty to manage these procedures is evident when considering the total number of open cases.

Just consider that Germany and the US had more than 1,000 procedures open at the end of 2018 and Italy had 742. Action 14, concerning the resolution of disputes, implies a major effort on the part of financial administrations, among others, the acceptance of all requests concerning the elimination of double taxation, also potential, and its actual elimination within 24 months. The target is challenging but it is key to re-balance the relationship between financial administrations - much reinforced further to the BEPS - and the taxpayers.

Evidence that reaching the target, besides being the wish of financial administrations, is actually possible, would also help to overcame taxpayers’ perplexitis, as they still regard this instrument with groundless and excessive scepticism despite the increase in the number of procedures started”.