For purposes of the French-Italian double tax treaty, Italy’s Supreme Court has rendered an important decision re: holding companies and the level of substance required to determine beneficial ownership. This decision is fact specific, although is significant as it applies to pure holding companies and the subjective interpretations of beneficial ownership that are being applied globally.
The Supreme Court held that the status of beneficial owner is ultimately to be determined, as a matter of fact, based on the particular nature of the recipient holding company and the functions typically performed in its operations.
For a pure holding company, a level of organizational structure able to carry out an activity of mere coordination and control over the subsidiary, attend the shareholders’ meetings and collect dividends, should be deemed as adequate. The analysis should instead be based on the actual capability of retaining the dividends received as opposed to having the obligation to repay them to another entity.
In particular, the Supreme Court did not find any merit to the proposition that the French company should be regarded as a conduit, concluding that a holding company that does not have the same organizational structure (premises, personnel, etc.) as an operating company does not necessarily mean that it would be regarded as not being the beneficial owner of dividends.
This case is very interesting as it does not rely on the regular substance of a regular operating company, and thoughtfully distinguishes the legal rights of a holding company to receive and hold dividends without an intertwined obligation to distribute such monies as one may find in a tax-driven conduit structure.
EY’s Global Tax Alert, provided for reference, is an interesting and refreshing insight into this subjective issue that merits no consistency on a global basis.
The Tax Executives Institute (TEI) has provided comments to the FASB’s proposed changes to disclosure requirements for the reporting of income taxes. As the increased transparency demands continue, the attached views exemplify the theoretical and practical considerations for new standards re: added benefits for the readers of financial statements.
As the world of tax increases in complexity, public disclosures should avoid subjective and forward looking projections, as well as avoiding any potential conflicts with strategic forecasts and confidential information.
TEI’s comments are well written and should be welcomed by the tax and financial community looking to increase the transparency and practicality of financial statement times without duplication or non value-added actions.
I want to wish all my readers / followers a happy, healthy and exciting New Year, as it will certainly be a challenging one in many ways!
Personally, I have moved from the UK to the US this year and find it interesting to compare and contrast the international tax views and press coverage in different jurisdictions.
Thank you for your comments and insights, enjoy the New Year!
With kind regards,
The attached link provides access to an invaluable transfer pricing (TP) handbook which is an excellent resource for all international tax practitioners/advisors.
With the advent of the BEPS era and new/novel approaches to arms’s-length pricing are voiced, this resource is a great desktop reference with experience gained by the authors in both applying TP principles as well as teaching those principles to tax administrations in developing economies.
Examples and “boxes” of summary content are provided in the handbook, in addition to a discussion on TP disputes that is inevitable with BEPS Actions and unilateral actions (both legislative and “soft law”) being applied across the world.
A summary of the chapter titles provides a summary of the details therein:
- TP, Corporate strategy, and the Investment Climate
- The International Legal Framework
- Drafting a TP Legislation
- Applying the Arm’s-Length Principle
- Selected Issues in TP
- Promoting Taxpayer Compliance through Communication, Disclosure Requirements, TP Documentation, and Penalties
- Avoiding and Resolving TP Disputes
- Developing a TP Audit Program
As 2016 draws to a close, and 2016 country-by-reporting (CbC) obligations become effective for the 2016 tax year, Dec. 31, 2016 is an important filing deadline to file CbC “notifications” in many countries advising tax administrations which entity/ “surrogate entity” will be filing such report when it is due.
This deadline is significant for MNE’s with HQ’s in countries that do not require CbC reporting in 2016 (US, Switzerland, and others), with legislatively imposed fines/penalties for non-compliance.
Apart from various forms of guidance, there is not one place to gather such dynamic information. Thus, every MNE should prepare a matrix of countries in which they conduct business operations (including dormant entities, etc.) with corresponding legislation from every country to ensure such deadlines are timely met. Some countries prescribe forms for the notification, although these forms may not be currently printed or available. Therefore, it is recommended to provide some written notification that should ensure no penalties are ultimately applicable.
EY’s Global Tax Alert provides information for Singapore’s recently announced 2016 CbC voluntary filing rules.
This topic will be dynamic, changing almost daily during the next week. Therefore, prudent monitoring of new developments is suggested for this new reporting tool.
The latest BEPS updates are detailed in EY’s Global Tax Report, with the underlying premise of transparency.
OECD: On 5 December 2016, the OECD released an updated version of the Guidance on the Implementation of Country-by-Country Reporting, providing flexibility for notification filing dates for countries not requiring a country-by-country (CbC) report for 2016.
Belgium: New innovation deduction covering patent and other IP rights.
EU: Proposal for hybrid mismatch rules with non-EU countries
Norway: Adoption and regulations for CbC reporting
UK: Interest limitation rules, among other provisions
US: CbC Form 8975 released
From a MNE perspective, it is increasingly apparent that deductions to, and benefits from, tax haven countries are under attack and substance is the key to business and tax decisions.
EY’s Global Tax Alert provides the latest developments into the EU’s hybrid arrangements with non-EU Member States to achieve consistency in application of the hybrid mismatch rules. This development is not unanticipated, although will take some time to be fully developed and legislated into action. In the interim, advance planning should take place, recognizing the fact that the current arrangements will not likely be allowed to exist much longer.