Presentation delivered at the 2020 ATTA Conference in Hobart, Tasmania. I address the challenges posed to inheritiace taxation in a corss-border scenario.

1. Generational Turnover and Inheritance Tax:
Making Sense of Tax Incentives
Marco Greggi
Hobart, January 23rd 2020
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2. Starting Point:
Diverging Paths ?
• Economists are emphasising the need to (re-)consider wealth
taxation in order to address emerging (and long standing)
inequalities in the world (Piketty, 2013; Stiglitz, 2012; Ricolfi,
2019);
• International Tax lawyers have concentrated their studies
essentially on Income or Consumption taxation in recent times;
• Territoriality;
• Tax base apportionment;
• OECD Pillars strategy;
• …
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3. Is this a Real Scenario ?
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4. Addressing Inequalities
• As to address inequalities, de iure condendo Piketty suggests
the introduction of a Global Wealth Tax, with a
comprehensive (and world-wide) base;
• Inheritance Tax is de jure condito the tax which resembles
the theoretical model (when implemented), but:
1. Exemptions occur as to SME taxation;
2. Possibility of international double taxation due to the lack of
harmonization amongst states (inside and outside the OECD);
3. Significant risk of Base erosion / avoidance via Trusts and alike.
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5. The Road ahead
1. Revenue generated
not significant;
2. Ongoing discussion as
to whether repeal it or
not (Mirrlees Review,
Tax by Design, 2011, §
15).
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Inheritance Tax ?

6. Inheritance Tax and SME
• Three critical aspects have been detected so far:
1. Inheritance taxation is not always a wealth tax (Problem of Tax
design);
2. Taxpayer’s identification highly depends on the domestic
legislation (Problem of Statutory Tax drafting);
3. Application of the Tax to SME (when transferred from the
deceased to the heirs) might lead to the business wind-up
(Problem of Sustainability).
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7. 1. Tax Design
• Inheritance taxation may be designed:
1. As a tax on the (overall) value of the goods transferred mortis
causa;
2. As a Tax on the accrued capital gains to be calculated on goods;
• In this respect, it would be the most perfect form of … “Exit taxation”.
• Asymmetries / different definitions might trigger
international double taxation.
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8. 2. Taxpayer’s Identification
• Taxpayer identification may change on a State by State basis;
I. The transferor (deceased individual) ?
II. The transferee(s) ?
III. Both ?
• More complex situation if compared to Income taxation;
• International (Tax) law: the lex rei sitae might make most of
the cases triangular, possibly extending double taxation to
three states simultaneously, if remedies are not adopted.
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9. An Example
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Note: Fictitious example.
National reguations might be different.

10. 3. Inheritance Tax and SME
• Common understanding (UK, Italy, …): inheritance taxation per se
is not sustainable when it is charged on the value of a SME
transferred mortis causa;
• Cash drain for the enterprise, with possible disruption of the business
as a going concern;
• Special regulations for SME (in Europe EU Recommendation
C(2003)1422 May 6th 2003);
1. European Policy: preserve as much as possible the business as going
concern;
2. What’s a SME in Europe ? (Article 2): less than 250 employees,
annual turnover of no more than € 50 million.
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11. SME, Generational Turnover
… and Taxation
• My Country as an example: generational turnover is
exempted for tax irrespective of the value of the business
when the latter is transferred mortis causa:
1. Only to heirs or ascendants (so called “Family Scenario”);
2. Business must be operated for no less than 5 years after the
transfer;
3. Partnership participations are excluded;
4. Shares are included only insofar their transfer grants control by
the heir, according to the Civil code.
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12. Advantages and
Disadvantages
• Pros:
1. Business is kept “within the family” across generations;
2. Goodwill is preserved and any disruption mortis causa is prevented;
3. Family-driven economies encourage this approach;
• Cons:
1. Non-neutral measure, market averse;
2. “Wealth does not last for more than two generations”;
3. Mirrlees Report strongly discourage this kind of exemptions as they
disrupt actual value of the business (§ 15, page 361 “This is damaging
economically”).
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13. SME and Cross-border
Situations
• Double taxation might occur:
1. When the business is carried on in another State…
2. … or when two states have different understanding of
residence / domicile …
3. … or when a state has claw-back provisions as to the
residence / domicile of the deceased.
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14. The OECD Approach
• OECD Model Convention on Inheritance and Gifts tax (1982);
• As on June 2018, 89 Treaties in force;
• Not very successful, due to remarkable differences amongst
the Countries as on whether:
1. IHT should be applied …
2. … on whom …
3. … on what taxable base.
• Source state should prevail if the SME is active abroad via a
Permanent establishment (Articles 5 and 6).
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15. Continued …
1. Remedies normally granted:
• Tax credit to be determined on the taxes paid abroad;
• Necessity to align the taxable bases;
• My country has only 8 Treaties currently in force, but in
Europe sensitiveness towards this issue is rising, as new
taxable bases are considered … or old ones revamped:
• Regulation 650/2012 on residence (not for tax purposes);
• Communication COM(2011) 864 December 15th 2011 on cross-
border inheritance taxation;
• Significant case-law by the European Court of Justice.
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16. Concluding Remarks
• “Tax on Aspiration” … or aspiration to tax ?
• Global agreement to address inequalities that goes beyond the
agenda à la page (digital taxation);
• Inheritance taxation might be one interesting instrument to
achieve that goal while preventing possible value disruption
on SME, and adjusting state deficit;
• IMF (2019) suggests a comprehensive wealth tax for my country.
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17. Thanks !
marco.greggi@unife.it
17Research Supported by the Council for Emilians Expats Abroad – Consulta degli Emiliano Romagnoli all’estero