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Cooperative compliance for large businesses:
European Situation and Italian Perspective
The Transfer Pricing Agreements in the Cooperative Compliance Environment
Marco Greggi
Rome, February 16th 2024
Outline of the Presentation
1. State of the Art of the Italian Tax Compliance Regime (TCR) after the 2023
reform and in the decree n. 221/23;
2. The APA strategy and TP compliance in Italy (and beyond);
3. The interplay between TCR and APA: overlapping of remedies?
4. Making sense of the specific features of the TCR, and the innovation in
the Office-Taxpayer relationship;
5. Concluding remarks and some proposal (the Sanbdox regime).
2
TCR in Context
• TCR in Italy since 2015:
• Relation-based tool, substituting the adversarial approach to tax application and enforcement;
• Qualified businesses admitted:
1. Dimensional criteria;
2. Qualitative criteria (implementation of a tax Control Framework);
3. Ruling-based implementation (new investments);
• Core of the Discipline: Tax Control Framework (TCF) as defined by the OECD Report in 2016:
• Benchmarking risks, building internal audit structure, increase of the tax awareness , …
• Ways and Means are envisaged in the matter by the OECD.
3
Continued …
• TCF (Tax Control Framework) is “nested” inside the Internal Corporate
Control system (risk management, compliance models, …);
• Implicit reference to the Legislative decree 231, June 8th 2001;
• In a Nutshell: from a “High Intensity and Occasional” (Spike)
confrontation model, to a “Low Intensity and Routine” one.
4
Why Does It Matter ?
• Mitigation of sanctions / possible waiver (Bizioli and Cordeiro Guerra);
• Reduction (possibly, to zero) of “Spike” activities on the taxpayer by
the Tax Office / Tax Police;
• Fast tracking ruling procedure;
• Extended consulting activity by the tax office (close to the Sandboxing
Scenario).
5
The Impact of the 2023 Reform
• Remarkable innovations to Legislative decree n. 128/15:
• Risk Awareness in adopting accounting standards (article 4, § 1-bis);
• Commissioner’s (Tax Agency director’s) power to set TCF standard (§ 1-quater);
• Forthcoming implementation of a Code of Conduct for TCR introducing rights and duties for both parties;
• Adversarial procedure before negative answers are given to taxpayers (Article 6, § 2-bis);
• …
• Extension of the benefits:
• Tax Control Framework without the TCR for taxpayers who do not qualify (Article 7-bis);
• …
6
The Advanced Pricing Agreements
• APAs have been introduced in Italy with Article 31 ter Decree n.600/73
as amended in 2015 and sub.;
• High intensity confrontation (spike) on the arm’s length value of goods
traded / services delivered in an intra-group scenario;
• Ruling based tool aimed at anticipating the possible ex post conflict in the
matter.
7
The Transfer-pricing Related
Duty of Reporting
• The OECD guidelines include a three-tiered approach to transfer pricing reporting and relevant
documentation;
• It includes:
1. Documentation of a Master file;
2. Local files;
3. Country-by-country report.
• Impact on sanctions applicable in case of violation of the discipline;
• Article 1, §2 ter Legislative decree 471/97;
• Specific compliance duty for “high intensity” confrontation with the tax office.
8
Making Sense of the Overall Scenario
• At first glance, redundancy of instruments inspired by collaboration,
possibly:
1. Overlapping each other;
2. Reaching for the same result: mitigation of sanctions and increase of legal certainty
of the system;
• On a second though, differences exist both:
• In method used and …
• … In the goal pursued.
9
The Compliance Method
• Tax Compliance method embraces TP documentation, contributing to a
broader picture of the business (tax behaviour);
• Article 1, §2 ter Legislative decree 471/97, as lex specialis as compared to Article 6, §
3-bis (Risk assessment map and sanctions reduction):
• Administrative sanction waived if conditions are met;
• Other cases as they might emerge not regulated by lex specialis: application of the
more lenient consequence on the taxpayer.
• Clash of standards ?
• Masterfile vs Tax Risk management and control scheme ?
10
The Interplay between APA and TCR
• Advanced pricing Agreement influenced by the overall environment provided by
the Tax Compliance Regime;
• Adversarial procedure by design in the implementation of rulings (including APA) and answers
to tax risk communication;
• Innovation in methodology:
• The Code of Conduct (another one!) regulating the relationship taxpayer – tax administration
(Article 6, § 2);
• The enhanced adversarial procedure (with qualified motivation in case of denial: Article 6, 2-
bis) might play a role in the APA situation, possibly reframing TP situations.
11
Conclusions (Preliminary)
• Cooperative compliance / TCF set on apparent collision rule with TP
compliance and Transfer Pricing policy implementation;
• Possible outcome:
1. Second discipline absorbed by the first one (species / genus) where possible;
2. Cherry-picking approach allowed under the classic interpretive tools (lex
posterior / lex specialis) as long as they are applicable in these new
regulatory environments.
12
An Outlook to the Future:
the Sandbox Approach
• Making sense of the Cooperative compliance and Transfer Pricing via the
Regulatory Sandbox regime;
• Regulatory Sandbox: MoF Decree April 30th 2021, n. 100 (Decree April 30th 2019,
n.34 (“Growth Decree”).
• Applicable to highly innovative businesses in the FinTech sector which might fall under the
surveillance of the Bank of Italy due to the services provided / delivered and the products sold;
• Goal: testing innovative business activities in a risk-free environment (the “Sandbox”, as it is
understood in computer programming);
• Limits: approval by the competent authorities
13
The Possible Impact on Tax Law
• Article 10, (1) (c) allows business to ask for a waiver from the application of any
regulatory provision issued by the competent authorities;
• Legal certainty achieved via immunity (if conditions met) and an ex post
assessment of the impact;
• See also “Sperimentazione Italia” project Act n. 120/20 for transport, environment and energy
sectors;
• The Bank of Italy managed regime might be transplanted in taxation providing
certainty via (limited) deregulation and an ex-post assessment of the impact.
14
From the Rule of Law
to the Law of Rules ?
• The scenario we have:
• Guidelines;
• Code of Conducts;
• General principles as they are set by third (private) parties;
• Tax Audit by qualified independent advisors;
• The direction we take:
• Redundancy of “Soft law” and erosion of the classic model of Tax litigation and law-abiding behaviour;
• Question: the adversarial (litigation based) approach might appear inefficient and unfit to address the challenges of the XXI
Century. But is the alternative consistent with the rule of law?
• “One should be taxed by law, not untaxed by discretion” (Vestey v. Inland Revenue Commissioner [1979] Ch177,
197, in T. Bingham, The Rule of Law, London, 2011, p. 51, footnote 2.
15
Thanks for Your Attention
16

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The Transfer pricing agreements in the Cooperative Compliance Environment

  • 1. Cooperative compliance for large businesses: European Situation and Italian Perspective The Transfer Pricing Agreements in the Cooperative Compliance Environment Marco Greggi Rome, February 16th 2024
  • 2. Outline of the Presentation 1. State of the Art of the Italian Tax Compliance Regime (TCR) after the 2023 reform and in the decree n. 221/23; 2. The APA strategy and TP compliance in Italy (and beyond); 3. The interplay between TCR and APA: overlapping of remedies? 4. Making sense of the specific features of the TCR, and the innovation in the Office-Taxpayer relationship; 5. Concluding remarks and some proposal (the Sanbdox regime). 2
  • 3. TCR in Context • TCR in Italy since 2015: • Relation-based tool, substituting the adversarial approach to tax application and enforcement; • Qualified businesses admitted: 1. Dimensional criteria; 2. Qualitative criteria (implementation of a tax Control Framework); 3. Ruling-based implementation (new investments); • Core of the Discipline: Tax Control Framework (TCF) as defined by the OECD Report in 2016: • Benchmarking risks, building internal audit structure, increase of the tax awareness , … • Ways and Means are envisaged in the matter by the OECD. 3
  • 4. Continued … • TCF (Tax Control Framework) is “nested” inside the Internal Corporate Control system (risk management, compliance models, …); • Implicit reference to the Legislative decree 231, June 8th 2001; • In a Nutshell: from a “High Intensity and Occasional” (Spike) confrontation model, to a “Low Intensity and Routine” one. 4
  • 5. Why Does It Matter ? • Mitigation of sanctions / possible waiver (Bizioli and Cordeiro Guerra); • Reduction (possibly, to zero) of “Spike” activities on the taxpayer by the Tax Office / Tax Police; • Fast tracking ruling procedure; • Extended consulting activity by the tax office (close to the Sandboxing Scenario). 5
  • 6. The Impact of the 2023 Reform • Remarkable innovations to Legislative decree n. 128/15: • Risk Awareness in adopting accounting standards (article 4, § 1-bis); • Commissioner’s (Tax Agency director’s) power to set TCF standard (§ 1-quater); • Forthcoming implementation of a Code of Conduct for TCR introducing rights and duties for both parties; • Adversarial procedure before negative answers are given to taxpayers (Article 6, § 2-bis); • … • Extension of the benefits: • Tax Control Framework without the TCR for taxpayers who do not qualify (Article 7-bis); • … 6
  • 7. The Advanced Pricing Agreements • APAs have been introduced in Italy with Article 31 ter Decree n.600/73 as amended in 2015 and sub.; • High intensity confrontation (spike) on the arm’s length value of goods traded / services delivered in an intra-group scenario; • Ruling based tool aimed at anticipating the possible ex post conflict in the matter. 7
  • 8. The Transfer-pricing Related Duty of Reporting • The OECD guidelines include a three-tiered approach to transfer pricing reporting and relevant documentation; • It includes: 1. Documentation of a Master file; 2. Local files; 3. Country-by-country report. • Impact on sanctions applicable in case of violation of the discipline; • Article 1, §2 ter Legislative decree 471/97; • Specific compliance duty for “high intensity” confrontation with the tax office. 8
  • 9. Making Sense of the Overall Scenario • At first glance, redundancy of instruments inspired by collaboration, possibly: 1. Overlapping each other; 2. Reaching for the same result: mitigation of sanctions and increase of legal certainty of the system; • On a second though, differences exist both: • In method used and … • … In the goal pursued. 9
  • 10. The Compliance Method • Tax Compliance method embraces TP documentation, contributing to a broader picture of the business (tax behaviour); • Article 1, §2 ter Legislative decree 471/97, as lex specialis as compared to Article 6, § 3-bis (Risk assessment map and sanctions reduction): • Administrative sanction waived if conditions are met; • Other cases as they might emerge not regulated by lex specialis: application of the more lenient consequence on the taxpayer. • Clash of standards ? • Masterfile vs Tax Risk management and control scheme ? 10
  • 11. The Interplay between APA and TCR • Advanced pricing Agreement influenced by the overall environment provided by the Tax Compliance Regime; • Adversarial procedure by design in the implementation of rulings (including APA) and answers to tax risk communication; • Innovation in methodology: • The Code of Conduct (another one!) regulating the relationship taxpayer – tax administration (Article 6, § 2); • The enhanced adversarial procedure (with qualified motivation in case of denial: Article 6, 2- bis) might play a role in the APA situation, possibly reframing TP situations. 11
  • 12. Conclusions (Preliminary) • Cooperative compliance / TCF set on apparent collision rule with TP compliance and Transfer Pricing policy implementation; • Possible outcome: 1. Second discipline absorbed by the first one (species / genus) where possible; 2. Cherry-picking approach allowed under the classic interpretive tools (lex posterior / lex specialis) as long as they are applicable in these new regulatory environments. 12
  • 13. An Outlook to the Future: the Sandbox Approach • Making sense of the Cooperative compliance and Transfer Pricing via the Regulatory Sandbox regime; • Regulatory Sandbox: MoF Decree April 30th 2021, n. 100 (Decree April 30th 2019, n.34 (“Growth Decree”). • Applicable to highly innovative businesses in the FinTech sector which might fall under the surveillance of the Bank of Italy due to the services provided / delivered and the products sold; • Goal: testing innovative business activities in a risk-free environment (the “Sandbox”, as it is understood in computer programming); • Limits: approval by the competent authorities 13
  • 14. The Possible Impact on Tax Law • Article 10, (1) (c) allows business to ask for a waiver from the application of any regulatory provision issued by the competent authorities; • Legal certainty achieved via immunity (if conditions met) and an ex post assessment of the impact; • See also “Sperimentazione Italia” project Act n. 120/20 for transport, environment and energy sectors; • The Bank of Italy managed regime might be transplanted in taxation providing certainty via (limited) deregulation and an ex-post assessment of the impact. 14
  • 15. From the Rule of Law to the Law of Rules ? • The scenario we have: • Guidelines; • Code of Conducts; • General principles as they are set by third (private) parties; • Tax Audit by qualified independent advisors; • The direction we take: • Redundancy of “Soft law” and erosion of the classic model of Tax litigation and law-abiding behaviour; • Question: the adversarial (litigation based) approach might appear inefficient and unfit to address the challenges of the XXI Century. But is the alternative consistent with the rule of law? • “One should be taxed by law, not untaxed by discretion” (Vestey v. Inland Revenue Commissioner [1979] Ch177, 197, in T. Bingham, The Rule of Law, London, 2011, p. 51, footnote 2. 15
  • 16. Thanks for Your Attention 16