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Tax Pills

  • 2020 Mutual Agreement Procedure Awards. To the Italian Revenue Agency the prize for solving transfer pricing cases in “cooperation” with the Spanish Tax Administration

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    This year's MAP Awards, given in recognition of particular efforts by competent authorities, saw Italy and Spain win the prize for the pairs of jurisdictions that dealt the most effectively with their joint caseload for transfer pricing cases. The 2020 MAP Awards were presented during the third OECD Tax Certainty Day where tax officials and stakeholders took stock of the tax certainty agenda and discussed ways to further improve dispute prevention and resolution. Particularly, the prize awarded to Italian Revenue Agency, and to its Spanish counterpart, is due to the best cooperation showed in the resolution of international tax disputes regarding the application of the rules on transfer pricing between associated companies.
    The importance of mutual agreement procedures in the international landscape - Dispute resolution mechanisms, including MAPs, are the cornerstone of a well-functioning tax treaty network. Particularly, from 1 January 2017, the Revenue Agency is the competent authority designated for the handling of friendly procedures or MAP (Mutual Agreement Procedure) initiated at the request of identified taxpayers. In essence, the MAP represent useful and advanced fiscal policy tools aimed at resolving complex issues of international taxation, such as those relating to phenomena of economic double taxation linked to increases in the profits of associated companies generated by the application of the regulations on transfer pricing, in order to avoid the risk of double taxation. Therefore, thanks to the activation of mutual agreement procedures, direct consultation is envisaged between the tax administrations of the contracting countries which, through their "competent authorities", negotiate in order to resolve an international tax dispute that has arisen. According to the indications of the OECD, the MAPs are divided into two types: cases falling within the category "attribution / allocation", ie disputes relating to transfer pricing and "other" cases relating to the remaining disputes.
    The MAP Awards, what they are and what the attribution logic is - Starting from 2019, the OECD, during the Tax Certainty Day, assigns the "MAP Awards" to those jurisdictions that have distinguished themselves in the previous year in management and resolution friendly procedures in one or more categories. The “Best Cooperation for attribution / allocation cases” is the category that rewards the pair of jurisdictions that have shown the greatest cooperation in resolving relevant tax disputes in the field of transfer pricing. This year, the winners, were Italy and Spain with an agreement score of approximately 60 points.
    The Agency's commitment has been rewarded - Competent authorities adapted to the COVID-19 pandemic. MAP continued to be available throughout the pandemic with several actions taken by competent authorities, including allowing taxpayers to file MAP requests digitally where this had not been possible before. Therefore, the award is also a recognition of the efforts made by the Revenue Agency, moreover in a year almost entirely characterized by the COVID-19 pandemic, in the treatment of transfer pricing MAPs, which are characterized by technical and economic aspects of particular complexity and relevance.

    Stefano Latini

  • A new look for the Italian Patent Box


    A new Decree expressly provides that Italian entities which bear costs aimed at “creating and developing the qualifying intangibles” will now be allowed to increase the deduction of these costs by an additional 90%, which means that the total new deduction will be equal to 190%.
    On 21 October 2021, the Italian Government issued Law Decree n. 146 and published it on the same day in the Official Gazette. Yet, to be fully effective, the Decree will have to be converted into Law, with potential changes, within 60 days. Said that, the Decree contains a series of urgent economic and tax measures, including the repeal of the old Italian patent box regime.
    The new rules in detail - Article 6 of the new Decree modifies the old patent box regime by shifting from a profit-based incentive, with a 50% exemption, to a cost-based incentive by introducing a super deduction for research and development (R&D) expenses till 190% deduction of qualifying expenditures. Particularly, the Decree provides that R&D costs incurred in relation to copyrighted software, patents, trademarks, designs, models and qualifying know-how may be recognized for tax purposes for an amount, as above mentioned, equal to 190% of the relevant expenditure for both corporate income tax (IRES) and regional tax (IRAP), while R&D costs incurred with related parties would not be eligible. Therefore, it’s rather evident the shift of the new PBox regime from a profit-based incentive to an extra deduction for certain research and development costs incurred by Italian entities with third parties. It’s important to point out that companies electing the new patent box regime will not be allowed to claim the R&D tax credit provided by Law n.160/2019, while the election for the new patent box regime will be irrevocable and last for five fiscal years with the possibility of subsequent renewals. In addition, the new Decree also provides for the return, among the assets eligible for the subsidy, of the trademarks that, since 2017, had been excluded from the "old" discipline.
    Transition rules for a calendar in the making - The new patent box regime should be applicable as of 2021 and the Decree provides for transition rules regulating cases where taxpayers might still be under the old regime. Particularly, the Decree provides that companies who have already exercised a patent box election on a date prior to the date of entry into force of the Decree (i.e., prior to 22 October 2021) are given the choice, as an alternative, to join the new regime. On the opposite, companies who have already signed a ruling with the tax authorities, including a renewal of an old agreement, as well as those who have joined an alternative self-computation regime under Article 4 of Law Decree n. 34/2019, are excluded from making an alternative choice and therefore from opting for the new regime. Finally, as stated in the accompanying technical report, interested entities up to the tax period 2024 are not obliged to adopt the new discipline. Instead, from the following year, they will eventually be able to use only the mechanism defined by Law Decree 146/2021.

    Stefano Latini