da Marco Vergani | Gen 8, 2024 | Digital tax, Fiscalità, Taxation in Italy
The legislative decree no. 209 of December 27, 2023, implementing Article 3, paragraph 1, letters c), d), e), and f) of Law 111/2023 (delegated law on tax reform) concerning international taxation, has been published in the Official Gazette 301 of December 28, 2023.
It encompasses, in particular, articles 8 to 60 and includes the transposition of EU Directive 2022/2523 on global minimum taxation, introducing the so-called global minimum tax, which takes effect from the financial years starting from December 31, 2023, the deadline set for the directive’s transposition.
Entities subject to this regulation are large corporate entities located in Italy that are part of a multinational or national group with annual revenues equal to or exceeding 750 million euros, as shown in the consolidated financial statements of the controlling parent company in at least two of the four immediately preceding financial years.
The mechanism involves three forms of minimum tax:
Income Inclusion Rule (Iir): This is the supplementary tax due from a parent company concerning group companies that are subject to an effective tax rate lower than 15% in the country of residence. The Iir is applied starting from the top of the participatory chain.
Undertaxed Payments Rule (Utpr): If the supplementary tax is not collected through the Income Inclusion Rule, the Undertaxed Payments Rule serves as a backstop measure. It applies under specific circumstances where the supplementary tax is not or only partially collected through the Income Inclusion Rule.
Qualified Domestic Minimum Top-Up Tax (Qdmtt): This comes into play when companies operating in Italy within a group result in an effective tax rate below the minimum 15%. It is a discretionary measure allowed by the directive and applied by Italy, where countries can introduce a national minimum tax.
The mechanism operates in three phases: first, the supplementary tax is levied by the country where the multinational group’s companies are subject to low taxation, if that country has chosen to introduce a qualified national minimum tax (Qdmtt); second, the supplementary tax is levied by the country where the direct or indirect participant is located, taking into account any amounts collected through a national minimum tax (Iir); finally, the Undertaxed Payments Rule (Utpr) is applied by countries adopting Globe rules, where the multinational group is present with other companies, in cases where the supplementary tax due for companies subject to low taxation has not been collected or has been collected only in part.
The calculation is based on the net accounting profit or loss for the financial year, calculated in accordance with the accounting principles used by the controlling parent company for the consolidated financial statements, before consolidation adjustments. Various adjustments are made, and typical transfer pricing rules apply to transactions between entities in different states, as well as typical rules for the permanent establishment’s statement in relationships between the permanent establishment and its head office.
The annual declaration must be submitted within the fifteenth month following the closing of the financial year to which the declaration refers (transitionally within the eighteenth month for the first financial year). Therefore, entities subject to this regulation will submit the annual declaration for 2024 by June 30, 2026, and for 2025 by March 31, 2027. Payments are made in two installments, with 90% due within the eleventh month following the last day of the reference financial year, and the remaining 10% due within the month following the deadline for the annual declaration.
da Marco Vergani | Feb 26, 2022 | Digital tax
The international community is trying to set up a “tax revolution”, shifting taxation to the countries where the revenues are made. The OECD and the European Union acknowledge that the digitalization of the economy has broken the link between business and the territory and that international taxation must adapt to the evidence that the digital economy is the whole economy.
The reforming architecture is based on the so-called “Pillar 1 and 2” and summarized in the agreement reached on 8 October 2021 by 137 countries (out of the 141 adherents to the OECD and G20 inclusive framework on base erosion and profit shifting), of 94% of world GDP, which has already produced a document in public consultation on the OECD website until February 18 on Pillar 1, of the guidelines on Pillar 2 by the same organization (last December 20) and a proposal for directive of the European commission always on Pillar 2 (on December 22).
The timing is ambitious, because it is proposed to implement the reform by 2023, the year by which local digital taxes will have to be abandoned, which are not suitable for guaranteeing that multinationals pay, in a “congruous and pro quota” way, taxes in the countries where they make revenues.
Pillar 1, with a unified approach based on Amounts A and B intended for groups with more than 20 billion in turnover, aims to ensure that a state can tax non-resident companies regardless of whether they have a physical connection with that one. In fact, Amount A refers to the significant digital presence. The companies concerned, with a profitability exceeding 10% of turnover, will have to reallocate 25% of the excess profit to the countries where revenues are made.
Ifrs principles, transfer pricing rules and compliance will guide the process. Amount B is aimed at identifying a fixed remuneration for distribution and marketing activities. The extractive industries and the financial world are excluded. Double taxation will need to be managed with an ad hoc convention, “outside” the treaties, to be grafted onto the complex balance of taxation powers of individual states.
Pillar 2, to stem arbitrages, provides for the application of an effective minimum tax of 15% for companies with more than 750 million in turnover. These are the Global anti-base erosion rules (Globe) with two interconnected mechanisms, (i) an Income inclusion rule (Iir), which imposes a top-up tax on the parent company in relation to poorly taxed profits and, (ii) a support of the Iir, if the top-up tax does not apply, an Undertaxed payment rule (Utpr), which limits deductions and provides for adjustments. In addition, a Subject to tax rule (Sttr) agreement is envisaged for taxation at source on flows taxed at a rate of less than 9 percent.
On December 20, the OECD issued guidelines on Pillar 2, which consist of 10 chapters, followed on December 22 by a proposal for a directive that the Commission intends to finalize in mid-2022 with the transposition regulations of the Member States to be adopted at the beginning of 2023, in order that they adapt in a coordinated and diligent way to the new principles. The proposed directive clarifies that the Cfc (Controlled foreign companies) rules, which allow the taxation in a country of income allocated in low-tax jurisdictions, apply as a priority with respect to Pillar 2. The theme of the interaction between Cfc and Globe follows that of the compatibility of the latter with the US Gilti (the Global intangible low-taxed income aimed at intercepting income from intangible assets that is poorly taxed and different both in terms of rate – 10.5% against 15% – and as a basis for calculation). The accession of the United States to this project is the primary reason for its success and therefore it will need to be monitored these balances.
