International Taxation

Session 1: Basic international tax principles: Legal framework and international

regulating institutions: The OECD Tax treaty model. Other tax treaty models. The
multilateral treaty model Tax planning: Where we are now.

Controlling Bodies
● OECD; European Commission
● in 2018, OECD: introduced 15 measure for countries to avoid tax avoidance
● EU Commision: Directive 2018, n1 and 2018, n2
● A lot of control: through social media, public opinion→ support for anti-avoidance
measures that are pushing for tax planning

Introduction and Principles

● IT: taxation when there is more than one jurisdiction that wants to tax the same income
● Example: Spanish person living in San Sebastian (country B), but having a house in
France (country A)
○ Double taxation is an obstacle to international trade and business
● Points of connection/ Nexus: the link between the 2 countries (country of residence and
country of source). Elements:
○ Residence
○ Territory/Source: the normal one
○ Citizenship
■ US the only country that don't follow the standard rules
● General principles: Residence always prevails

Hierarchy of laws- Sources of Taxation

● Internal laws
● International Tax treaties: our main source of analysis
● EU Directives: will affect internal law

Application of Tax treaties vs domestic law

● tax treaties: OECD model → will prevail
○ when something is not covered by the treaty, you look at domestic law

International Tax Treaties

● Residence: privilege of the tax treaty that your country has signed
● OECD Model: used for the conclusion of treaties

Country of Residence (CR)

● You cannot be a tax residence (paying taxes) of 2 countries at the same time as resident
if they have a tax treaty
○ Citizenship can be double, Residence NO
● Elements to establish residence:
○ Center of vital interest/ center of economic interest
○ Spending 183 days → standard rule (in SP)

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 ■ US: they look backwards in the last 3 years
■ UK: also look backwards

To establish Residence for individuals:

1. Permanent home → will prevail
2. if not, Center of Vital interest (CV) → there can be more than 1
a. where you have a property
b. where your biggest wealth is
3. if not, Place of abode: where someone lives
4. if not, Nationality → because you can have double nationality

Session 2: Structure of the OECD tax treaty model. The concept of tax residence

Words important to tax law which cannot be translated:

● Substance
● Business purpose
● Beneficial ownership
● passive income= the ones that result from interest, dividends, capital gains
● active income= income coming from activity (work, labor, income)

Establish residence: especially performers (high net income individuals) chose carefully where
to establish their residence

Special Regimes offered by countries to reduce taxes

● accepted by the EU and the international scenario

UK “Resident Non- Domiciled regime” (positive election and changed in 2008)

● Non-Domiciled in the UK→ foreigners only pay taxes on the income generated in the
UK, not on the income generated outside.
○ Advantage for rich people who can keep their income elsewhere and as long as
they do not enter in the UK → the income will not be taxed
● Territorial taxation
● Advantages for UK: more money

SWITZERLAND
● CH Forfait Rule → for non-Swiss nationals
○ The special rules allow foreign nationals relocating to Switzerland to pay tax on
their worldwide expenditures, subject to an annual minimal base payment.

SPAIN: “Beckham Law”- effective as of 2003, amended in 2016

● Beckam law: aimed at all foreign workers (particularly the wealthier ones) living in
Spain. Such individuals become liable for Spanish taxes based on their Spanish income
and assets but avoid such taxes on their non-Spanish income and assets.
○ all the money abroad → are not taxes
○ not available for Spanish nationals
● Timing: 5+1 → 5 years + initial year when u come in

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PORTUGAL: “Non-Habitual Residency” (effective as of 2009)
● “Non-Habitual Residency” (effective as of 2009)
● Scope
○ All individuals becoming tax resident in Portugal
○ Not resident in Portugal during the previous 5 years
● Treatment
○ Exemption for foreign sourced income (including pensions) to the extent that
there is a potential tax liability in the source State
■ Problem: territorial taxation
○ Reduced 20% income tax rate on Portuguese sourced salaries, business and
professional income arising from high added value activities of a scientific,
artistic or technical nature
● Time limitation
○ Qualifying individuals can benefit from the regime for no longer than 10 years

ITALY: “Lump- sum tax regime for New Residents” (2017 Budget)
● Scope
○ Foreigners who relocate to IT and returning Italian citizen who have been tax
residents abroad
○ Not resident in IT for at least 9 of the past 10 years
● Treatment
○ No Italian taxation on foreign sourced income, to the extent that a yearly
€100,000 substitute is paid
○ Capital gain arising out of the transfer of significant interest in foreign
companies generated in the first 5 years are subject Italian statutory taxation
(which however grants a 50% exemption)
○ Gift and inheritance tax due only on assets and rights existing in IT
● Time limitation
○ Qualifying individuals can benefit from the regime for up to 15 years
○ Election ceases automatically in case of non-payment of the substitute tax

Tax Treaty
● countries without tax treaties → risk of double taxation because there are no tie-break
rules

Case 1: Super-Performer
● Mr. X is a top rider in all motorbike events, from Moto GP to the Dakar rally.
● He obtains income for the sponsorship and endorsement of several trademarks and he
also makes money with the Moto GP championship, which means he has to travel
worldwide and he does not say more than a month in the same place.
● He has no family and he has a house of his property in Spain,
● He is today paying taxes as tax resident in Spain but would be open to listen to ideas
that could improve his tax position and which conditions or limitations has to his lifestyle.

Suggestions

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 ● “Resident Non- Domiciled regime”: Non-Domiciled in the UK→ foreigners only pay taxes
on the income generated in the UK, not on the income generated outside.
● ITALY: “Lump- sum tax regime for New Residents”

Session 3: Business profits and Permanent establishment. Difficulties of PE in the digital

economy. Changes in concept by OECD

Exit tax
● For assets or individuals moving their residence
● You can leave one country for another, but you will still have a debt with the country
where you lived→ because you created wealth in country in A and then moved to
country B to sell shares
○ a custom to pay for moving in another country
○ it is the increase of value that was created in country A that has to be taxed there
● Problem: Can be against the free movement of capital
● Solution, but problem of double taxation: no need to pay when you leave, but at the
moment of selling
○ Spain vs Germany tax treaty: if you sell shares where you have more than 25%
within the 5 years you moved → both countries have the right to tax → there will
be double taxation

Tax Residence in Corporations

Dual Residence and “tie-breaker” rules
● place of effective management
● place of incorporation
● domicile/ legal address
● business place

The Jurisdiction where the corporation is tax resident → they will tax worldwide taxation
● this means growth for the country
○ e.g. Ireland with Apple → the EU Commission required the country to tax the
corporation
○ Luxemburg: gives a lot of tax advantages to corporations set their headquarters
there
● Rulings provide certainty → to create a set of rules → is not only a consultation, but is
creating a special tax regime → not acceptable

The EU Commission: Consolidated tax payment

● A company in France pays the consolidated tax in France:
○ Multinational in FR with subsidiaries in IT, UK, SP
○ Now: the subsidiaries pay taxes in their respective jurisdiction, and then in FR
they pay tax on dividends
○ Future proposal: all the taxes are paid in the headquarter (FR) and then it is FR
that will fairly distribute the tax liability in the different countries
■ objective: EU as a closer union → not realistic because very complicated

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Session 4: Specific anti-avoidance rules (SAARs)

a. CFC (controlled foreign companies) legislation

● Goal: countering international tax deferral
● Rationale: the parent corporation’s State of residence’s income taxation is extended to
foreign subsidiaries’ income, regardless of the circumstance that such foreign-sourced
income has actually been distributed or not
○ Result: the income of the foreign company is taxed automatically in the hands of
the parent company
○ CFC rules usually apply to income earned and accumulated in foreign entities
located in certain specified low-tax jurisdictions
● Methods:
○ Piercing the veil approach (CFC considered as a tax transparent entity)
○ Deemed distribution of dividends approach
● Triggering factors to adopt CFC:
1. The controlling interest – foreign company is controlled by a resident taxpayer
a. But no minimum threshold → set by each MS
2. Nature of the CFC’s income- most of Foreign company income is passive
income (financial income) because it is easy to transfer intangible sources of
income
3. Foreign jurisdiction’s tax burden- When there is a low tax jurisdiction – below a
certain threshold (e.g. 12%)
a. Triggering factor (1) is the prerequisite for the application of all CFC
regulations
● Fall within the scope of application of CFC legislation: companies, partnerships, trust,
etc.
○ PE are normally excluded, as the RC of the headquarters taxes the profits
produced by the PE under the worldwide taxation principle

b. Transfer pricing regulation (TP)

● = When values of transactions between associated corporations (in 2 different CSs) do
not reflect market values (i.e. do not reflect arm’s length’ prices, so the market value)
● Charging improper prices on transfers of goods or provisions of services might result in
an artificial and unjustified shift of profits from one county to anotherà where the tax rate
will be lower à taxable base erosion à tax avoidance
○ Incentive to concentrate costs in a high-tax jurisdiction and profits in a low-tax
jurisdiction
○ Complication: 28 states in the EU with different domestic income tax rules
● Goal: Alling the intra-group transaction with the market value & countering profit shifting
and base erosion
● How: identification of the arm’s length value (price) and the consequent adjustment to
the taxable base of both the associated enterprise
● Arm’s length value: Price normally charged upon transactions between unrelated
parties in comparable circumstances and under comparable terms and conditions
● Identification’s approach under DTTs: Comparison between the intra-group transaction
and the transaction between unrelated parties

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 ● Three pillars:
○ Separate entity approach
○ Relevance of contractual arrangements
○ Comparability
● Sources of TP regulation:
○ Double tax treaties
○ International standards and guidelines
■ OECD Guidelines on Transfer Pricing (latest version issued in 2017
■ UN Guidelines
■ OECD Report on the Attribution of Income to Permanent Establishments
○ Domestic legislation
○ Domestic administrative regulations and guidelines
● With respect to DTTs, the rule of applying “arm’s length prices” is contained both in:
○ Article 7 (in respect to transactions between an enterprise and its PE)
■ §3: Where a State adjusts the profits attributable to a PE and taxes
accordingly the profits, the other State shall make appropriate
adjustments to the amount of tax charged on those profits in order to
eliminate double taxation
● Article 9 (in respect to transactions between separate legal entities that are connected
with each other, e.g. between a parent company & its subsidiary company or between 2
subsidiary companies)

Why is the digital economy making so much money without paying taxes?
● A company is tax resident in SP, trying to do business in FR:
○ Business income in a specific country with no PE→ they will not pay taxes there
■ need of review of the concept to the PE
○ Passive income: dividends, capital gain, royalties, interest, passive rental
■ split of taxes: part of the tax is paid in the Source country, and the other
part in the Resident country
● art. 11: interest
● art. 12: royalties
● art. 13: capital gain
● art. 10: dividends

Art.5: Permanent Establishment

1. Fixed: permanent → >12 months, some countries >6 months
2. Place: there must be a location→ not existing in digital economy because there is no
material things
3. Business: core activities. Everything which is auxiliary or preparatory activities is not
business-related
a. what has been abused (e.g. warehouse is not PE because they make ancillary
activities)

Session 5: Tax residence

● Sometimes: the passive income only suffer one tax, that is divided in 2 countries:

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 ○ 10% in country A
○ 15% in country B
● General Rule: No tax at Source, only in the Residence country

Step 1: Residence
● Individual: (1) where you have your home. (2) permanent house. (3) center of vital
interest
● Corporation: the place of effective management
Step 2: if I do business abroad, I don't want a PE
Step 3: I do not want to pay taxes at Source to pay the tax on passive income only at
Residence → I will analyze the bilateral tax treaty to see which one do not provide for taxation
in the SC
● treaty shopping: looking for the best treaty

BEPS: addressing tax avoidance on digital economy

Session 6:

Permanent Establishment of the Agent

● Dependent Agent Art. 5.5: is also a PE
● 2 requirements for an agent to be a PE:
○ Power of attorney: capacity to close contracts on behalf of the company
○ Dependent economically: when you are not taking risks on your own, or if the
company is 90% of your income

Session 7: Intra-group transaction: related parties → Passive income

Passive income vs Expenses

● there are taxes on both of them
● Why is tax planning important?
○ moving income in a low tax jurisdiction
○ moving expenses in a high tax jurisdiction → because they reduce my taxes on
profits
■ when CS have high corporate tax they attract expenses

Transfer pricing regulation (TP)

● moving income & expenses from one country to another
● = When values of transactions between associated corporations (in 2 different CSs) do
not reflect market values (i.e. do not reflect arm’s length’ prices, so the market value)
● Charging improper prices on transfers of goods or provisions of services might result in
an artificial and unjustified shift of profits from one county to anotherà where the tax rate
will be lower à taxable base erosion à tax avoidance
○ Incentive to concentrate costs in a high-tax jurisdiction and profits in a low-tax
jurisdiction
○ Complication: 28 states in the EU with different domestic income tax rules

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● Goal: Alling the intra-group transaction with the market value & countering profit shifting
and base erosion
● How: identification of the arm’s length value (price) and the consequent adjustment to
the taxable base of both the associated enterprise
● Arm’s length value: Price normally charged upon transactions between unrelated
parties in comparable circumstances and under comparable terms and conditions

1. Interests
● 2 -sided coin: is income for the lender; and an expense for the borrower
● Lending countries in: low-tax jurisdiction (e.g. 1) or tax haven (e.g. 2)
● Example 1:
○ Company A in Ireland with low tax (12.5%) and Company B in UK with high tax
(25%)
○ A is giving a loan of 100 to B → income taxed at 12.5%
○ B is paying an interest to A → expense taxed at 25% that can be deducted
● Example 2:
○ A (FR) gives the money to C (tax haven:no corporate tax) and then C lend the
money to B
○ on the income of C there is no tax + you are deducting the expense of the loan

A. Hybrid Loans
● prohibited by EU Directive
● one country sees it as a loan, another one as equity
● Profit-sharing loan: the definition of interest is based on the performance of the
business
○ in country A is equity, so dividends (exempt from mother company and
subsidiary)
○ in country B is a loan
■ because the countries consider them differently

B. Intra- group transactions: interests

● A (mother company) gives a loan to B (subsidiary) in exchange of interest → tax
deductible
● A gives equity to B and the remuneration are dividends → not tax deductible

2. Royalties
● right to use or resell in the market

3. Capital Gain
● Exception: CG on real estate will be taxable where the real estate are located
● RC as tax on site
● I can change the real estate in movable with shares→ tax authorities will not allow and
will make you pay taxes where the real estate is
4. Dividends
● are tax exempt

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Session 8: Transfer Pricing: on the limits of tax planning → How transfer pricing has
become the leading and more complex tax planning area for Multinationals.

Most common SAARs

1. CFC (controlled foreign companies) legislation
2. Transfer Pricing Regulation
● When values of transactions between associated corporations (in 2 different CSs) do not
reflect market values (i.e. do not reflect arm’s length’ prices, so the market value)
● Charging improper prices on transfers of goods or provisions of services might result in
an artificial and unjustified shift of profits from one county to anotherà where the tax rate
will be lower à taxable base erosion à tax avoidance
o Incentive to concentrate costs in a high-tax jurisdiction and profits in a
low-tax jurisdiction
o Complication: 28 states in the EU with different domestic income tax rules
● Goal: Alling the intra-group transaction with the market value & countering profit shifting
and base erosion
● How: identification of the arm’s length value (price) and the consequent adjustment to
the taxable base of both the associated enterprise
● Arm’s length value: Price normally charged upon transactions between unrelated
parties in comparable circumstances and under comparable terms and conditions
● Identification’s approach under DTTs: Comparison between the intra-group transaction
and the transaction between unrelated parties
● Three pillars:
o Separate entity approach
o Relevance of contractual arrangements
o Comparability
● Sources of TP regulation:
o Double tax treaties
o International standards and guidelines
§ OECD Guidelines on Transfer Pricing (latest version issued in
2017)
§ UN Guidelines
§ OECD Report on the Attribution of Income to Permanent
Establishments
o Domestic legislation
o Domestic administrative regulations and guidelines
● With respect to DTTs, the rule of applying “arm’s length prices” is contained both in:
o Article 7 (in respect to transactions between an enterprise and its PE)
§ §3: Where a State adjusts the profits attributable to a PE and taxes
accordingly the profits, the other State shall make appropriate
adjustments to the amount of tax charged on those profits in order
to eliminate double taxation
o Article 9 (in respect to transactions between separate legal entities that
are connected with each other, e.g. between a parent company & its
subsidiary company or between 2 subsidiary companies)

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Art. 9: Associated Enterprises
● 2 associated enterprises: parent-subsidiary companies or sisters’ companies → the
value of a transaction between these enterprises differs from that which 2 independent
parties would reach, if they operated in a competitive market.
● §1: allows the tax authorities to disregard the values listed in the financial statements if,
owing to the special relationship between the enterprises, the accounts do not show the
true taxable profits arising in that State.
○ Adjustment by the tax authorities of one CS (increase in taxable profit)
● Problem: economic double taxation, unless the tax authorities of the other State
acknowledge some compensation
○ The only art. which deals with economic double taxation
● §2: Solution: where an enterprise (in State R) include in its profits also the profits made
by another enterprise (in State S) which were already taxed in State Sà then the tax
authorities of State S are entitled to make a corresponding adjustment (reduction of
taxable profit of the corporation resident therein)

Advice/ Advance Ruling

● Issued by the tax authorities before a specific transaction (or a set of transactions) takes
place
● Provides certainty about tax treatment
● Countries would prefer to have their tax authorities validating their TP mechanismà to
avoid ex-post risk assessment
● This procedure isn’t easy since it takes time & even if you negotiate and receive a
validation from the tax authorities of one of the CS, maybe the other country might not
agree to validation

Advance Price Agreement (APA)

● Advance ruling on intra group transfer pricing policies to negotiate a:
o Unilateral
o Bilateral
o Multilateral (really hard)
§ Transfer pricing agreement

Example of transfer pricing issue:

1. 2 companies belonging to the same group à typical base erosion profit shifting from one
jurisdiction to another one
a. Corp. A (controlling shareholders): resident in Ireland à CIT: 12,5%
i. Corp. A sells Italian manufactured shoes to clients all
over the world through e-commerce channels, at the price
of 100 € a pair. In fiscal year 2018, its gross revenues from
the sale of the shoes amounted to €100.000
ii. During the same fiscal year, Corp. A incurred marketing,
salary and management expenses amounting to €20.000
iii. Corp. A remunerated Corp. B for its manufacturing work
b. Corp. B: resident in Italy à CIT: 25%

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 i. Corp. B fully belonging to Corp. A à intra group
transaction
ii. Corp. B manufactures the shoes which are then sold to
Corp. A
c. In 2018, the total price charged by Corp. B for the manufacturing services
amounted to 30.000, the price usually charged for the same type of service by an
independent IT enterprise (comparable) having the same features as Corp. B
amounts to 50.000
d. In 2018 Corp. B incurred salary, raw materials and other expenses of a total
amount of €25.000
● Tax rate in IT is higher than Ireland
● Corp. A= revenues- cost= 80.000 (taxable base)
● Corp. B= revenues- cost= 5.000à SO charging a lower taxable base of the arm’s
length value (= the price that 2 independent parties would have charged in real
life transaction)
o IT has an interest in increasing the prices à so the taxable base because it has
been eroded
o Corp. B will make the adjustment based on TP regulation in Art.9 à Increase
the taxable base to €20.000 à which were already taxed in Ireland à then
Ireland has to make the adjustment
§ Methodology for tax adjustment up to IT
o To avoid economic double taxation: Ireland make the corresponding
adjustment, decreasing the taxable baseà BUT Ireland has no interest in
making adjustment
§ Because if they do, the amount of money the Irish administration
receives is less (as a result of the adjustment)
● Tot. group profit margin is taxed in Ireland à higher net profit margin
o Lower than the market price- arm’s length price
● The transaction is possible because there is no conflict of interest since
belonging to the same groupà the whole group will benefit
● The loser: will be the RC à IT because is not taxing something it is entitled to
o Corp. B is not a looser because part of the group
● The comparable transaction:
o Upward adjustmentà Increase by 20.000 (the original revenue of 30.000) to
arrive to the market valueà 50.000 by Italy (the most difficult value to find)
o Downward adjustment à Ireland should lower its revenues otherwise we will
incur in economic double taxation
2. If Corp. B was independent:
● Difference if they did not belong to the same group: The after-tax profit margin
o More profits are taxable in ITà Corp. B would pay much more taxes

Session 9: Tax planning of big Digital economy. Special taxes on the digital economy.
Intangibles.

● Rules in the DTTs are not consistent for this new market
● Digitalization of the global economy: (in terms of market capitalization)

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 o 2006: 7% (1 high-tech company out of top 20 business)
o 2017: 54% (9 high- tech companies out of 20 business)
● Annual revenue growth of largest MNE (2006-2017)
o Type of MNE:
§ Digital → 872 (tot. revenue) → 14.2% (annual revenue growth)
§ IT & Telecoms → 2901à 3.1%
§ Othersà 5682 → 0.2%
● Per-year revenue growth of retailers (2008-2016 period)
o Top 5 e-commerce retailers (i.e. Amazon): 32%
o Entire EU retail store: 1%

Fixing the system or developing a new system?

● Reform of the existing international corporate tax framework
o G20/ OECD BEPS project
o EU introduction of the significant digital presence
● Development of new taxed and new tax framework
o Unilateral measure
§ Diverted profit tax (UK, Australia)
· Tax on diverted profit from the SC
§ Equalization tax (India)
§ Withholding tax (IT)
o Multilateral measure

Development of new taxes and new framework

1. Diverted profit tax
a. UK & Australia
b. Charge (25% in the UK, 40% in Australia- higher than standard corporate
income tax rate) on MNE’s profit which are deemed to be diverted from the
SC
c. Scope: UK- sourced or Australian- sourced profits of non- resident MNEs
with a significant presence in the SC but which arranged their affairs so as to
avoid having a PE therein, or make payments which lack economic
substance (or end up in a low tax company that lacks the economic
substance)
2. Equalization taxes (web tax/ digital service tax)
a. Scope of allocation: companies with a significant economic presence in the
SC (up to MS to decide the threshold)
b. Tax the revenues → special excise tax
i. Compensation for “lost” profit taxes
c. No issue of TP à tax on the value of the transaction immediately
d. No DTT issues à because the tax is not an income taxà excluded from the
scope of the DTT
e. Scope depends on policy priorities (transactions concluded remotely with
local customers; data or other valuable contributions provided by local
customers)
f. 1st country to apply it: India

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 i. 6% charge on B2B payments for digital
services to non- resident service providers
ii. Base: transaction value (revenues)
iii. Scope: online advertising, digital advertising
scape & other similar transactions provided to
resident businesses and PEs of non-resident
businesses by non-resident enterprises
iv. Significant economic presence threshold:
aggregate value of consideration in a year exceeds
approx. USD 1500
1. Example:
a. Foreign company which makes online advertising
services for an Indian business
b. The aggregate amount is > 1500$ → so WTH 6% tax
g. IT, GR, FR advocate for an EU wide equalization tax- EU Commission’s
proposal for an EU digital Service tax (2018)
i. Scope: enumerated digital services (online
advertising, sales of goods and provision of service
through a digital platform, transfer of data collected
through digital platform)
ii. Base: transaction value
iii. Rate: 3%
iv. Minimum threshold of application: €750
million of annual global revenue & €50 millions of
EU annual revenues from digital services
v. Payment:
1. Unlike in India: where the payment of the tax is for the
recipient of the tax
2. In this case: the payment of the tax by the service provider
vi. Effective date of application: 2020
h. IT: web tax
i. Scope: enumerated digital services (online
advertising, sales of goods and provision of service
through a digital platform, transfer of data collected
through digital platform)
ii. Base: transaction value
iii. Rate: 3%
iv. Minimum threshold of application: €750
million on annual global revenues and €5,5 million
from digital services
v. Payment: by the service provider
vi. Effective date of application: 2019
i. FR: Identical tax- passed
j. SP: identical tax- proposal

Taxing the digital economy: is the Digital Services Tax the right solution?

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EU Directive Proposal for a Digital Services Tax 2018
● Equalization Tax on turnover of digital companies taxable on: “all untaxed or
insufficiently taxed income generated from all internet-based business activities,
including business-to-business and business-to-consumer”;
● Enforcement:
○ MS will impose tax on the service provider based on where the users are
located- burden not on the clients
○ Self Assessment: taxpayer operating with tax liability in multiple member
countries will be entitled to identify and pay the tax only in 1 country;
○ Avoiding double taxation: can deduct the DST from the corporate tax base.
● Legal issues
○ Legal basis: Art. 113 of the TFEU
○ EU Institution complications to regulate direct tax
■ Could be proposed otherwise as an indirect tax- easier to legislate.
○ Issue with Self-assessment:
■ Art. 20 & 23 of the proposal provide for mechanisms of cooperation
among tax authorities,
■ Art. 18 & 24 of the proposal states that the Commission should
coordinate such monitoring activity;
○ Differing accounting standards:
■ IFRS includes general accounting standards but jurisdictions could differ
■ Tax havens with little financial transparency
● Economic Issues with the DST
○ Applies only to service providers excluding MNE’s who make use of other digital
services such as data collection
○ High risk and proof that MNE’s usually pass this tax burden on to the consumers;
○ DST could also create an unjust discrimination between taxpayers with an EU
taxable presence for income tax purposes and those without a taxable presence
in Europe;
○ Taxable presence: may deduct from the corporate tax base
○ Unclear whether the DST should follow cash or accrual accounting to identify
when the tax is due.
■ In which stage of the provision of the digital service should the tax fall
due?--> uncertainty could give rise to DT

Conclusion and Current situation of the DST

● Italy is the first country to have initiative towards implementing the DTS following the
proposal of the EU Commission, Spain has also shown initiative.
● Mounting opposition of Ireland and the Nordic Member States → for this reason the
development of the proposal is on hold;
● Opposing views on the DTS - causes a detrimental scenario within the single market
amongst EU countries since it can increase tax uncertainty, destabilize the level playing
field and open new loopholes for tax abuse.

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Session 10 & 11 Instruments used for tax planning:
1. Trust
● useful for legal, tax reasons and for collective investment
● they can have consequences in your country
● most of the charities have the legal form of trust (e.g. Red Cross in the US)
● private foundation: exist in GR; FR, tax havens → similar to a trust but normally
dedicated to family offices
○ money that the fundor put there, for the benefit of the family
○ does not exist in SP → “fundación”: it implies a social aspect and they cannot be
private
■ in SP, family wealth is normally reunited in: holding company, limited
liability company
● When to create a trust or a foundation? → e.g. in the US
○ trust: when you put aside some money for a specific person that has, for
instance, an handicap or to put aside money for your children
■ tax regime for a trust: it will be based on the tax regime of the country
where the person receiving the the trust is resident
■ the tax regime of the country where the trust is located will normally be
transparent

2. Partnerships:
● an investment fund is like a partnership
○ in europe is more used SICAV
○ in US: limited liability partnership
○ LLC in the US: in fact, they operate as a partnership. A company fully
incorporated in the US, but does not pay taxes. Taxes will be paid on the income
of the individual owners of the LLC for the US-income obtained
● In the US for allocation of income → K1 form: a tax form where you say who are the
shareholders, and what is the allocation of income
● useful for investors that make passive investment and have no interest in the
administration
● exist in SP but they are not usual to do business
● they are really common for the investments abroad and the tax structuring
● Advantages:
○ do not need to have the same % of share capital in relation to the profit that you
take out from the investment company
■ because of party autonomy in the rules of allocation of income: the
owners are free to decide the allocation
○ common for collective investments
○ in most of the countries (US, UK): partnership are not taxable (neutral because
it is a vehicle for collective investment)
● Limitation:
○ high regulatory authorization price
● when the partnership makes a profit, every year, that profit will be allocated to the
member of the partnership → the allocation follow specific rules that are set under party
autonomy

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 ● waterfall: distribution of profit in different levels
○ first level, shareholder kind A
○ second level, then B

Hybrid structure
● if shareholder, domiciled in country A, receive through allocation its profit from the
partnership (neutral) located in country B, but country A does not recognize a
partnership as a corporate structure, then there will be no tax → BEPS had to change
this situation
● prohibited in SP in the law since 10th of March 2022 → before only in the jurisprudence
○ Part II of the Anti- Avoidance Directive

Session 12
Case on Interest- deductible
● planning for digital economy companies: through their corporate structure do not
have a PE, but they conduct business in a really similar way → they only pay taxes on
the chose RC
○ they can control what to pay in taxes
● hybrid structure: a mismatching between country A and countr B → structure designed
for which one country see it in a way, and the other country in a different way
○ Example:
■ A Spanish person wants to invest in buying a house in Italy. They do it
through an US LLC:
● US: LLC- corporation that is transparent (do not pay taxes on
US-income)
○ the US LLC invest in italy in a villa and rent it→ the profit
goes back to the US LLC → there is no tax on US-income
■ the spanish person will have to pay taxes only on
the income generated in the US, but probably there
will be a tax provision preventing taxation
● Direct investment: dividends payment from IT to SP
○ SP person that has an IT company that has a villa in Florence → if the SP dies,
they will have to pay inheritance tax on the house located in Florence
● Indirect investment:
○ SP company investing in italy (house in florence) through an US LLC → tax
neutral no inheritance tax

Tax authorities→ for anti-avoidance will look after:

● economic substance
● business purpose: more difficult because it is a subjective assessment
○ objective analysis (like in the US): look at the consequences of the transaction
● artificial means: there must be a change as a consequence of the transaction,
otherwise is artificial

Session 13
Tax schemes:

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 A. Advantages of having a Holding company:
1. Capital Gains are not taxable
2. Luxemburg, Netherlands have a lot of beneficial tax treaty
3. the holding is EU tax neutral
4. tax treaty network

Passive vs. Active Holding: OECD Model

● Active: when you dedicate time and you carry out activities and give services and control
subsidiaries
○ needs to have economic substance (people, office) → not artificial to look for tax
advantage
● Passive: the risk they might not benefit from the Directive

Why headquarters in the EU? → it is practical for time zone

B. Friendly companies (tax friendly)

● Spanish company and Tax heaven company, owner of a tequila brand
● Spanish company is going to have a lot of problems just by having an agreement on a
Tax heaven country
● You put a company in between
● The company is in between = commissioner
● It is a commissioner agreement with the tax company
● The company gets a commission
● Commissioner Agreement: you give me the right to sell, and I will give you back 95%
of what I get.
● Silent agreement
● the RC will almost not tax
● tax heaven: will tax the 95%

C. An individual from IT createx a company in a cheaper place → British Virgin Island

(registered and listed like a classic tax haven) → to buy a property in the US
● that company will protect you from US inheritance tax
● in the US is acceptable, but not in EU
● option available only to non-US citizens

D. Loan out:
● 10 million
● The actor pays 10% to his agent + 5% of the lawyer fees
● You receive a net income of 8,5 million.
● No deduction bc acting is a labor/working profession, those expenses are part of the
profession
● Structure by the authorities: loan out company you create a Corporation and then the
corporation makes an agreement with the studio. The studio pays the corporation and
the corporation pays the actor.
● You use the corporation to exclude the expenses the expenses are tax deductible for the
company.

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 ● With this structure, you pay taxes on the net, after having deducted the amount that you,
as an individual, cannot deduct.

Session 13
Digital economy:
● concept of PE is not enough

RESIDENCE: you know how you will be taxed and then you look at the int treaties:
● Business income (the effort to avoid having a PE):
○ no PE → no tax in the SC, only pay taxes at home RC
○ PE → how much of that business income is allocated to the PE? hard to
calculate
● Passive income: interest, dividends, CP, royalties → intangible and interest
● Others:
○ Employee: the problem of teleworking → normally you are taxed where your
working place is
■ Now: the country that pays my salary and where I live are normally
different: tax residence is in SP, but receiving the salary from a foreign
company
● If you live in a country more than 183 days → this is the rule
○ withholding tax (is taxed at source) on the salary
○ Based on the int treaty→ I have a treaty protection
because the withholding tax cannot be imposed in the RC
○ If I still have to pay tax in both countries:
■ In FR: withholding tax
■ SP: my final tax on my income
● then I can apply to receive back the money
paid in the withholding tax
Art. 17 OECD: for Performers
● musician, sportspeople, actors
● taxation is not based on RC, but where the performance is done
● How do we calculate the tax?
○ in SP: tax of 24% of the gross income→ 2M fee for production (everything=→
the SP tax authorities will tax on the 2M but in reality my profit is 1M → im paying
48% of tax

Art. 17: Entertainers and sportsmen

● Non-exclusive distributive rule attributing priority to the country of Source (where
the activity is carried out)
● No threshold as to the time spent by the taxpayer there
● If the manager acts on behalf of the player → the manager will be covered by this art.
○ Treatment extended to employer of the entertainer or sportsperson (e.g.
management company, orchestra, or “rent a star” company): no need for a PE
● Not covered:
○ Supporting staff
○ Royalties for exploitation of the brand name

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 ○ Remuneration for being a commentator

Anti- tax avoidance rules

● Allow tax authorities to disregard or re-characterize certain transactions.
● In spite of the differences existing in the tax laws of States, anti-tax avoidance rules can
be categorized into: general anti-avoidance rules (GAARs) and specific anti-avoidance
rules (SAARs).
○ GAARs are anti-avoidance clauses that have a potentially unlimited scope of
application, they are imprecise and require case-by-case application by the Tax
Authorities and tax courts considering: business purpose, economic substance
and artificial (more typical of Common law countries).
■ Tax authorities in Civil law: concept of simulation to go against a lot of
strategies
■ Advantage: catch all provision → unlimited scope of application, but high
discretion to tax authorities → substance over form
● The tax authorities have the possibility to challenge tax payers’
behaviors
■ Problem: very broad, issue of legal certainty
● You don’t know in advance which type of transaction is covered,
but, at the same time, it is easier to update them
○ SAARs are normally clearer and more precise than GAARs, as they aim at some
targeted tax planning techniques à specific form of transaction, MNE
transactions (there is more legal certainty)
■ SAARs are anti-avoidance provisions contained in domestic tax laws,
which aim at denying the tax benefits associated with specific form of
transactions
■ Advantage: We know in advance which type of transaction are covered
● E.g. CFC legislation, TP regulation → tax planning for
multinationals), exit taxes
○ TP: how to determine the prices within your group
companies
○ The invoice from A (10%) to B (30%) will be high, so that
the income stays in the jurisdiction with lower taxes (10%)
○ You charge a company that is doing a part of the product
bc is a low tax jurisdiction → you have to support that for
the tax authorities !
■ Both aim to avoid aggressive tax planning
■ You need to see if it is aggressive, and if you
benefit from tax planning
○ Case of Ireland
■ Barbados: 0%
■ Ireland: 25%
○ CFC- Control Foreign Corporation
■ when you create a passive company (no business)
with passive income (charging royalties)

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 ● the income of the passive company
(located in a neutral tax country) will have
to be taxed in the holding company → to
not escape taxation
○ Exit tax: is changing your tax residence for tax purposes
→ mainly for individuals
■ Problem: new types of transactions are continuously designed by the
market and the list can be outdated
● In many countries there are both rules
○ SAARs prevail over GAARs → SAARs subject to specific procedure

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