Transcript for:
Intercompany Services and Management Fees Insights

[Music] so [Music] [Music] good afternoon and welcome to the second webinar organized by the international business tax center at the european university in rome good afternoon and welcome on from my side first on behalf of professor marco fatsi co-director of the center and on behalf also all our speakers today today we have chosen the topic of intercompany services and management fees and beyond why we have chosen this topic because we believe that there are still many challenges in practice about this topic and all these challenges are due not only to the lack of let's say detailed guidance based on chapter seven of the oecd guidelines but also we say for many other reasons like definitely the increasing complexity of the business model itself of different multinationals but also for certain inconsistency among the you know the transfer price the domestic transfer price rules and the tax audits so of course in all these situations definitely the role of the ocd is a key role because since we do not have a clear guidance on certain topics this can create certain uncertainties in the practice that the multinationals have addressed i have to address on a daily basis so that's why we said that we thought that this is definitely a classical topic about inter-company transactions but still not fully covered or at least still with some huge important tax aspect to be addressed uh the benefit test the supporting documents and so forth so we have many of these aspects that we'll be addressing today and as we did last time the structure of the webinar is the following we start from evanuela santoro actually the original tax director of coca-cola eleni bottling who actually will be proposing a specific case study for this webinar and then we go with professor moreno from university carlos terzo madrid we actually will be addressing redeemed in a broader manner the same inter-company transaction matter with professor are always from universities couple thirds of the third madrid we will discussing about even about the public consultation in 2018 from oecd if whether or not there is updates on that site and then we go again with the multinationals and we go with the doctor ferrari taxi pirelli head of tax promenade we will be discussing again based on a specific case study always following the reasoning after the first case study proposed by manuela santoro and then at the end professor who will be reacting uh reacting on the topic proposed by tyretti and ferrari always abandon company transactions say so i will just inform of the participants that if you have any question of course feel free to use the q a and we will be discussing and discussing the sharing the questions at the end of this webinar so let's start with the first contribution from emmanuella santoro she will be talking about management to his tax issues domestic perspective versus ocd tp guidance please manuela thank you johnny thank you and i start sharing my screen meantime thanks a lot for inviting me for this webinar it's a very interesting topic and i'm happy to have to opportunity to discuss with the old finalists so just confirmation if you are okay um so before going as you mentioned uh we'll we'll discuss about case study mainly i would like to address which are the main tax issues related to inter-company services and in particular to management fee that multinational company has to face in italy and as we will see i will try to just to discuss briefly about the framework and i'm referring to the oecd guidelines and somehow also to the italian italian legislation and i would say no to the italian guidance because actually we don't have it um so let me first introduce the topic um why management fee inter-company services and again specifically management fee are so uh important it's very common for multinational to have to send to to well structured multinational to have a single group company who is acting as a a servicing company so who is providing services to to other uh company of the of the same group uh the reason why uh the reason why the the the multinational structure in such a way some very often are far away from tax reasons it's more linked to business reason so very often there are centralized service providers who are providing um let's say consistent services among the group and try to start under starter standardize the uh the procedure among the group and of course also uh the reduction of cost is one of the reason why has pushed many organizations to have a center services company services providing routine services to the to the other subsidiary i just want to point it out but i'm sure this will be discussed um in more detail in in the next in um in the next uh part that terminology it's very important in this area so in my presentation we're only discussing about management fee related to managerial services because we will see also that in the in the in italian practice and also discussing with the tax authorities and also uh in in the case law somehow sometimes there are even confusion about working um so again even if the reason uh why um multinational company are charging and are structuring a way to have a center service company providing services to other subsidiaries not mainly not the tax tax reason this is a very common issue during the the tax audit with a very straightforward consequence that deduction is not is often disallowed and this if we look from the point of view of the receiving company but of course there is the point of view of the of the servicing company providing services that has to apply the rights arms lens um amstel and remuneration uh and that we will see i think afterwards how this issue may become even more complex when the nature of services moves from simple and routine servers to me to more sophisticated services let me very briefly set the framework and the since we are talking about intel group services involving a company who are based a resident in different countries of course we need to make reference to the oecd guidelines last version but also in the previous version the oecd acknowledged that uh this is a very common practice and the cost that um they could be let's say services uh the cost of providing some this kind of services may be born initially by a parent of a specially designated group member uh so it's a very let's say since the beginning in usd guidelines this practice has been acknowledged and addressed in very detailed manners let's see um but just briefly to summarize which are the the the condition set from by the ocd guidelines to um to allow the um the let's say to allow the service provider to recharge the cost to the other group company first is the benefit test so the service has been effectively provided and the service has to produce a benefit for the receiving company and we know that this condition can be considered satisfied if the company would have asked into the market uh for this kind of services um and it's very important in this respect to let's say make a clear reference to what are the shareholder activities so to share all their services that are the activity performed by the parent company in its capacity as shareholder and uh seems uh the wording very clear but in practice it is not at all and in this case of course shareholder activity should not be charged to the uh to the subsidiary the second test is the arms length price of course once the benefit test has been passed then um the the amount needs to be charged at arm's length um in the in the in the last uh let's say update on the after the the bebs option has been adopted um the the oyster guideline introduced a new chapter with a clear distinction of what can be considered a low value added intra group services and this at least from my point of view was a very welcome uh distinct distinction but actually this distinction was already made by the european joint transfer pricing forum in the report dated already um uh 2011. uh with this new uh chapter actually has been introduced a a simplified approach um from a multinational let's say from from from my perspective working in a multinational um the idea of having a really simple simplified approach to reduce the administrative burden in preparing the old documentation [Music] benefit test it's a very crucial crucial point um but what are the low value added services what we typically refer as management fee i would say at least in in in business context so there should be services with the supportive nature not part of course of core business that do not require use of valuable intangible and do not involve the assumption of creation of significant risk both for the services provider and the service services receive the receiving company so just to make an example we may discuss about a centralized hr function or centralized um accounting accounting let's say team which can provide i don't know guidance or on on accounting principle and so on there are many many examples um once the uh the the simplified test is let's say the simplify approach is adopted uh this should imply that the benefit test should be they should be simple and quicker compared to other services and in particular and this is very important also from a practical point of view um the benefit so the reason why uh the cost is being charged to substitute service subsidiary should not be tested on a case by case i mean on a specific service by specific service but rather the the receiving companies to aggregate a specific category of services and then provide for the benefit test for the category itself which means that in practice you can identify a cost pool including direct adding direct cost and then define an allocation key and then the simplify approach also provide for the markup to be equal to five percent without the need to justify to be justified by a benchmarking analysis um the wording seems very let's say to provide a very clear and very simple solution in practice that this is not the case and we will see why um from from the documentation point of view um using the simplified uh procedure let's simplify approach um [Music] sorry i okay uh in the simplified approach um if they also do documentation should reflect this approach which means that the the company and i'm i'm talking from the subsidiary italian subsidiary point of view who is receiving company from a foreign let's say um for a foreign company part of the same group as to provide for sure documentation uh which explain why the services are considered to be uh on low value added of course the agreements um the calculation that has been made to determine the cost pool so why some direct indirect costs are included in the cost pool and also of course the calculation on how the allocation key has been applied to the to the cost pool again as i mentioned before this was the approach already that was already explained and adopted by the european joint transfer pricing forum and um it's it's very it's let's say uh was interesting to reading again after a few years the uh the report because the european transfer pricing forum was making reference not only to uh the guidelines that makes reference to the reviewer in generally speaking which means both the taxpayer and the tax administration because i would like to to to stress the point that once you are part of the of a multinational group you are not only subject to the tax audit let's say from the tax authorities but you are in many group you are also subject to the internal audit to internal control so all this kind of procedure related to the charging of management fee among the group it's subject also to the internal internal control um and actually this guidance provides very interesting uh interesting point of course first of all they explain um which services should be considered as a low low value added services and is the same more or less the same definition provided by the oecd and in respect to the documentation who is the critical point they suggested that the documentation should be balanced there should be a balance between the level of information requests and i'm referring also of course from from from a taxod point of view um with the low risk nature of the services uh because we need to take into consideration that uh providing the documentation during the tax audit and be sure that all the documentation is compliant um means that during the fisc all the fiscal year there is a bunch of people working and collected information is not an easy exercise so the quantity at the let's say the the the list of documentation that has to be provided needs to be balanced and this to me it's a very important principle that was set in the in european transfer pricing forum documentation uh they should be say using the european wording uh not disproportionate compared to the aim that we want to achieve and this i think is a very important principle that we need to to take in mind uh and they also suggest to have internally a sanity check which means that from from from an internal point of view i'm meaning an internal review but also from a tax from a tax audit point of view it's sunny making a periodically a sanity check means that um you can check if the cost incurred from interco group services are this disprop proportionate or not compared to the overall operating expense um another point that was mentioned is that in the when you are explaining the documentation uh your management fee procedure also description of the audit standard adopted by by the group can be useful to justify um and to support the allocation of the management fee and i will be back to this point also in commenting some italian case law of course the the agreements and uh the the the detail of the gospel it's something that it's uh it's very it's a common um another point that was mentioned very interesting to me is the integrity of the accounting and noting system system again as i was saying before during the audit on the tax audit this can be very interesting to discuss with taxatories because if you agree that my accounting system and my auditing system is compliant with the law and the structure it may be this can be a point in favor of the taxpayer but of course this is not rule in any official guidelines and any italian tax creation let me brief mention about the uh italian italian law about the uh management fee of course they are subject to the general principle for corporate income tax purposes uh costs in order to be deductible need to be errands to the business uh and accrued and since we are referring to um cost charged by a foreign company to an italian company so we are talking about international transactions so transfer pricing domestic legislation apply and it's in line with the with international amslan principle we have the very old but still valid uh circular issue in 1980 uh related to the deductibility of charts pertaining to services and again the two main principle set in the circular are that costs are deductible if you can prove the benefit receive um by the benefit received by the italian company and uh that the function are not the services provide are not uh classified as shareholding services um i think it's also important to mention that in in the recent ministerial degree in 2018 article 7 also provide for the simplify approach in italy for the law uh adding intergroup services as described in the in the in the recent version of the of oecd the ecb model and the definition is exactly the same as in the in the in the guidelines um let me just because again this simplified approach is uh it's been mentioned also in the recent regulation issued in italy about the transfer price documentation where in chapter 7 they make reference to the taxpayer who has to provide if they adopt a simplified approach for inter-group services they have to provide a list of documentation but this of course will be only for the benefit of reducing penalty will not ensure the deductibility of the cost this at least is my my interpretation i think this is right but let me just go to the point of the which are the main audit issue during duty tax audit and just to discuss about the real case um again we are talking about the uh cost for an italian subsidiary who is receiving cost for a for a foreign company what is what is usually challenged by the tax authority is the lack of documentation in providing the um let's say the proof of the benefit received by the italian company by the recipient assessment sometimes is grounded on the general principle that such costs are not ignorant to the activity and if we go sometimes also in some attacks audit the tax authorities has challenged that deductibility um again are based on the general principle of the inerrancy of the cost rather than on the basis of the transfer pricing provision and this is even worse because uh we have to remember that if from one side there is a a a deductibility or non deductibility of cost on the other side in another countries there is the taxation of income so um if the assessment is not performed under the transfer pricing provision uh this may give ra raise to other issue like the impossibility to uh to to to open some uh let's say multilateral agreement procedure or arbitration because let's say they are not grounded on local local uh assessment and on top of this this is very also quite not recent because there are cases also in the past once the tax authorities challenge the non-deductibility of the cost sometimes they are trying also to challenge that also from v80 purposes bte will be not the taxpayer will not be allowed to deductibility on such costs which is completely let's say a wrong application of the general principle on gt because as we remember under the vietnam there is no uh arms length principle unless we are in a very specific situation um and uh the neutrality of pt cannot be um challenge unless uh there are some uh extreme case of uh of uh fraudulent um mechanism on scenario um so again one of the main of the main issue uh again and uh and this is at least my experience on on the last uh over the last year uh the challenge of discussing also with the tax inspector on how to document the benefit and how to document um the the reason of the of the of the cost that has been charged is becoming very very very challenging and um on top of this i would say in the recent but recent but also quite old case law uh also the supreme court has not give us any i would say clear guidance um indeed the supreme court has adopted a case case-by-case approach which means meaning that they decide in a very different way in different in different cases sometimes also mixing and confusing the wording uh there are cases where the supreme court has mixed the concept of management fee with cost sharing agreement creating a lot of confusion and there are cases where the supreme court stated that if you you have the certification issued by an audit firm certifying that the cost has been accounted in the right way and the allocation key has been determined in the right way and this certification is issue in the uh in respect to the annual financial statement approved approval this is a very crucial approve so you should be fine let's say if you have this this certification but in practice um in other case this is not be considered as relevant see let's say yes one of the elements but not a crucial a crucial element um so since i think i'm like like seven seven minutes more uh if you agree johnny i want to just underline from from practical experience the most critical point looking from the perspective again of a subsidiary italian subsidiary receiving costs from a foreign subsidiary um to underline which can be in absence let's say in lack of any clear clarification because so far there are no guidance at all based on the practice what can be the approach first of all collecting a good set of documentation imply uh increasing uh to increase awareness of people in the organization meaning not only tax people because if i need to justify why it cost has been allocated to other countries i need to involve also the ihrp people hr function or i don't know for any other uh function in in the group so um this is something that needs to be spread over the organization uh maybe in light of the recent clarification and the change in the oecd transfer pricing guidelines maybe we can think about to have a threshold so a materiality let's say for which we need to uh we have to collect supporting documentation uh this maybe maybe also a suggestion for the for uh let's say tax authorities to start working of a threshold because it's really uh time consuming for a multinational to collect um information for single cost which at the end are not let's say relevant compared to the turnover or to the other operating expenses i would mention before um of course documentation based on my experience of course needs to be updated on an annual basis and this may require again a huge effort compared to the uh let's say in addition of the other requirement that we have meaning the transfer pricing documentation so this is of course on top of the transfer pricing documentation um the documentation needs to be available of course at the time of the audit by the tax authority so because in my experience even if you have the documentation you were my experience that the tax stores will not be satisfied for sure and they will ask a huge amount of additional documentation so at least to have a first set of documentation at the time of the audit is crucial and and what what we should include first of all of course the service agreement uh the description of the services provided the certificate meant again as we as i mentioned there are some icore decision where the certificate certificate issued by an external audit firm was considered a very good starting point to certify the benefit in the allocation key of course the master filing its master file it's uh it's something that is already let's say we need to have by default uh and of course the reconciliation of the invoice receive and the calculation made uh by by the service provider um but still i want to highlight and then maybe we can uh then discuss with the other colleague from uh from multinational uh so far uh even if the the guidance being updated and we will see with the new uh discussion draft if something will be added uh from a pure italian perspective uh this is a very hot topic it's a very open point for discussion there are no guidance at all and it's it's also very difficult uh during the audit itself to to justify and to uh let's say find a common ground for discussion with the tax auditors because um it's not only for for the tax for taxpayer we don't have guidance but also from from from a tax police point of view they do not have guidance how to perform specific audit on management fee and this is becoming very crucial also for the um during assessment during the audit but also during the litigation in uh in front of the tax court uh so that's all um i don't know johnny thank you thank you manuela thank you for your presentation let me highlight at least two points if i can because all you were talking about the so this is a specific really practical aspect but you know you were talking about increased awareness of people i totally agree on that i would even say also increase of the involvement of the people within the multinational and across a specific transfer pricing procedure for the inter-company services or management fees to be built up from scratch i mean uh since we are in lack of specific detailed guidance from oecd since there is these income inconsistency as we said at the beginning and among the transfer pricing uh domestic rules the tax audit from tax authority often in this uncertainties pre-base so in this case the multi-nations needed to be fully and strongly organized internally in order to substantiate as much as they can all the inter-company services so i agree if when you talk about involvement of the people because you need to involve let's say of the stakeholders about these intercompany services so if for instance we have a centralized management fees problem dp model and we have guys from i.t department of technology department leading for an overall project for the group they may be needed also to liaise with somebody at the local level in order to implement that overall project in the specific country so in this case i would involve the guy in the hq and they would even involve the guy at the opto level because they are aware so i would involve them because they are aware about the project they can provide the further information but the description of the project even the local guy can even provide proof where exactly the benefit is so i would definitely work on that because i think uh a well structured tp model for intercompany services would be really helpful for the multinational waiting of course for any update from the ocd and about the other topic is about the inheritance inherent test and benefit test there is always this kind let's say a mix of confusion between the two especially from italian tax perspective as you were saying and as you experienced so far as well as understood i agree we should be able and hopefully with the support from the ocd we should be able to bring the discussion within a transfer price discussion more the general principle based on domestic tax law so because if we talk about inter-company services if we talk about the benefit to test we needed to understand that to understand that they needed to perform either for this kind of inter company services the function analysis in order even to find the link between the specific service even the value chain in some cases of the group so i think there are at least this topic that you um addressed i are quite interesting in the current discussion about intercompany services and maybe just to conclude and then to we go with the next contribution and maybe i still know that some tax authority is still asking still asking about the support of the time recording system in order to prove the time spent the cost etc so there are seven procedures that we can definitely apply in the multinational yeah if i may add just one point uh johnny because uh you're perfectly right there are some many practices around a different multinational who is collecting time sheet so it's collecting uh emails saying collecting the problem is that uh in a multinational group if you have to set a procedure usually this implies cost of people timing and not the consistency about among the different because different countries have different approach and on top of this um you have to commitment you have to let's say again have a strong commit ask for a commitment from not tax people to provide you the relevant information with the then at the end you you at least uh as the situation is now um you cannot assure that this will uh be fine this is very frustrating uh for time being as to say until we will receive further clarification so despite the effort that you can put in collecting and putting place procedures spending money and people uh so far they you have no certainty that this will be enough that's why you were talking about awareness and they said even involvement to the people because they need to be involved because they are the key source of information for us from time in order to substantiate the service actually provided so this is a mindset of course to work through but i see your point you need also to do interview to go into the details i don't know again and you know you don't know if the tax authorities will be satisfied with all of these ventures yeah of course this is the crucial point the consistency in this case my time anyway anyway thank you thank you manuela thank you man thank you and now we go with the next contribution and dress by moreno please andres victor is yours well thank you very much uh thank you very much jani for the for the organization of this event and of course thank you very much for the invitation to which i think from the point of view of the format is a really interesting event in in in this uh times relieving in which we are actually very tired of of online things but i think this fresh format allows us to have a fresh start also in this kind of of events after one year of of of non-presidentiality um although i thank you very much for the invitation i don't thank you so much for the topic because uh this um obliges me to be kind of carrier of bad news so i hope that uh i will i will escape this event alive because you know the the the tendency of killing the emissary is normally very very intensive next slice please alessandro um i'm going beyond the uh strict topic of um of intra group services or just to be more accurate i would introduce a new sub-topic on the on the general issue of intro group services because if as we have seen before and we will see later i think with the presentation of professor sornotha i used to be normally a sandwich between two trans surprising people and persons and this is happening here well professor tanotha is not a trans surprising person but he will be performing such today because um traditionally beyond the transfer pricing issue of intragroup services there has been another issue the the withholding tax issue and and i talk here about the withholding tax issue in the absence of a double taxation convention so traditionally apart from these transfer pricing issues which are not only transfer pricing as we have seen before there are also other topics as a result essentially from from this chapter seven and of this special regime for low value adding services the withholding tax issue has been generated by the fact that many countries having the domestic law withholding taxes on services in the absence of permanent establishment and in the absence of physical presence of the service provider and normally this has traditionally generated particularly in center in in certain countries and i speak here particularly about the experience in latin america that i know best in practice first of qualification problems because many of these domestic rules enabling withholding taxes on services use kind of technical services technical assistance managerial services consultancy services and this is not exhaustive this would be like uh you know the animals that my twins want to see when they go to the zoo but normally apart from the elephant the giraffe and and whatever they want to see there are other various animals if you go uh for the the ifa congress report from 2012 that was devoted to this particular topic you will see that in certain countries you might find dozens of uh of of of different services or different adjectives to services that may introduce withholding tax obligations with different tax rates so there is the huge problem of distinguishing what is a technical service what is technical assistance what is managerial what is consultancy and here i've witnessed in in first line a huge discussion in argentina on the on particularly on the concept of technical assistance um apart from that there was a second problem with this domestic law on the sourcing rules because here if the qualification rules are varied sourcing rules also tend to be very varied and we might find countries using place of performance and just place of performance but we might also find many countries using different sourcing rules that sometimes might be straightforward like the resonance of the payer but sometimes might be everything but easy to apply like the economic utilization rule that for example the domestic law of spain uses so actually here we face another domestic tax law problem with services in general not just intergroup services which are knowing which is the uh the the sourcing rule and distinguishing one sourcing rule from the other and sometimes applying some of these sourcing rules that are not easy like for example and particularly the economic utilization rule next slides please but here comes the uh the the the bad news that i i guess that many of the practitioners that are having experiences in latin america know uh know very well and the fact is that we assume normally that we are managing a dtc following the oecd model which sometimes is the case but in many cases is not true and deviations are really the evil sometimes in the practice of application of of of double taxation conventions and there are in fact many treaties containing source uh or attribution of taxing rights to the source state using normally a payer a payer rules sourcing on gross taxation of cross-border services in the absence of pes and also in the absence of physical presence of the service of the service provider um i will not there to give a number of this i have one student now trying to map the uh the bilateral treaties that we have in the world more than three thousand he's very enthusiastic and he says that there are more or less 600 treaties that contain this kind of special deviations and services i think he's very enthusiastic and therefore he sees these particular provisions everywhere but what i can say is that i have done myself the mapping in latin america and more than 45 percent of the treaties of latin american countries contain this kind of provisions um of course um there are huge discussions on the application of these particular provisions but normally the battle here is on what is covered by these particular provisions because here again as it was the case for domestic law the terminology and the objective scope of this particular provisions is as varied and i mentioned here some particular national practices like the argentinian one that normally refers to technical assistance or to technical assistance services like in the case of the treaty with spain we also have the typical um brazilian provisions from which i'm sure that professor schweri will speak a little later referring to technical assistance or technical services or the typical colombian deviation talking about technical assistance technical services and consultancy services so what we see here is that in our current treaty network particularly in certain regions and i speak here from the latin-american region but we are now mapping the ashen region and we are finding similar patterns this might also become a treaty problem because the treaty might attribute taxing rights to the sole state in relation to services in the absence of a permanent establishment so in addition to the transfer pricing problem in addition to the domestic law problem to which we refer before this might also become a tax strategist next slides place the the u.n tax committee tried to put some order in this operand mess and this was the idea behind the introduction in 2017 of a new distributive rule a new article which is article 12a that is actually very similar to the articles that we saw before the only relevant difference here is that this provision this model provision refers to technical managerial or consultancy services so actually the main goal of this provision would be to resolve this disparity in the description of the objective scope of this uh of this treaty provision because again this article 12a is based upon a definition of source uh based upon the the the the um the payer rule status across taxation in the absence of uh permanent establishment and also in the in the absence of physical presence of the service provider however one might think well the battles are over it is clear now we have this uniformity that we missed in this big mess that we have in different treaties well the problem again and uh i've been thinking that this would be the problem since i first saw the the project uh that was initially uh discussed in 2015 in the u.n tax committee when it was stated that the objective scope of the article would not be services as such but technical managerial or consultancy services because of course the big battle here apart from other more technical and specific battles is what is technical managerial or consultancy services and here we start to see the interactions between what we have heard until my presentation now and what my presentation brings there is a general description in the commentary to article 12a of the un model and managerial services that you have in front of you the ordinary meaning of the term management involves blah blah blah blah blah and this would in principle not be problematic however the biggest problem with this article 12a was in my opinion introduced by the very commentary on article 12a because you might see there in particular in paragraph 62 and in the examples that try to illustrate this statement of paragraph 62 and statement saying well this provision is just covering non-customized or sorry it's just covering customized services so routine or non-customized services would not be technical managerial or consultancy services and therefore they will not be covered by article 125 i think the legal basis for this strange distinction or this strange exclusion is not clear at all but we can go to the debate on this later on but my question here and i will leave this as a question because i don't have the answer and when i don't have the answer i prefer just to uh to make a question particularly to the to the experts is what this means for intra group management fees we have heard before the discussion on this particular simplified regime for low value adding services and my question here is whether low value adding services and routine services are exactly the same because if they are the same then we shouldn't worry about this intra group management fees in the context of article 125 because they would be excluded so for these services we would go to article seven and our only concern would be the transfer pricing concerns from which we have heard so far but it is not so clear to me that actually the groups of low value added services and routine services are exactly the same and in fact a a slice by uh by manuela before uh said something saying routine and low uh value adding services so meaning that might pay or or or perhaps this might not be exactly the same this might not be identical next slides please um the end of this story at the treaty level was the uh new article 12b that was introduced in the un model tax convention one week ago this was in on on april on april 19th actually this provision has exactly the same structure as 12 a the only difference here the only relevant difference here is that this new provision refers just to automatic digital services and there is a clear explanation for this remember that article 12a refers to technical managerial and consultancy services then the commentaries went on wrongfully in my opinion but it went on to say well routine services or non-customized services are excluded and this meant that actually article 12a could not cover main services in the context of the digital economy so they would be excluding essentially um intermediation services and and and advertising services which is actually the very core of the of the of the digital economy so actually this article 12 b was kind of trying to put a patch on the thing that was not working on 12a and again it was repeated or the same idea was repeated so in as much as article 12a does not cover this non-customized services these routine services these mass services the scan services however you want to call it we need another article to cover it perhaps here in the context of our discussion on intragroup services or intergroup management services this discussion is not so relevant what is relevant is that again article 12b wrongfully again in my opinion but states that article 12a doesn't cover non-customized services does not cover automatic services does not cover routine services and again the question here that i leave an answer because i think that the answer is not evident at all and i was in fact talking about this particular issues with professor thornotha yesterday is that actually it's not so easy just to say that routine and low value adding services are identical concept i think they might be different they might be management fees or intergroup management fees that qualify for article 12a purposes so that we might have theoretically withholding tax in the source state some might not but again this is just my general impression and i leave the question open as my uh my contribution here was just bringing the general landscape at the treaty level that we have and being the career of bad news that we have an additional problem here that already started in the treaty network of many particularly developing but not only developing countries and that the u.n model could have resolved in 2017 by the introduction of this new provision but it didn't thank you very much thank you thank you andres thank you very much because you focus or at least i would like to highlight a couple of points that you rise and you're realizing what about the qualification issue i think this is the first step actually we should do before going into the transfer price topic itself maybe it could be i don't know that's my view again uh could be advisable to start in the reviewing and the updating of the chapter seven with the proper definition of what we are talking about when we talk about intra-group services what is a management fees because now we maybe overuse the term management fees to cover whatever is most of the inter company's services we need to be more precise on the definition let's define correctly what is management fees what is routine and or low value adding services or technical services i think that the key role again in this for these purposes can be played by the oecd with the update of the chapter 7 and we need guidance clear guidance on that and again also really interesting is also the topic about the sourcing rule which becoming more and more important on this topic but maybe we will discuss this later with the other speakers thank you very much andres and we go with next contribution from professor sornosa about again an updated or at least a look about the public consultation for chapter seven uh professor sugnosa the floor is yours thank you thank you very much johnny first of all i have to say that that i'm not a transfer pricing fan i'm on the contrary i'm extremely critical with some of the assumptions that underlies the transfer pricing regime and for this reason i think that can be useful to say from the very beginning of my presentation that in my opinion the problem of intergroup charges of the problem of the charges for intergroup services can hardly have a coherent solution from the transfer pricing point of view because this kind of services provided in the group are in mature typical of multinational groups one cannot find it between independent companies and for this reason arm's length principle does not work properly and i think this is the reason this underlies of the problems that we have to deal with in talking about intra group services and that emanuela santoro pointed out perfectly because intergroup charges are problematic because in addition to general detailability requirements these charges have to meet the transfer pricing legislation deductibility requirements and as a result of this is needed determine whether the services have been rendered it was implied which activities do or do not constitute intra group services which is a question that has a difficult solution second services must be effectively provided because the existence of a management fee is not an evidence per se that the services has been provided the services should generate a utility or benefit to the subsidiary recipient a question that emmanuel santoro has explained perfectly and is related with the so-called benefit tests and there are many forms in which the service can be remunerated retainers and other forms of remuneration depending of the material and service special focus in the documentation so we should be provided for the productivity of the charges and in this point there are a lot of problems because normally tax administration and the courts and that is the case in spain even if the documentation exists normally can discuss whether or not the documentation is a valid evidence in order to prove the reality of the services and finally we have to determine whether the charge is in accordance with the arms length principle and to select the method to charge direct or indirect charge nas art preview in the guidelines the original text of chapter 7 was included as probably you know in 1996 and since then has remained largely unchanged until bebs project due as an outcome a discussion draft in 2014 in which the oecd tried to achieve a balance between the charges for the so-called low low value added internal group services and the protection of the tax base of payor countries as a manuela santoro has explained perfectly in the system the low value added intra group services and his regime probably i can go to the next step and the next step was the revision of chapter 7 in the transfer pricing guidelines in 2016. in order to incorporate the simplify approach to determine the amps length charges for those low value adding intergroup services but it has not been reviewed in the transfer pricing guidelines 2017 to incorporate the guidance developed under beps in order to align chapter 7 with specifically chapter 1 and also with chapter 608 and the proposal to make this kind of alignment seems to be correct if one accept the transfer pricing regime principles but there are a lot of challenges due to the practical application first of all demonstrating that the service has been rendered which can be difficult in some circumstances and especially to demonstrate that the service render provides benefits to the recipient second distinctions will be made between activities which do or do not benefit the local affiliates and the benefits that arise purely from group memberships and the so-called shareholders and stewardship activities thirdly in third we have to identify in practice duplicate activities which is a problem specifically in tax matters when you have at a corporate level tax services and from the corporation tax services you have to assist sometimes the tax departments that you have in your subsidiaries and the tax administration can challenge the charges because you are duplicating the same activity when you provide to your subsidiary the tax services from your corporate level you need to find an appropriate allocation key for charging the group services you have to have a markup that is specifically uh review in the guidelines but after the proposal for the revision of chapter 7 even if has a lot of useful comments we are waiting for the proper revision and i want to i i want to focus in the comments that i think could be useful in order to make this revision i want to stress first that there are a lot of administrative burden than in that in some cases raised to the companies or moved to the companies to abstain from making the charge and to incur in double taxation because of the difficulties that you can have in order to prove in front of tax audit that the service has been rendered that the service benefit the subsidiary and so on the benefit test that is to prove that the services have been rendered add the need to demonstrate the benefit for the subsidiary is probably the most challenging burden and the question here is if the benefit test cause or not more problems that is that it solves probably in the simplified regime in the simplified approach for low value added intra group charges the benefit tests can be useful but in general probably this is the most challenging question first because to demonstrate a benefit from the point of view that chapter 7 is not consistent in my opinion with the principles underpinning the chapter and a one guidance because as you probably know chapter one tackle this issue for all the types of transaction in its section d1 identifying the commercial or financial relations what in our case means identified the kind of service that has been provided and in section d2 recognition of the accurately determinated transaction or service that has been provided for this reason in the comments that has been made for many lore firms there are some proposals to eliminate the benefit tests from chapter 7 or at least extend what is required in the simplified approach to all categories of services because due to the difficulties in order to define what we understand as low value added intergroup charges or services probably is not easy to know which kind of services are you providing and if you can or not use the simplified approach in order to avoid the difficulties of the benefits test one of the proposals that i find can be more interesting is to establish a simplified approach that will entail benefits for tax administration and taxpayer including more guidance that the one that is useful that normally you can find both in the guidelines and in the internal legislation for example in spain we don't have any kind of guidance even if we have some tax rulings trying to identify how in relationship with some kind some categories of services you can demonstrate that the service has been effectively rendered develop among the legislation as the 13 did for county by cancer supporting purposes in order to facilitate its adherent process and implementation could be a solution if we have a potential threshold that could be adopted in this matter and obviously it's needed to include more guidance and examples of benefit debts for services that not qualify for the simplified approach first of all we have to solve the difficulties in order to distinguish the low value added into group services and other or intergroup services and other intraduct services but secondly it is needed to know how we can demonstrate for the second kind of services that the service has effectively be rendered especially taking into account the difficulties in the documentation side because as emmanuella pointed out perfectly there are a special focus in the domestic legislation in the documentation that should be provided in order to demonstrate that the service has effectively been rendered there must be preliminary written agreements specified in the nature of the services the rational allocation is there must be invoices for such services there must be sometimes reports by independence third parties regarding the invoicing and diverse documentation including examples of the administrative services renders the documentation issue is really a burden in order to solve the problems with the tax auditors in relationship with this kind of intergroup services and for this reason i think that should be added warnings and calciums about the risk of requesting unrealistic levels of proof by means of benefit tax we have some experience in spain about what can the auditors the tax auditors consider useful and proportionate documentation pack because even if you have a narrative or a description that justify the service provision in the context of your multinational group the experience in spain is that the despite that the documentation that you provide the tax auditors discussed the interestability of such expenses since they consider that the documentation is not enough in order to prove the reality and benefit of the service because with some kind of documentation it is really difficult to prove nothing at all documents are just documents but you don't have the opportunity to use other kind of proofs that probably could be useful for this reason i think that intergroup charges will be in the future a problem and i think that even if we can have a specific guidance about some of this question even if we can find an appropriate allocation key to charge this kind of services even if one can solve the problem of the duplication of services the guidelines will include guidance about how to protect taxpayers rights and about this question i will ask if the guidelines should make a statement about the burden of the proof when discussing the existence of the services in order to clarify when and in which way the tax auditors can challenge the charges made for internal services because in our practice it is common that the tax auditors deny the right to deduct the charges without any kind of proof denying that the documentation that you have provided is enough in order to demonstrate the reality and the benefit for the subsidiary and in order to protect the taxpayer rights probably we have to think about if the mutual agreement procedure can be a solution for the resolution of this kind of controversy because if we have for the deductibility of the intra group charges the problems that arise for the legislation of tax on transfer pricing we should have also the benefits of the mutual procedure agreement in order to solve the problems for the taxpayers that's all in that said thank you very much thank you thank you professor sornosa thank you for your contribution for your efforts but actually i i don't believe really you did a big effort because you provided to us many many interesting input let me summarize just few of them definitely i agree when you say the underlying principle seems to be correct but the practical application is really difficult and that's actually the problem we are discussing today and this is indeed again maybe another issue of definition because when we talk about benefit tests okay in theory we know we have to provide the benefit the service has been provided the benefit has been obtained by the multinational but what exactly we have to prove but then again is the problem with definition together with the problem with supporting documentation so which kind of documentation way to provide it's not only about master file country 5 or cbcr report but it's much more because we need to prove exactly with many many more many supporting documents to prove which kind of benefit we are talking about but we need even to understand in advance what is the benefit what is how we can quantify the benefit but another two points i want to touch because you said that in some jurisdiction business opt to abstain from making the charge and to incur the double taxation so as long as we don't have clarity we don't have certainties or service a certain definition of certain aspects of the intra-group charts we have this so the multinational makes its own decision in order to protect themselves from potential tax disputes on this topic so then create a double taxation issue then these in my view can create even inconsistency of the tp model for the entire group because if i don't apply to one country but apply to the other country because in that country i don't see any problem with the tax authority with the transfer price boost i can create inconsistency about the tp model itself and then this means that i would even doing so i could even undermine than the bodies in the dp structure of the group so there are certain implications to take into account and just to conclude from my side for for this moment i really like when you said developing a model legislation about the legislation as the action 13 did for the cpc are purposes again i'm really in favor uh i'm really waiting for i'm really looking forward to get this standardized model for the recharge because if we have a standardized model this can definitely help the dialogue between tax authority and tax and taxpayers thank you very much thank you very much indeed for these further inputs and i would then give the floor sorry can i add just one comment nice i just uh thank you professor sornosa for uh for for your explanation uh just one very important thing that you say documents are documents so there is not too much that we can sometimes we can explain based on documentation and uh i would also ask one point in this respect sometimes the internal documentation of uh of these days related to business activity and sometimes are even difficult to be explained to the tax police or tax inspector whatever because they are dealing with very uh let's say business business activities so sometimes despite the quantity of documentation that you collect sometimes they are not even readable and easy uh to be understand by by the tax inspector so maybe uh we should think again really to the proportionality of the measure compared to the to the result yeah totally different i see your point in my view is always the you know the consistency of the or the deep polish or the model of the company that cannot in this case more consistent is the policy you know more argument you have to support your position okay i think we are quite uh okay with the timing because we now we have ten minutes from madario tayoret in two minutes for massimo ferrari for the joint presentation about uh management fees again but they go more into a specific tax topic please die the floor is yours okay thank you thank you johnny thank you marco for the invitation to this event and good afternoon to everybody together with massimo ferrari we will do a joint speech based on some real life tax issues and experiences we have faced in relation to the topic of the recharge of management fees and please massimo feel free of course to intervene along the presentation we what we are presenting today are a long-lasting debatable matters involving a multinational with facilities in brazil in particular but not only as regard brazil the tax issue arises for management and service fees are usually recharged by italian motor company for the benefit of the brazilian subsidiary and we are speaking of the typical staff function costs that already emmanuel santoro talked about so i mean i repeat uh hr for example i.t procurement market industrial planning and quality in this scenario a huge task costs due to brazilian local taxes in addition to a withholding tax of 15 percent applied on service payments hit the profit and loss of the italian-based groups and for whom is not familiar with the brazilian taxes like iss chi the peace conference with a cumulative overall tax rate in excess of 20 percent we are speaking of a federal and state taxes broadly speaking similar to a certain extent to the european v80 as regards brazil the first issue arised in relation to the 15 percent with ordinate tax presently the italian tax authorities the slide deck we cannot see the slide deck right i was indeed right into the okay now we are okay great sorry that's very good okay thank you thank you johnny uh next slide please very good okay so then i was saying that uh there is a 15 percent without the tax issue because the president italian tax authorities disallow the tax credit and why i mean although brazil is not an oacd member most of the double taxation treaties including the one with italy follows oecd model convention nevertheless the brazilian revenue service has always believed that it was not bounded by this oecd guidelines because brazil is not in oecd member said that the most controversial point concerns the interpretation given by the brazilian authorities to the article 7 of the double taxation treaty with italy that is the taxation of business profit according to which the taxation of the business income is only in the head of the recipient therefore the question is if the management service has to be considered a business profit subject to article 7 that is i mean again a business profit and taxes only the head of this of the recipient country or have to be assimilated to transfer no technical assistance service subject to article 12 on royalties a debate over qualification on which professor moreno has already talked about uh we can remember about the debate about the team services equal to low value that services or not so i mean is let's say a question mark that is still let's say open next slide please okay it has to be reminded that in the past years and i refer to uh some old guidelines issued by the brazilian tax revenue in the years 2000 and 2011 there was a position of the revenue service about the application of the article 22 of the treaties it is other income according to which the income not covered by other articles of the treaty is subject to taxation in both countries living open a possible situation of double taxation and the application of brazilian withholding tax such brazilian appreciation was in the past not shared by other countries and tax authorities denied the tax credits for such withholding tax also because is designed from the oecd model tax convention article 21 so where we are now the nowadays situation can be summarized as follows according to the brazilian revenue service and the a specific declaratory act of 2014 which followed a non-binding opinion released in 2013 by the brazilian national treasury attorney office no withholding tax of 15 percent should be applied on services rendered by residents of 30 countries without any transfer of technology and therefore article 7 should be applied as it is if there is no recognition or assimilation of transfer technology with the transfer of know-how of technical expertise or assistance recently on december 15 2020 the supreme court in brazil has confirmed the position of the brazilian revenue but the decision is not yet definitive therefore both the supreme court and revenue service have ruled that the business profit article of the treaty prevails over domestic legislation with respect to payments that do not involve transfer technology but as far as we know due to the fact that there isn't in brazil in place any so-called pilot case under discussion in order not to apply the withholding tax the italian parent company would have to file a specific lawsuit requesting the treaty to prevail and article 7 applied to the management fees recharged to the brazilian subsidiary in order to obtain a federal decision not only but also apply the decision retroactively in order to obtain the refund of the withholding tax paid in the last five years and as far as i know this is exactly what pirelli did in pastillas massimo correct if i'm wrong but you follow such a let's say sure correct yeah so i mean uh due to the very long time to obtain a decision and the uncertainties over the outcome they uh sorry next slide please okay um the italian parent companies are for let's say in a certain way forces to still consider applicable with all the interest of 15 percent and as a consequence no tax credit is available so far for the italian parent company due to this this alignment in the double taxation treaty application that is which is the correct tactical to be applied so in this scenario remains there for some open points because the first one is the definition of technical or non-technical services prevalence of the interpretation given by the brazilian local law in case no guidance is given by a double taxes taxation treaty and in this respect uh i'm keen also to see what professor schwehri can tell us about in his following speech and also the possibility to achieve a short time with the text authorities of both countries an interpretative mutual agreement procedure that apparently seems to be achieved between spain and brazil is something feasible there are some other effective way out alternatives so there are some question marks that i leave to uh sure to explain to us if he can let's say clarify to us what we can do in order to expedite this let's say uh situation and a final clarification um in my presentation i have in addition next slide please okay so so sorry this is the first one um the first one slide if you yes thank you thank you um well uh in our experience we have faced another issue sorry just a look at the timing sorry i don't want to interrupt you because we are already beyond 10 minutes yes go ahead yes yes yes in a couple of minutes uh i i think that we can finish okay so there is another topic uh involving the rechargeable management fees that is okay in brazil there are local taxes as i said before and in some specific circumstances there is a possibility to obtain a credit on such a federal text name the peace and convenience because brazilian law allow local taxpayers to benefit from peace of his grades on important services at certain conditions that is if such acquisition services are used in connection with production and manufacturing of products and goods to be sold this tax credit of course mitigates in a certain way the overall tax cost suffered by the italian mother company as i have outlined as a beginning of the presentation but of course there are still some constraints and problems next slide okay the lack of a precise definition because i mean the law seems not to give a precise definition what about our let's say services related strictly related to the production or not there is a supreme court of justice position that is the services essential relevant for the let's say production process may benefit for the lethal credit and this credit is allowed also to underwrite costs but the tax authority interpretations seems to be more stringent because there is a restriction in the concept of core services only for services effectively relevant is strictly used in the production process excluding the services used after the production process excluding for example packaging transport after sales services so we can say that also for let's say an effort to mitigate the tax burden for local brazilian taxes still the companies have a big efforts required in order to try to mitigate the risk of assessment it is identification of what are core or non-core services a separate inter company agreements separate invoices separate accountability for each service identified supporting documentation and and others so i mean all let's say such let's say burden are on top of the problems i have depicted so far and then i i know that massimo and next slide can let's say outline also other real life experiences in other jurisdictions so i leave the word tomassio thank you thank you very much dario and uh thank you to to johnny for for the invitation i am very conscious of timing so i will try to to strictly stick to the time that i have been assigned so before entering into into my slide i have very few slides just a comment because really many concepts and principles have been stated so far and they have listened with great attention we are speaking not today about pillar one pillar two biden plan to change the world in international taxation we are at the basic here today in this seminar truly the basic there is no uh kind of a in aggressive tax planning or abuse law we are at the basic and the focus so far has been on the the guy the company the people receiving services i must prove that it is for my benefit i must prove that they are documented then the price is arm length what about the the other guy what about the other guy the service provider the provider we are headed we have we have our head office here so we have in italy the issue of emanuela sorry you need to prove that it's benefit for you and then it's my problem saying no guys this is not for you it's for the german or the brazilian or the russian or whoever so it's really really a disaster if i may in this area it should be very simple extremely simple with some kind of uh very very basic rules but this is not the case and by the way if we speak about benefit tests what does it mean benefit test in this area it doesn't make any sense to me documentation what is it this is is absolutely mission impossible in real life we can speak for hours in this in this context it's mission important what is the benefit if i have a central marketing department it is clear that it works for all my subsidiary what should i prove that doesn't make any sense to me in international taxation then let me say that double takes treaty and i jump into my my topic and we have the problem even if as andres was correctly saying if we do not have a double take street but we have the problem also if we have the double tax treaty which is again a disaster because double tax treaty exists do exist and are signed just for one scope to prevent double taxation and when i simply hear that some multinational company take a crazy decision not to charge in order not to have problem please don't let me comment on this because this is really the failure absolutely failure of the international tax system as simple as that now moving to a deductibility benefit test and so on and so forth to really the aspect that daario has rightly already pointed out so brazil just brazil very interesting country you could say well fantastic there is a court system why don't you go for to the court you file an appeal in brazil can you fight it absolutely yes and then and then you wait 5 10 15 20 years and probably you get an answer so it's an it's not a long story it's a never-ending story and then you might end up in in a judge who say no no it's not article seven it's not even article 12. it's article 22 other income so i apply with all the texts so really really tricky and by the way i don't care really i really don't care whether it is article 7 article 12 but it must be article 7 or 12 for both who cares article 7 or 12. i don't care there is a double tax treaty if the brazilian qualify it as article 12 it must be article 12 for the italian as well and then i am happy i suffered with all the texts i recover with all in text maybe also with a deemed tax credit fantastic but this is not the case article 7 in italy article 12 in in brazil and we are in the middle then if i look to argentina argentina andres was already clear say well we have an issue again technical service not technical servant we are another interesting interest in real life today today on the 28th of april that if technology is or someone claimed that technology is embedded whether it's royalty whether it's central service i don't care there is technology transfer you know what in argentina you can claim a deduction when when you pay cash principle in oecd country not necessarily in italy of course when you book the revenue in your profit and loss right which should be right but the issue is you could say well what is the problem it's a timing difference right it's just the timing difference no it's not the timing difference because if you if you want to pay today in argentina sorry impossible forbidden no way because due to the crisis in argentina you don't get the authorization so i want to pay i am the argentinian i want to pay no not possible and so i cannot claim the deduction the other guy the service provider is is tax again double taxation and what happens if in one two three years the argentinians say okay authorization from now on permanent double double taxation so uh and this is but let's move and then i stop absolutely let's move into europe you say wow that's argentina it's brazil very very specific you should no no this is europe and what e manuela described is absolutely real life so i don't need to go to fly over the ocean and land in sao paulo i just cross the border here and they go to other very sophisticated countries in europe and they face the same problem benefit test documentation now this is not this is shareholder cost so it's it's really it's really a nightmare what can we do what can we do if you are the head of text of a large multination what what should you do if next slide please well honestly not very much not very not very much so my first of all what we should do is to raise question 2 oecd european commission professor let's say a academic scholar and which is one of the purpose why we are here today right so is there effective available and i have highlighted in red remedies no theoretical remedies sorry not not for me no academic remedy not for me effective available remedies now to be very pragmatic what one can try to do and it has already been stated by by the others let's say speakers is at least at least let me obtain a certification from an accounting firm on the amount charged of course in many jurisdiction and speaking about italy many this is good in the sense tax authority generally speaking respect at least in terms of accuracy but not about benefit tests who care if the charge is right the point is that you could have rightly charged something which is not for the benefit of the recipient so it solves just one problem the other one is ask for a unilateral advanced pricing why unilateral because of course it does not make sense to speak about bilateral because you should have i don't know 20 50 100 bilateral doesn't make any sense or multilateral again with whom 10 15 50 doesn't make any sense a unilateral advanced pricing agreement where at least one tax authority the one of the ad office say okay not too bad i agree that this charge is right should help on both accuracy side and on the benefit test and then a and they finish go for a map of course we're available but go for a map because the map should put the two countries on the same page so we we can of course discuss four hours so i stop here and and i leave definitely the floor to louis that i am sure will propose a solution thank you john and thank you very much thank you thank you ferrari and i straight go to professor thank you johnny for the invitation thank you marco for the invitation it's so good and thank you for for being the last one to speak that so that's also also also easier because most problems have already been issued and also some answers have been presented and i'm sorry for talking about the brazilian perspective but and i always like to say i'm just a messenger i have not created the the brazilian tax system but unfortunately i must say that some of the optimistic presentation which was made is more optimistic than one would believe for instance it was said here as that according to brazilian position in the declaratory i act number five that services without any trends of technology would be under articles with the seven no no affording tax sorry this is not true i have even after i i saw your slides i even got the the declaratory act act to read it once again and when one reads the declaratory act this is the of course the author brazilian authorities it clearly says irrespective of with or without technology transfer so there is for both of them irrespective it says well you'll apply article 12 if the protocol has a provision that technical services and technical assistance have the same treatment as royalties in the treaty then it says article 14 in case of of independent professions then in the last case would be article 7 so only if if if there is no protocol and when you get the protocol brazil italy you get number five of the protocol uh saying with reference to article 12 paragraph four i'm quoting here the expression for information concerning industrial commercial or scientific experience mentioned in paragraph 4 of article 12 includes income derived from the rendering of technical assistance and technical services thus according to the brazilian official position uh if you're having the protocol search provision you would have an extension of article 12 also for technical services so please expect brazilian authorities to demand this withholding and also the brazilian superior court uh in not in a final decision as you mentioned but has indicated that they would confirm this position as a matter of fact they asked to return to see what the facts were because effects were not clear in the case and so on but at least the justice who who made his opinion said well what i'm seeing here is that article 12 might be applicable so you'll see here's not so he asked just to check the case but it's not a denial so i would not also be optimistic considering the brazilian court so far what is true is that the brazilian courts this is true in a in a copenhagen several years ago dismissed the possibility of applying article 22 this is correct so the other income article but presently in brazil you would expect the withholding and quoting this declaratory act this being said you haven't asked me well what would be a solution for the case of course there are two kind of two kinds of from a brazilian perspective uh from brazilian authorities i will expect no change in in the present moment you could of course discuss this with brazilian uh courts claiming that this interpretation of the tax authorities is not the best interpretation you could claim and i wouldn't even support you you could claim that by the time the treaty was signed this was it was not an intention of the parties to extend article 12 to technical services but rather to say that also in technical services there may be royalties this is a possible interpretation not a wrong one but uh there is no precedent in this and as you said this would be a huge discussion another possibility of discussing if you believe that brazilian brazilian courts are long-lasting then you have another possibility you could bring this the case before italian courts and then you could claim a different argument you could say well uh there i have a treaty and i have an expression in the treaty which means technical services which was not defined in the treaty itself according to article 3 of the treaty the party applying the treaty is entitled to to define it according to the internal law and brazil did so and according to brazilian internal law technical services isis expressions which includes with or without technology so you could claim first that brazil applied the treaty accordingly that means brazil applied it uh following article 3 which it was allowed to and italy on the other hand has another article to apply an article which refers to the methods to avoid double taxation and now allow me to quote once again the treaty to see what is said here in the treaty my article 23 if if a resident of italy owns an item of income arising in brazil [Music] sorry sorry it's not this one where a company yes it's this one if a resident in italy owns items of income arise in brazil italy in determining its income taxes taxes specified in article 12 italy may include in the basis upon which such taxes are imposed the third items of income unless specific provisions of this conversion otherwise provide in such a case italy's shall deduct from the taxes so calculated the tax on income paid in brazil but in an amount not not exceeding the proportion of the aforesaid italian tax which uh which such items of income bear to the entire income so we have a tax paid in brazil and there is a possibility if the tax is paid in brazil italy shall deduct moreover uh uh item four for the deduction mentioned in paragraph two of this article brazilian texts shall always be considered as having been paid at a rate of 25 percent of the gross amount uh then is here see the raw uh for the royalties so i would claim that according to the treaty uh brazil has withheld the tax according to the treaty and so the italian party may deduct this taxes and not only the 15 i can see a good argument for the 25 so i cannot agree also with you when you said for me it's irrelevant whether the taxes was paid in brazil or in italy sorry if you apply article 7 you'll pay taxes in italy normal taxes if you apply article 12 you have a matching credit you get a credit of 25 so it's not that irrelevant going further and just to finish this well but i don't want to discuss this imports i want to have a rapid solution then yes a map could be applied uh and a map between our tax authorities we have an example in brazil with spain concerning article 12 in which both spain and brazil declared that technical services shall be deemed to be included in article 12 according to the protocol and spain rec does recognize the credit even the matching credit in this case so we have at least one experience with one european country with a latin european country very close to italy very close reading the treaties with this recognition so i would not dare to say that interpretation brazil presently has on its protocol is something absurd at least recognize this as a possible and even correct interpretation so you could claim this before it every before italian italian authorities to uh to ask for the map i should add that in the past map in brazil was very rare and this spanish case was a very rare one however due to bets brazil assumed a compromise to improve its rulings on maps and since there then several maps have been installed most of them in transfer pricing but i would say that this is a process running presently and i would say that i would even dare to say that brazilian authorities are eager to have positive outcomes in maps just to show their colleagues that brazil is presently adopting the map as brazil has promised so i would say that the climate is good for maps presently this could be a rapid solution concerning to the peace coffins issue which was another issue well this here i'm i would say i'm less optimistic to say that you can get the credits and so on because according to the legislation for business convince you may not get all credits on all important services but as you see services used in connection with the production and manufacturer of products this is according to the read the text of the law and i cannot change this that much i mean it's not a complete v80 it is a service which is used for producing something i would add that despite the reading of the law uh there are some decisions which have broadened the text i would say more than one can find the tax and which have have allowed credits for goods and services mostly services which were not connected to the production of goods for instance you have a commercial firm which produces nothing simply buys and sells these commercial firms have been allowed to get credits also for services which have been rendered for them so after these decisions which go beyond the text of the law i would say that maybe you can find a solution here but just to inform you uh the text of the law says production so uh the decisions go beyond but their decisions do exist i i think that the timing i had this was the main answers i could give in the comments i could give i'm at your disposal to clarify anything else thank you once again jenny jenny thank you thank you promising thank you for this reaction on the topic proposal by pirelli prometheus and i know that andres wants to add something on this topic yeah me too if i can later johnny thank you andreas thank you thank you thank you johnny and and if you allow me to mediate and in in in a polemic between between brazil and italy having in front of me rishwary and having in front of me that you and and massimo but i i think that the reasoning of professor schweri is perfect but for one thing if um you get to find a clever tax authority in italy they might say okay professor schweri you're right brazil might be applying correctly the treaty because according to 3-2 they are applying their domestic concept of technical services but what if they say well unless the context otherwise requires so technical service it's not a domestic law concept it's rather an international treaty context so you're totally outside the context of the domestic law of brazil and the interpretation of the concept technical services by the domestic tax authorities in in brazil is wrong i think here that perhaps the best way would be to try and convince the italian quotes that the brazilian authorities are right not just according to the domestic law but according to treaty law because look if you look at the treaty between italy and brazil but not just the treaty between italy and brazil that's very common in brazilian treaties with very few exceptions and priests professor shirley correct me i think japan is one of the exception sweden used to be one of the other exceptions but there are very few they have this protocol saying well royalties are also extended to technical assistance and technical services and then we have the discussion what does it mean does it need transfer of technology yes or no and here we have the big discussion but here i think there is an argument look article 12 of the italy brazil treaty contains a concept of royalty and at the end of this concept which is the normal concept in the oecd model and i will read here it says well write discover blah blah blah blah blah blah blah or for information concerning industrial commercial or scientific experience there is i would say a universal agreement interpreting that this means know-how so transfer of technology so if transfer of technology is already covered by the canonic concept of royalty under article 123 what do we need these protocols for they would add nothing at all i know that professor schweri will come up here with the historical explanation and rebarboza all this story but you can say well an interpretation that leads a provision to be totally absent of any sense and adding nothing to a treaty or to whatever legal instrument cannot be right so if we say well what the protocol is saying is transfer of technology then we don't need the protocol because this is already covered by 123. and this is not something that brazilians are saying or that i am saying this is something said in the commentary to the oecd model in the commentary to the un model and everyone makes this interpretation so i would rather or perhaps as a secondary argument add it to all that professor surety has said that i share 100 percent saying well but the brazilian tax authorities are correctly interpreting that it is correct according to the treaty so if either you go through the domestic concept of technical service or you go for an international meaning of technical services both of them cover this withholding tax so brazilian authorities are correct so you italian authorities must grant the credit because if you don't do that then you're not complaining with your obligation according to article 22. it's 22 in the treaty i think of the treaty so adding something something more thank you thank you andres thank you andres we are beyond the tiny but of course massimo dario if you want to add just one minute yes one minute one minute well first of all absolutely very valuable and interesting so that that is the first comment well i am unfortunately a bit less optimistic if i may being doing business in brazil if i may because i fully appreciate that there is a precedent between two countries 18 years ago spain and and brazil 18 long years has elapsed i'm not aware of anything else so good for the spanish but not for the the rest of the world second i am also very glad that we are that brazil is opening to the oecd and to the map world absolutely genuinely happy but when i see the first map with italy i would be even more happy because so far if if i am right but please correct me there is no way to sign an map between the italian tax authority and brazil in real life then if you say no no but they are opening and maybe in three five seven ten twenty five years they will come i would be even even more happy that's just from a pragmatic point of view thank you you want to add something and then we go oh well yes hello thank you so much uh professor shuerie and i completely aligned with massimo i mean exactly the situation we face i mean i i do not expect brazil can let's say sign in a short time any map or other kind of agreement so unfortunately we now are facing uh a situation we which we faced 20 years ago that is still unclear the treatment of management fees that's all many thanks many thanks to all of you for the contributions i think we collected a lot of inputs and i give the floor for the conclusion to professor fatzini thank you very much for my site yeah thank you janet just few words because we are at the end of our meetings so i think that everything was really interesting because we have listened to different suggestions and different point of view of views and both from academic and practical perspective i found the last speech very interesting because it means that the matter is really complicated when you want to deal with it in a practical way and what you can do right now is to thank you all our speakers and to say goodbye to the next appointment that we are going to have next month and we are going ahead on our track talking about international taxation with our international business and tax center so thank you to everybody uh and see you next time at the next appointment thank you bye thank you very much bye bye thank you thank you bye