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Report on IFA Congress in Paris

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From 11 to 16 of September almost 3 thousands of tax professional from all over the world gathered in Paris to attend the 65th annual Congress of the International Fiscal Association (IFA).

The scientific program comprised a selection of the most sensitive issues in the cross-border tax practice and in the field of international taxation in these present difficult times. Said issues have been discussed and analyzed by qualified panelists, tax professionals and tax executives from all over the planet.

One of the main issues raised has been tax implications of cross-border business restructuring. Since the mid-90’s, business restructurings (i.e., the cross-border redeployment by a multinational enterprise of functions, assets, or risks) and their transfer pricing or allocation of profit consequences have become a major concern for tax authorities worldwide. Tax authorities have enacted special legislation to attack unwanted cross-border business restructurings and more systematically audited such reorganizations. The Panel has discussed on the basis of a case study, the main transfer pricing / allocation of profit issues raised by such business restructurings and “tools” available to tax authorities to audit such reorganizations, such as the performance of coordinated tax audits within several jurisdictions.

The second subject has been an investigation on key practical issues to eliminate double taxation of business income. The Panel used actual examples of double taxation to examine the extent to which governments should be concerned about double taxation, the effectiveness of various systems to alleviate double taxation (questioning the common premise that exemption systems are preferable in this regard), and whether there are underlying issues that result in the systematic failure to eliminate double taxation, including inconsistent treatment with respect to how, when, and whether taxable income is recognized.

Various seminars also took place, covering other significant issues such as VAT aspects of business restructuring (interrelation between income tax issues and VAT, including the termination of license agreement within a group and the qualification of sales commissionaire activities and the risks of rejecting the reorganization by tax authorities), alternative bases for corporate taxation and their international consequences (focused on new sources of taxation being applied by selected countries, the specific alternative bases being adopted, and the nature of the taxes involved, evaluating the financial results achieved and the impact of this trend on business), credit versus exemption (bringing a real world perspective on the old academic arguments concerning the debate between exemption versus credit by conducting supported by the recent or ongoing reforms in a few jurisdictions including the United Kingdom, Japan and the USA), double taxation and EU law (examining whether an internal market tolerates double taxation) collective investment vehicles (analyzing the fact that when CIVs make significant investments in foreign securities, access to treaty relief for some CIVs has historically been problematic).

The most significant of said seminars has been the one called “Recent developments in international tax”. This seminar has been looking at a number of recent developments of significance to the international tax community which included an update on the progress of Common Consolidated Corporate Tax Base (CCCTB) as at September 2011, transfer pricing developments and a VAT/GST issue of significance to international business.

But the most interesting and potentially triggering a “revolutionary” issue has been the recent developments of transparency and exchange of information.

Switzerland secrecy of bank accounts is coming to end, resp. has to be in complience with the tax law, and this would have a huge price to be paid by taxpayers worldwide.

On August 10th 2011 the German and Swiss Ministries of Finance announced to have reached an agreement according to which German clients with long-standing funds held in Switzerland will have the option of either disclosing them for the automatic information exchange, or paying a one-off flat-rate tax settlement of between 19% and 34% on the value of the funds, and additionally as from the day the agreement is coming into effect (1 January 2013) a withholding tax of 26.375% on future income derived from the funds. The withholding tax will allow Switzerland to preserve banking secrecy by forgoing the automatic exchange of information.

Right after this, also the United Kingdom have announced (August 24th 2011) a tax agreement with Switzerland basically providing that the secrecy of bank accounts will come at a price in the next future. The agreement with UK provides for the same options (see above comment to the agreement with Germany), only the withholding tax rates on income derived from the funds are different, i.e. equal to Germany paying a one-off flat-rate tax settlement of between 19% and 34% on the value of the funds, and as from the day the agreement is coming into effect a withholding tax of between 27 and 48% on future income derived from the funds (27% on capital gains, 40% on dividend income and 48% on all other forms of income).

It is clear that those agreements will potentially trigger huge consequences on taxpayers having Swiss bank accounts, and this would not be limited to British e German customers.

Rumors among tax professionals, including the panelists of the Seminar in Paris, say that that similar agreements will be concluded with the Swiss Government by all European Countries soon. This is due to the Swiss Government’s finance market policy, which is now resolutely based on tax compliant asset management.

Swiss Finance Minister said that this move guarantees judicial security and will contribute to reinforcing the long-term competiveness and reputation of the Swiss finance market.

The Italian Minister of Finance has recently firmly denied the possibility of such a similar agreement with Switzerland but the general opinion within the Italian financial world is that this is only aimed to avoid a massive flight of capitals from Switzerland.

A global big revolution in the world of Swiss bank secrecy is coming very soon.

Mauro Mattei, Partner at LombardDCA, Milan, Italy

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