TAX INVERSION - TAXATION IN THE COUNTRY OF THE HOLDING COMPANY
WHAT ROLE CAN PLAY THE PLACE WHERE THE DECISIONS ARE ACTUALLY TAKEN, OR WHERE THE COMPANY GOVERNANCE IS BASED, WITH RESPECT TO THE ITS OWN TAXATION?
A company is located in a country according to the following standards:
• Where meetings of the Board of Directors (B.o.D.) or administrative body are held;
• Where the CEO or the managers carry out their activities;
• Where daily management activities are carried out;
• Where is the premises of the "Parent company";
• Where accounting records are kept.
These criteria have been extrapolated from the directives given by the OECD (Organization for Cooperation and Economic Development).
Each country has then drawn up its own legislation to define when a foreign company can be defined as resident in the foreign state or reclassifiable in order to be taxed in its own territory.
The key definitions are basically broken into two approaches:
• Anglo-Saxon;
• Continental.
The first one considers the residence of the company is related not so much to the place where daily management or meetings normally are held, but to the place where Strategic management shall be carried out.
So a company will be considered resident and therefore taxed, in the country where strategic decisions take place.
The second, instead, focuses on the day by day management. The Continental criteria considers more generally, various topics that determine residence of the companies by linking it to the daily management.
Now let us analyze briefly some of the laws applied by the various countries.
Some of the countries which adopted a "continental" approach are:
• Austria;
• Germany;
• Denmark;
• Finland;
• Italy;
• Russia;
With Anglo-Saxon approach (obviously each with different shades):
• Belgium;
• Netherlands;
• Czech Republic;
• Norway;
• France;
• Spain;
• Switzerland;
• UK;
• Poland.
Few examples of "Continental Approach" countries:
GERMANY
Under German law, the company's headquarters are connected to the place where daily management is carried out. The headquarters of a company is certainly also related to the company's governance.
DENMARK
The headquarters of the companies are established where there are contacts with suppliers, customers, banks, public authorities, human resource, etc. and this independently from the Administrative Body that put in place them (B.d.O. and / or Chief Executive Officer).
AUSTRIA
The headquarters is the place where daily management is carried out. Very similar to the German law.
ITALY
Italian legislation has a more formal approach. There is a rebuttable presumption that a foreign company is considered as resident in Italy if the majority of BdO of the company are resident in Italy.
This presumption can be overcome with the management of Day by Day, thus winning the presumption of tax inversion.
The Anglo-Saxon approach is less pragmatic.
The residence and therefore the taxation of an entity or a person other than a natural person will be linked to the country where the Board of Directors, or the most influential person, establishes the actions that must be undertaken by the entity as a whole (Strategic decisions).
Few examples with different shades:
CZECH REPUBLIC:
It refers to the "Place of Command" in accordance with national tax law.
NETHERLANDS:
The headquarters is where the TOP MANAGEMENT takes the key decisions about investment and funding.
SPAIN:
There is no national legislation. The tendency is to place the residence of foreign companies where their strategic decisions are made.
HOW CAN PELLIZZER & PARTNERS FIRM HELP YOU?
If you manage a Group with companies located in different countries, we can analyze together where and how strategic decisions are made and how Group’s Governance operates.
We can assist you in order to find the formula that best suits your needs, changing the control need and compliance with the rules.
Michela Pellizzer