OECD TRANSFER PRICING GUIDELINES: UPDATE PUBLISHED
The OECD has published the new version of the “Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations”. The document consolidates the reports issued by the OECD since 2018, including them and for coherence, adapting the pre-existing parts.
On 20 January 2022, the OECD published the new edition of the “Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations“, which provide guidance to multinational enterprises and tax administrations regarding the application and interpretation of the “arm’s length principle”.
After the first “informal” publication in 1979, the TP Guidelines were approved by the OECD Council in 1995. Subsequently, a first update was published in 2009, and further amendments were introduced in 2010 and 2017.
The new edition of the TP Guidelines does not actually feature new contents, but rather integrates the OECD’s guidelines already published on the following topics:
a) “Transactional Profit Split Method – Profit Split”: the new TP Guidelines provide additional indications to identify the situations in which the “Profit Split” is the most appropriate method through the amendment of Chapter II, Section C and related Annexes II and III, in line with the report “Revised Guidance on the Transactional Profit Split Method” approved on 4 June 2018;
b) “Hard-to-Value Intangibles”: the new TP Guidelines incorporate the principles outlined in “The report Guidance for Tax Administrations on the Application of the Approach to Hard-to-Value Intangibles – HTVI” for the analysis of the intangibles that are difficult to value, published on June 4, 2018. The possibility to access mutual agreement procedures, provided in the Double Tax Treaties, is also enhanced;
c) “Financial Transactions”: the new TP Guidelines provide specific indications on financial transactions and related issues such as cash pooling, financial guarantees and captive insurance; in particular, the guidance set forth by the report “Transfer Pricing Guidance on Financial Transactions” published on 11 February 2020 has been incorporated in the new Chapter X and within Section D.1.2.1 of Chapter I of the new TP Guidelines.
a.salvatore@macchi-gangemi.com
f.dicesare@macchi-gangemi.com
WITHDRAWING FROM THE COMMERCIAL NEGOTIATIONS
The violation of pre-contractual negotiations is often handled by the Courts in the disputes: when the issue concerns the lawful/unlawful withdrawing from the negotiations the defensive effort is usually made to demonstrate the irreproachable conduct of the client in the formative stage of the negotiations – i.e., open and collaborative dialogue inspired by the duty of truth – aside from the actual terms of the contract itself. So, in these cases the main focus is only on the distinction between the behavior of the client during the negotiation at the expense of the concrete results of the dialogue (the agreement itself), not least because pre-contractual liability precedes the conclusion of the contract, so it is useful to give correct, if not exclusive, attention to that preparatory phase. However, the judgments do not always joint a similar defense argument.
We may consider the case of contracting party that refuses to sign a partnership agreement with a candidate partner in a commercial business agreement after lengthy negotiations.
The reason for the refusal may depend on the fact that the candidate doesn’t meet the prerequisites (i.e. the contractual standards) to join that specific retail network; the reply usually objected by the excluded partner to the owner of the retail network is that the selection bar was raised too high by the imposition of conditions excessively burdensome.
The basis of the dispute primarily involved the rule set out in Article 1337 of the Italian Civil Code (“During pre-contractual negotiations and during the conclusion of the contract the parties must act in good faith”) and the relative burden of proof. In this regard, it is important to remember that, according to the established case-law, “the burden of proof lies with the party who aims to demonstrate the unfair and incorrect withdrawal from the contract according to the law and not on the other party who submitted a request for withdrawal” (see decision of the Italian Supreme Court, Second Section n° 24738 dated 03.10.2019, published in Giust. Civ. Mass. 2019). The principle set out in Article 1337 implies a duty to negotiate fairly, refraining from malicious and reticent behaviors, with the obligation to provide to the other party any useful and relevant information necessary to conclude the contract.
Therefore, in order for there to be any pre-contractual liability, it is necessary for the negotiations between the parties to have reached a point that engenders to each party the reasonable expectation of conclusion of the agreement (see decision of the Italian Supreme Court Sixth Section n° 34510 dated 16.11.2021).
In a recent decision (see Court of Trani n° 91 dated 15.01.2022) the judge, after a detailed examination of the conduct of the parties during the entire negotiation, analyzed the “entry barriers” to the dealer network, confirming the full legality of these barriers, taking into account the European law on vertical agreements and concerted practices in the motor vehicle sector (EU Regulation n° 461/2010).
The Court, therefore, came to exclude that the negotiation started had been aimed at the conclusion of a contract prejudicial to the aspiring commercial partner, thus recognizing the opinion of the Court of Cassation, according to which the violation of the obligation to behave in good faith:
“… assumes importance not only in the event of an unjustified breakdown of negotiations and, therefore, of non-conclusion … of an invalid or ineffective contract, but also in the event that the contract concluded is valid and, however, is prejudicial for the victim of the ‘misconduct of others …” (see decision of the Italian Supreme Court First Section n° 5762 dated 23.03.2016 published in Diritto & Giustizia, 2016, 24th of March).
In short, during the negotiation it is important to give proper attention to the agreement which the parties aim to, taking care of the obligations arising therefrom in order to avoid any kind of pre-contractual liability.
PAYMENT TRANSACTIONS VIA MOBILE WALLET: HAS THE INTERMEDIARY THE BURDEN OF PROVING THE STRONG CUSTOMER AUTHENTICATION?
In a recent decision, the Coordination Board of the Banking and Financial Arbitrator intervened to dictate guidelines on the subject of payment services and, in particular, with reference to the fulfilment of legal requirements regarding authentication in the case of payment transactions carried out through mobile wallets.
The case originates from the spillage by the user of data relating to his current account and his credit and debit cards, in response to a phishing email. The user’s data were subsequently used by an alleged fraudster to tokenize the user’s cards on the mobile wallet, after which the fraudster was able to authorize the transactions carried out independently. The order of referral to the Coordination Board by the Bari Board concerns the verification of the Strong Customer Authentication (SCA) required under article 10-bis, letter b) of Legislative Decree no. 11 of January 27, 2010 for payment transactions made via mobile wallet.
The Coordination Board first of all made an assessment of the regulations applicable to the matter of payment services with particular reference to Legislative Decree no. 11 of January 27, 2010, which implemented Directive 2015/2366/EU (PSD2) and the Regulatory Technical Standards (EU Delegated Regulation 2018/839) which supplement the regulations of said directive. It follows that, pursuant to Article 10 of Legislative Decree no. 11 of 27 January 2010, if the payment service user denies having carried out a payment transaction, the payment service provider shall provide evidence that the transaction was correctly authorized. Pursuant to Article 10 – bis, the payment service provider is required to request the SCA when the user:
a) accesses his online payment account;
b) arranges a payment transaction;
c) carries out, through remote channels, a transaction that may involve a risk of fraud.
Subsequently, the College clarified the different modalities on how the tokenization of the cards in the mobile wallet occurs:
i) via the mobile banking app where the card can be added directly, given that the data are already available;
ii) via the mobile wallet app with manual data entry.
The operation of tokenization of the card, being an operation carried out remotely and capable of entailing a risk of fraud pursuant to article 10-bis mentioned above, is subject to the SCA obligation.
Once the tokenization of the card has been carried out, the payment transactions, including the SCA, is managed via the technical IT systems offered by the wallet provider to the payment service provider. Payment transactions are subject to the SCA pursuant to article 10-bis, letter b) of Legislative Decree no. 11 of 27 January 2010. However, the European Banking Authority (EBA) has clarified that while it is legitimate for payment service providers to outsource the SCA, compliance with the SCA requirements cannot be outsourced by the payment service providers, who therefore remain liable for ensuring that the SCA takes place and that it complies with the Regulatory Technical Standards of EU Regulation 2018/839.
Consequently, also with reference to payment transactions carried out by means of a mobile wallet, subject to SCA pursuant to article 10-bis, letter b) of Legislative Decree no. 11 of 27 January 2010, it is up to the payment service provider to prove that the SCA has taken place not only for the tokenization of the cards but also for the payment transactions carried out by means of the mobile wallet.
The principle of law expressed by the Coordination College is as follows: The use of a wallet entrusted to a third-party operator for the execution of payment transactions does not exempt the intermediary, as payment service provider, from the burden of proving that the strong authentication of the transactions was carried out. The proof cannot be limited to the phase of c.d. tokenization of the card in the wallet but must also regard the executive phase of the single operations, as the transactions carried out cannot be considered correctly authenticated by the fact that the same result as authorized or however from the sole evidence that they have been carried out in contactless modality”.
THE JOINT CHAMBERS CLARIFY POWERS AND LIMITS OF THE COURT-APPOINTED TECHNICAL CONSULTANCY.
Once again regarding whether or not the nullity of the court-appointed technical consultancy (the report filed by an expert appointed by the court, hereinafter: “OTC”) can be detected ex officio (already addressed by the Supreme Court – Cassazione 14.04.2021 no. 9811), and in particular, the acquisition of evidence that was not produced during the proceedings by the parties directly by the court appointed expert (Cass. 14.04.2021 n. 9811)
The Joint Chambers ruled on the matter in a wide-ranging way: they did not agree with the new approach, they partly confirmed the traditional approach, which stated that the nullity could only be taken over at the request of a party but went into greater depth and specified it further.
In a previous newsletter (click here) we had already highlighted the Ordinance which was referred to the Joint Chambers. The doubt, which had already been raised by a previous judgment (Cass. 6.12.2019 no. 31886), focused on the following considerations:
– article 183 c.p.c. establishes peremptory deadlines for the parties to file documents and formulate preliminary investigation requests;
– documents produced by the parties after these deadlines are inadmissible and their tardiness can also be noted ex officio;
– the acquisition of documents by the OTC or means of evidence that are not promptly produced by the parties would represent a similar violation of the preclusions established for the parties by article 183 of the Code of Civil Procedure and, in the same way, should also be censured ex officio.
The Joint Chambers carried out a wide-ranging reasoning, starting from the OTC’s function, his relationship with the judge and his role in the proceedings; They then analyse his powers and the relevant limits and conclude by establishing the consequences and procedural effects of any irregularities committed by the OTC.
First of all, the Joint Chambers clarify that the OTC is an auxiliary of the judge, who provides support to the judge in all areas in which he does not possess the necessary technical and scientific expertise to adequately examine the case assigned to him. Consequently, the OTC’s powers derive directly from those of the judge and are aimed at ‘the sole purpose of making the judge know the truth’.
Like the judge, therefore, the OTC is subject to the principles governing civil proceedings, namely the principle of the petition (according to which the judge must decide only on the basis of petitions and objections filed by the parties) and the principle of disposition (according to which the judge shall ground his decision on the evidence filed and requested by the parties). Within these parameters, however, there remain broad investigative powers for the judge and, consequently, also for the OTC.
The OTC, therefore, is not subject to the same limits or procedural preclusions to which the parties are subject. This is sufficient to dispel the doubt raised by the above-mentioned judgment of the Court of Cassation and the Ordinance for reference.
The next turning point concerns the powers of the OTC. In fulfilling the mandate imparted by the judge, the OTC may not deviate from the allegations of the parties or acquire documents or other means of proof aimed at proving the main facts underlying the claim or the objections aimed at refuting it. It may, on the other hand, obtain documents or other forms of evidence relating to secondary facts or matters ancillary to those facts, in so far as they are necessary to answer the questions put by the court. This is the case irrespective of the parties’ production and the deadlines imposed on them, provided that the OTC respects the principle of the adversarial process and therefore allows the parties and their advisers to examine and discuss the new documents.
Therefore, when the OTC acquires new documents within the abovementioned limits respecting the right of defence according to the adversarial principal, his report will not be vitiated by nullity, otherwise the report will be vitiated by relative nullity according to art. 157 c.p.c. and shall therefore be contested by the interested parties at the first useful opportunity.
If, on the other hand, the OTC acquires new documents beyond the limits of his powers (because they refer to the main facts underlying the claims or exceptions of the parties), then his report will be vitiated by absolute nullity, which can also be detected ex officio and, failing that, can be censured on appeal pursuant to art. 161 of the code of civil procedure.
IS IT POSSIBLE TO POSTPONE THE COMMERCIAL OPERATION OF AN INCENTIVISED PLANT?
Pursuant to the Ministerial Decree of 4 July 2019 (“FER Decree”), plants for the production of energy from renewable sources may access to public incentives through two different methods, depending on the power of the plant and the group to which it belongs: (i) enrolment in the registers and (ii) participation in tender procedures.
Plants that are admitted to the registers or in a useful position in the tender rankings may submit an application to benefit from the incentives within 30 days from the maximum deadline for entry into operation set by the FER Decree for the different energy sources. If the deadline for submitting the application for access to the incentives is exceeded, the late application (“out of time”) entails a postponement of the date of entry into operation, a reduction of the period of entitlement to the incentive as well as a possible reduction of the feed-in tariff or the forfeiture of the right to the incentives.
The incentive mechanisms (all-inclusive tariffs, incentive) are provided by the GSE from the date of entry into commercial operation, for a specific period for each type of plant, equal to the useful life of the plant itself. Pursuant to the Ministerial Decree of 23 June 2016, the date on which a plant enters into commercial operation corresponds to the date communicated by the power producer to the GSE, from which the incentive period begins; it differs, therefore, from the date on which a plant enters into operation, which is defined in the same Ministerial Decree as the moment in which, upon completion of the works functional to the operation of the plant, the first operation of the plant is carried out in parallel with the electrical system, as resulting from the GAUDÌ system.
As confirmed also by the new Operational Regulation for access to the Incentives of the Ministerial Decree of 4 July 2019 published by the GSE on 31 January 2022, the date of entry into commercial operation can be chosen by the operator, as long as it is within 18 months from the start of operation of the plant.
The possibility to postpone the date of entry into commercial operation of a plant awarded the public incentive represents an important opportunity for the power producer from renewable sources, since it allows, for an initial period not exceeding 18 months, to freely sell the energy produced by the plant on the private market through the signing of a PPA (Power Purchase Agreement) with a private trader, delaying the start of the incentive provided for in the Agreement with the GSE. Postponing the entry into commercial operation with respect to the entry into operation allows the operator not to be subject, for the aforementioned maximum period of 18 months, to the obligation to repay the differential in the event that the hourly zonal market price of electricity is higher than the incentive tariff awarded (Article 7, paragraph 7, of the FER Decree). Hence, in the current situation of the energy market, where the market price is (and is expected to remain in the near future) significantly higher than the awarded incentive, the deferral of the start of the incentive mechanism entails a potential economic advantage for producers of energy from renewable sources.
The last aspect that is worth considering is the plant financing. In fact, since the bank financing the project assumes, albeit only for the initial period not exceeding 18 months from the start of operation, a risk related to the market trend of the sale price of energy without the “safety net” of the public incentive, the same may require the producer to apply certain conditions to the PPAs signed for the period prior to the entry into commercial operation, in terms of the duration of the PPAs, the buyer’s rating, a guarantee covering the non-payment of the energy purchased, the right of step-in, etc.
m.patrignani@macchi-gangemi.com
m.dragone@macchi-gangemi.com
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