Did it really take a crisis to make us better auditors?

23 September 2020

“There comes a time in every life when the past recedes and the future opens. It’s that moment when you turn to face the unknown. Some will turn back to what they already know. Some will walk straight ahead into uncertainty. I can’t tell you which one is right. But I can tell you which one is more fun.”

When I used this quote by Philip H. Knight, the founder of Nike and a fellow CPA, in my 2019 message, I knew it was relevant but I could never have imagined how much it would gain in significance barely six months later.

With the COVID-19 pandemic and its many implications to how we work, what we have encountered since is the real-life version of the Black Swan event I only knew from strategy lessons at business school. The kind of situation we never expected to have to face, the one where we are standing at the abyss and the future does literally opens up.


Yet, when examine a range of significant historical events, we see that crises and upheaval have always played an important role in bringing change. When we are faced with what seems to be unsurmountable difficulty, we move forward. One might even argue that we need a crisis to overcome our fears, spring into action, and excel.

It appears to me that the above theory holds true for us auditors. When discussing Auditor Proud Day with colleagues last year, conversations were dominated by negativity: fee pressure, difficulty to recruit and retain young talent, ever-growing expectations and the expectation gap in general were recurring topics.

Looking back at the past six months, the picture is a very different one. Once the first shock was over, many of us experienced a speedy adoption of technology, an increase in communication, collaboration across the traditional boundaries of service lines and, most importantly, an almost unprecedented amount of thought leadership and adaptability with one overarching goal: servicing our clients as best we could and helping them through the crisis.

Rather than lamenting the existence of an expectation gap and responding to it with more of the same, auditors have demonstrated that they could do so much better. Many of us, myself included, have been surprised more than once by what I call the ‘silent heroes’: Colleagues who have always been working quietly in the background and who have suddenly risen to the challenge and made a real difference in the lives of their co-workers and our audit clients.

Maybe someone had a particular gift with technology that suddenly became invaluable, maybe a person excelled in quickly adapting our audit methodology to an environment where all of our work had to be carried out remotely, or maybe someone could just speak to team members and clients with the empathy we all so desperately need these days to keep going.

It is truly inspirational to listen to ideas from all over the world and feel the determination not to see our situation as a never-ending disaster but an opportunity to write new success stories together.

The crisis has forced us to modify our audit approach to one with a lot more client focus. Risks are being analysed differently and solutions adapted, business opportunities around cyber security, GDPR, taxation and a variety of attest services represent a true value add for both firms and clients, communication might be virtual but is often more tailored to individual client situations than before. For the first time in many years, I am getting the impression that we might be closing the expectation gap little by little.

Hermann Hesse said ‘I have always believed, and I still believe,  that whatever good or bad fortune may come our way, we can always give it meaning and transform it into something of value.’

In 2020, auditors have done exactly that: Many of us have not only transformed their relationships with clients but also those within our teams, giving relationships a different focus and making them more meaningful. I for one did not expect that we would be able to turn a crisis into so much positive change and, on the occasion of this year’s Auditor Proud Day, this is indeed something to be genuinely proud of.

Join the conversation on social media using #AuditorProud.

Bettina Cassegrain

Technical Director & Global Assurance Leader


Growing through acquisitions:

A strategy for growth

16 September 2020

Value creation in any business is rooted in growth. All other things being equal, higher-growth businesses enjoy greater transaction multiples (and, consequently, value) than do companies with lower growth rates. Growth in a business comes from five different sources:

  1. Expanding the product set offered
  2. Reaching more customers through existing channels
  3. Expanding sales and distribution channels
  4. Vertical or horizontal integration
  5. Creating new strategic business lines

All of these growth sources can be built internally or bought through acquisition.

To buy or to build?

How do owners or managers decide to buy or build? Generally, teams make decisions based on the tradeoffs between the two, and strategic need will drive such decision making. The tradeoffs that enter into these decisions revolve around speed (a buy decision can execute faster than a build strategy), cost (generally higher and front-end loaded for an acquisition) and risk (a buy decision is usually “all or nothing” while a build decision provides an “out” if the strategy does not execute to satisfaction).

Due diligence and strategy for buying

A growth strategy centered on making an acquisition (or series of acquisitions) should be designed as any other strategy. What is it that you are trying to acquire? The list of attractive attributes of acquisition candidates typically include:

  • Speed of market entry
  • Revenues
  • Customers
  • Supply chain security
  • Product lines
  • Intellectual property
  • Management talent
  • Capacity absorption
  • Operating synergies

Other considerations during an acquisition include:

Affordability: The affordability of an acquisition and having financing sources available to close the deal must also be considered in developing a strategy. Commercial lenders remain inwardly focused on existing portfolios and customers’ credit quality and needs and may shy away from “story” deals that rely on pro forma synergies to work. That said, opportunities always exist, so take the time to develop these relationships.

Culture: Keep cultural fit of a company firmly in mind when considering possible sellers. Take the time up front to create granular criteria of strategic and cultural fit as well as the cost to acquire. Once this criteria is developed, assemble target lists of potential acquisitions on which to focus outreach efforts.

Not knowing the answers to the above questions creates the risk of wasting scarce resources (time, cost of analyzing opportunities, etc.). With a solid acquisition strategy and plan in place, companies will not be reviewing multiple opportunities with targets that do not fit their needs or be distracted from the day-to-day of running the business with sellers that will not fit.

Post-acquisition success

A significant challenge to succeeding with an acquisition strategy is the work involved in integrating operations after the transaction has closed. Even if an acquisition strategy is well designed and executed, not taking the time up front to consider how organizations will be merged can prove costly and time-consuming, and in extreme cases, acquisitions that do not have a properly planned integration fail. Start early and involve the entire management team, particularly finance and HR, once it becomes apparent that a prospective target is becoming a true opportunity. Assess which management team members from both companies will be retained and which will either be superfluous or the best of both organizations.

Involve the rest of the advisory team as an acquisition begins making progress. Both outside legal and accounting teams should be involved from the start. They can help work through term sheets, structures, documentation and how a financial statement combination will look post-deal, as well as tax implications. Experienced attorneys and accountants will provide independent guidance and advise when to put the brakes on before making costly mistakes. Consulting advice before you begin the process to establish acquisition criteria is an important service our Transactions Advisory professionals can assist you with. We support you by building a holistic advisory team to ensure harmony on a company’s side throughout the process.

Looking to the future

The COVID-19 pandemic has created unique opportunities for acquisition success. Competitors may be under financial stress and have need of a lifeline to survive. Strategic customers or suppliers may find themselves in similar straits and may be seeking a merger. In many industries, acquisition multiples have declined materially during the pandemic, presenting more attractive valuations for buyers and making financing potentially easier to obtain.

By David Horwich, HLB USA

Get in touch

Whatever your question our global team will point you in the right direction

Start the conversation

Ireland and Apple successfully appeal EU Commission tax ruling

17 July 2020

In what for many was a surprising outcome, the General Court of the European Union (GCEU) has overruled the decision by the European Commission in respect of Ireland’s tax treatment of Apple.

The Commission ruled in 2016 that Ireland had “granted illegal tax benefits to Apple” resulting in State Aid and ordered Apple to pay €13.1bn plus interest, in unpaid taxes, an accusation both Apple and the Irish government refuted. The Commission’s challenge was not to Ireland’s tax laws, but rather the application thereof.

Whilst the specifics of the Apple case centre around a variation on a now defunct tax structure known as the “Double Irish”, and therefore would not be applicable to foreign corporates looking to Ireland today, the key point on trial for Ireland was the confidence in, and international view of, the Irish tax system’s integrity.

The decision comes as a significant win, not only for Apple but also for the Irish economy. As noted by Ireland’s Department of Business, Enterprise and Innovation, “Foreign Direct Investment (FDI) has been, and will continue to be, a key plank upon which Ireland’s economy is built. Its contribution to the economy is far-reaching and it’s estimated that 20% of all private sector employment in the State is directly or indirectly attributable to FDI”. If anything, that importance is understated as anyone looking at a list of the top 50 companies in Ireland can testify. A decision in favour of the Commission would have cast a shadow of doubt on Ireland’s reputation internationally as a business location and could have impacted the competitive world of attracting FDI.

After much scrutiny, the episode has highlighted two key strengths in Ireland’s approach to FDI. Firstly, it found that Ireland adheres to Irish and European rules in relation to levying tax and operates on a level playing field. This will surely help restore any lost confidence resulting from the 2016 ruling. Secondly, and perhaps most significantly, when the case came against Apple, the Irish government stuck by the world’s largest taxpayer. Rather than accepting the €13.1bn in tax, which evidently would have been wrongful to do, they instead looked to the long term significance of the decision. The government fought to maintain the integrity of Ireland’s tax system and FDI commitments rather than take a short-term political gain. In doing so it has reinforced Ireland’s position as one of the world’s leading places to do business.

The European Commission has two months and ten days to appeal the decision to a higher court. It was widely believed an appeal would be inevitable, regardless of the outcome of the hearing, given the time and resources already committed to the case. Such an appeal may continue to drag the situation out for some years, but for now, at least, Apple and Ireland have won the first battle, sending an important message to other markets, and will approach the next step with renewed confidence as the judgement was robust and decisions in the GCEU are rarely overturned.


By Bruce Stanley, HLB Ireland

Get in touch

Whatever your question our global team will point you in the right direction

Start the conversation

Government bailouts and the opportunity to rebuild better

13 July 2020

The COVID-19 virus hit the world economy swiftly, taking a devastating toll on businesses of all sizes, from small restaurants and family-owned retail shops to multinational corporations. Governments have stepped in to provide more than US$9 trillion in various forms of stimulus to mitigate the long-term fallout.

In the short term, these loans and cash infusions have propped up the economy and provided assistance for business recovery, but the virus has proven relentless and the road to full recovery looks long. The vast majority of countries remain on the brink of recession, which means that more government stimulus is likely to come.

The “Great Reset”

As leaders debate what type of aid to provide businesses, and how much, there is the possibility for governments to use their leverage in rescuing distressed corporations as an opportunity to create a better future — not just back to normal, but a new normal where we emphasise social and environmental responsibility over corporate profits.

The virus essentially hit pause in our lives, and the World Economic Forum has called for a “Great Reset” as we prepare to push play again. We need to reflect on the lessons of the 2008 economic crash, where stimulus packages led to the largest increase in carbon emissions in 50 years, followed by a decade of sluggish recovery that only exacerbated some of our biggest global challenges, so we can use this crisis to create meaningful change.

By attaching the appropriate strings and conditions to bailouts, governments can encourage responsible business practices to address climate change, income inequality, and job insecurity, while protecting against future shocks by creating a more resilient economy.

Rebuilding greener

Just weeks before news of a novel coronavirus started trickling out of China, world leaders were meeting in Madrid for a United Nations climate summit. On the agenda were severe warnings from leading scientists that we are much closer to a global “point of no return” than previously thought. Instability in Antarctic and Greenland ice sheets, sea level rise, and global temperature increases are exacerbating severe weather events and forcing the mass migration of millions living in vulnerable coastal regions. Warmer ocean temperatures may forever alter Australia’s Great Barrier Reef, leading to a profound change in marine biodiversity. Deforestation is devastating the world’s largest rainforest.

In the wake of COVID-19 as governments weigh the requests for assistance from large corporations, some are attaching conditions and requirements to the financial aid — a sort of “green tax” — to address these looming climate crises.

Australian lawmakers, for example, required that a portion of state aid for Australian Airlines be used to hit specific targets for reducing carbon emissions. The final deal includes requirements to reduce total emissions by 30 percent by 2030 and eliminate short-haul flights where a train route is available, among others. France followed suit with its own conditions for an Air France bailout.

Other opportunities include:

  • Providing more subsidies to diversify energy options, adding more renewable energy to reduce reliance on coal and other fossil fuels
  • Strengthening initiatives surrounding sustainability in food production, and requiring farmers to invest portions of bailout money to reduce pollution
  • Requiring disclosure and more stringent reporting about firms’ financial risks and exposure related to climate change or other dual economic-climate threats

Income inequality and job insecurity

Furthermore, COVID-19 has uncovered social inequality across a great number of countries. While pre-pandemic the global economy looked good on paper, the record-breaking global stock markets belied a system where real wealth for most people was stagnate or declining.

Hoping to avoid a repeat of the short-sighted business practices, financial risk exposure, and profiteering that corporations engaged in following the 2008 bailout after the Great Recession, governments should be taking a long-term view by requiring aid to be used for initiatives that prioritise worker well-being over profits. For example, Denmark, Poland, and France all denied bailouts to any company with headquarters in a “tax haven” country, reasoning that companies purposely avoiding taxes should not be able to request handouts from those same tax coffers.

Governments have also attempted to leverage financial aid to stem the tide of employee layoffs. In the US, large companies that took stimulus money must keep at least 90 percent of employees on its payroll through September 30 (some have already announced plans to start laying off employees in October, calling into question how effective the incentive will be). The Netherlands has promised to cover 75 to 90 percent of employees’ salaries for companies that avoid layoffs.

Governments should also use their leverage to limit payouts to companies with large stockpiles of cash, or those loaded with excessive debt from paying out huge dividends to shareholders. Setting limits on share buybacks or dividend payouts makes sense when taxpayer money is used to prop up corporations.

In addition to these short-term measures, now is also a time to consider massive investment in long-term strategies to improve wages and increase wealth for the “squeezed middle” and the poor, such as:

  • Tax credits or incentives for first-time homebuyers, since homes are the largest asset for most middle-class families. Just last week the UK announced a stamp duty holiday, making it more attractive to buy a house in England and Northern Ireland.
  • Investments to make university education more affordable for more people without crippling debt upon graduation. The increased interest in online schooling can play a big role in making education more accessible to everyone.
  • Investment in public infrastructure to guarantee low- and middle-income families access to things like high-speed internet and affordable transportation.

A fork in the road

Right now we are sitting at a significant fork in the road. On one side is the choice to continue down the same road we have been on for decades, a return to “normal” where corporate profits take priority while middle and low income families are further marginalised, and environmental destruction is ignored. On the other side is the choice to force industries and corporations to address climate change in real and meaningful ways, and to strengthen wages for workers who make up the middle and lower income classes to the benefit of the entire global economy. Governments hold the power to require these changes, and COVID-19 poses a unique opportunity to exercise that power.

Germany reduces VAT rates to help strengthen economy

4 June 2020

In order to strengthen the economy and to mitigate the economic consequences of COVID-19, the German government decided on Wednesday evening, 3 June to reduce the VAT rates applicable from 1 January 2007 for goods and services supplied after 30 June 2020 and before the end of 31 December 2020 (hereinafter: change period). The standard tax rate is to be reduced from 19% to 16% and the reduced tax rate from 7% to 5%. The corresponding implementation is pending and can be expected.

It is unclear whether those responsible for this measure were aware of the very considerable amount of additional work this will trigger in the companies. It remains to be seen whether this will actually stimulate the economy or whether it will burden it further.

What does the measure mean for you as an entrepreneur?

First of all, we assume that in the short term a letter from the German Federal Ministry of Finance will be issued on the subject, which will clarify individual questions, – as has been the process in the past – whereby the facts of a tax rate reduction are singular; up to now the tax authorities have only had to deal with tax rate increases. The following therefore attempts to anticipate the implementation of the reduction and to provide an initial overview of which levels of the VAT assessment may be affected.

The general rule is:

  • The time of the agreement of a contract/the order/the offer or a concretely agreed service/delivery date are irrelevant; therefore, the tax rate cannot be “shifted” by this. To determine the tax point for VAT purposes, it’s decisive, when the supply actually gets carried out.
  • The invoice date is also irrelevant. By means of simplification, invoices often state that the invoice date is also the date of delivery/service. However, if this is actually not true, the wrong tax rate may be shown and the wrong amount of VAT calculated; apart from the fact that the deduction of input tax from such an invoice is at risk if the date of delivery/service is incorrect.
  • This means anyone wishing to benefit from the reduced tax rates; for example, because there is no right to deduct input tax (public bodies outside the business sector; entrepreneurs who carry out transactions for which the right to deduct input tax is excluded, such as doctors/banks/hospitals) should check whether it is possible to postpone the actual receipt of supplies/services until the change period, if necessary, in order to reduce the amount of non-deductible input tax.
  • It will become even more attractive for online trading to opt for the “German” tax rate, because the tax rate difference to most EU-member states will increase.
  • It is currently unclear if, for example, it will be possible to use the final invoice in the change period to retroactively reduce the tax rate on advance invoices that have already been invoiced (and possibly paid) and thus trigger a refund from the tax authorities.

We would like to point out the following points separately:

VAT – tax point

VAT (on agreed payment) arises with the supply of the delivery or service. If this point in time lies within the above-mentioned change period, the reduced tax rates are to be applied. If the deliveries/services are provided before 1 July 2020 or after 31 December 2020, the “old” tax rates (19% or 7%) are still or again to be applied.

Please note: If you do not take the reduction into account and continue to invoice at the previous tax rates, you will also owe the excessive VAT amounts until an invoice correction and the refund of overcharged VAT has been made (§ 14c UStG – German VAT Act) – regardless of the amount actually paid by your customer.

VAT (on received payments) arises upon receipt of the payment for the supplies/services rendered. If this point in time lies within the change period, the reduced tax rates are to be applied. If the remuneration is received outside the change period, the conventional tax rates are applied.

Input tax deduction

If you receive incoming invoices that were invoiced for deliveries/services provided in the change period, please note that only the tax owed by law may be claimed as input tax. Even if your contract partner ignores the reduced tax rates, this means that “only” the correct input tax can be claimed (i.e. 16% or 5%). When paying the invoice, please make sure that you only pay the correct gross amount and ask your contract partner to correct the invoice. Make sure that discounts are calculated correctly.

Reverse charge/tax liability of the service recipient

If you make (outgoing) sales for which the tax liability is shifted to your contractual partner, nothing changes for you; the billing of net invoices with the corresponding invoice note remains. If, however, you are the recipient of the service, the tax liability in the case of a service/delivery supplied in the change period must be calculated according to the reduced tax rates and only an input tax deduction of the corresponding amount must be claimed.

Intra-EU acquisitions

The same applies to intra-EU acquisitions, i.e. the purchase of goods from other EU-member states. These are also subject to the reduced tax rates if they are purchased during the change period; in particular when claiming input tax deduction.


We are hoping for detailed regulations for the specific implementation in the areas of partial services/partial payments/down payments/preliminary invoicing/services such as rental, leasing, maintenance etc. Furthermore, special features arise in the case of vouchers issued.

Understanding, evaluating and improving your supply chain in the wake of the coronavirus crisis

20 April 2020

COVID-19 has forced both domestic and multinational companies to re-think the way they source materials and supplies in order to get inventory to the marketplace as quickly as possible. But the immediacy of having to act in response to the coronavirus pandemic also affords businesses the opportunity to evaluate and identify inefficiencies in their supply chain so they can implement better operational strategies going forward.

Firms are currently struggling with a variety of issues. One common theme is replacing or augmenting manual processes which are dependent on the action of individuals. For example, manually inputting information—whether it be for purposes of filling orders or completing a multitude of tasks—can get easily delayed and slow the supply chain process. The cause may be that people simply cannot work from home, or perhaps they do not have remote access to the tools needed to fully perform their role in the chain. These are issues that are generally problematic, but heightened even further in a time such as this where businesses are struggling financially.

Disruptions can also occur in one form or the other due to coronavirus-related transportation restrictions, such as a failure to secure materials needed for production, or the inability to fulfil shifting customer demand. Businesses generally know the production and shipment schedules for their tier 1 suppliers, but may not know details of additional suppliers in the chain.

Additionally, functions involving physical acts, such as wet signatures on documents, bills of lading, paper printouts and/or notices that must be filled out by hand, etc. have all been compromised by the coronavirus for safety reasons; but this also demonstrates how dependent on these items/processes the supply chain might be, and how quickly the chain can be halted.


If companies take the time now to identify where problems or inefficiencies exist in their supply chain, then they can decide how to best address them in the short-term as well as going forward. To get a handle on exactly what has changed and how to adapt, it is advisable to visualise and document core pieces of the disrupted process. Define who does what and when they do it so the entire supply or operational process is laid out, and you can see exactly how things work (or how they’re supposed to work).

If your company’s processes are too reliant on individuals and/or are too hands-on, explore whether any operations can be automated or digitised. If there are issues with access to existing IT systems while employees work from home, look for ways to securely provide your company’s desktop environment to the now-remote workers.

Companies may have resisted digitising their supply chain processes so far, but digitising can help promote not only visibility of the supply chain, but also the ability to better manage risk where data can be available or transferred digitally. With tech advancements are of course security priorities as well, but businesses with strong digital infrastructure are dealing with supply chain disruptions much better than those without during this COVID-19 pandemic.

If you take the time to evaluate your company’s supply chain processes now in order to adapt to the difficulties of the coronavirus, then benefits will be felt well beyond the time governments start operating normally once again. The effort, costs, and time needed to improve your business now can lead to streamlined and sustained operational success going forward.


By CJ Stroh, HLB USA

Get in touch

Whatever your question our global team will point you in the right direction

Start the conversation

Italian Real Estate Market: A Taxation Overview

24 February 2020

The Italian real estate tax system configuration has a complex nature and involves all levels of government. It differs as a function of the parties involved (companies and professionals, or those not exercising the business activities and self-employment) and the nature of real estate (houses and buildings for industrial use). Thus, a case by case analysis should be conducted in order to ascertain the right tax treatment for income derived by real estate properties. Generally, the real estate tax consists of taxes on income, wealth and on the transfer deeds. There are four main categories of taxes levied on real estate:

  1. Nature of tax “income” whose premise is the income produced from the property or possession of the property (personal income tax, corporate income tax);
  2. Nature taxes “asset” whose premise is the ownership or possession of the property (IMU);
  3. Tax on public services provided to property owners (TASI);
  4. Tax on the transfer of property for consideration (VAT, registration, mortgage, land).

Income Tax

Real Estate income from properties situated in Italy is typically subject to Italian income taxes. The income generated by the properties contributes to the formation of the tax base which is applied to the personal income tax (PIT-IRES) levied on individuals and companies. For individuals the income derived from properties is subject to a personal progressive tax or and from 2011, on the lessor’s option, to the “flat rate tax scheme (cedolare secca)”. For companies’ income derived from properties is subject to corporate income taxes “IRES” levied at 24% rate on the net income a Regional Tax on Productive Activities (IRAP) of levied at 3.9% (i.e. standard rate) on the net production value.


Property tax

The Municipal Tax on Real Estate (‘Imposta Municipale Unica’ or ‘IMU’) is levied on the ‘cadastral value’ of immovable properties located in Italy. Everyone who owns a land or a property in Italy, whether they are resident or non-resident, must pay IMU. The law provides for a 0.76 percent standard rate, but municipalities can increase or reduce such standard rate by 0.3 percent. If the property is passed as uninhabitable or being restored, the tax is reduced by 50 percent. This tax is partially deductible for corporate income tax purposes.

Tax on public services

The premise of the tax on public services is the possession of any kind of buildings, including the main house, whatever its use, which in turn is divided into Tribute for indivisible services (TASI) and the tax on waste (TARI) to finance the costs of collection and disposal of waste. Also, for TASI, the taxable base is the cadastral income, as determined by the immovable property registry, multiplied by a coefficient equal to 160 for residential property and to 65 for business property (with some exceptions). The combined rate for IMU and TASI ranges from 0.46% to 1.06% depending on the municipality. This tax is partially deductible for corporate income tax purposes.

Transfer tax

Acquisition of real estate in Italy is subject to transfer duties (registration, mortgage and cadastral tax) and/or VAT. A registration tax is usually levied on the transfer of immovable property located in Italy (DPR 131/1986). The rates vary according to the property transferred. The standard rate is 9%. A reduced rate of 2% applies to transfers of immovable properties qualifying as first dwelling, and a 15% rate applies on transfers of agricultural land, except for transfers to agricultural entrepreneurs. In all cases, the minimum registration tax levied is EUR 1,000. In addition, mortgage and cadastral taxes are levied on the transfer of immovable property at a lump sum of EUR 50 each. In the case of commercial property, mortgage and cadastral taxes are levied at a total rate of 4%. Most frequently transactions of commercial properties are between companies. In this case VAT is charged on the sale price at a rate of 22%. However, if the transaction is subject to VAT, registration, mortgage and cadastral taxes are levied at a lump sum of EUR 200 each.

Incentives introduced for real estate redevelopment

After three years of growth, with a record-breaking 2017, the Italian real estate market suffered a setback in 2018 and has been influenced by political and economic uncertainty. In order to revert this negative trend of the Italian real estate market, the Italian law (with the so called “Growth Decree” converted in law on June 27, 2019) introduced new tax incentives to boost the sector.

First of all, the Decree provides for numerous measures aimed at facilitating the disposal of non-performing loans owned by banks and financial institutions through securitisation transactions in order to facilitate the transfer of position classified as ‘probable default’ and widen the scope of securitisation SPV. Furthermore, the Decree has clarified that amounts deriving from the acquisition, management and disposal of real estate properties performed by Real Estate Company and Lease Companies qualify as a so called ‘patrimonio separato’, thus they are classified as ‘off-balance items’ that should not be subject to corporate income tax.

In transfer tax, the Decree introduced a negligible fixed amount for the transfer taxes (e.g. registration tax, mortgage and cadastral taxes), irrespective of the nature of such properties, for the acquisition of real estate proprieties carried out by real estate companies and lease companies. Further incentives have been introduced in relation to the transfer of buildings in favour of construction or renovation companies which, within 10 years following the transfer, will demolish, rebuild (in compliance with the anti-seismic regulations and the new building is classified in energy classes “A” or “B) and finally sell the transferred building. The incentives are granted for transfers occurring within 31 December 2021 and even if the renovation activities will imply a volumetric variation of the existing building. The tax incentives consist of the application at fixed Euro 200 rate of registration, mortgage and cadastral taxes upon the transfer or upon the “disposal” of the building.

It is expected that growth in the sector will come from logistics and hotels, while in retail no significant growth is forecasted. Based on findings from the Italian Housing Market Survey, issued by Banca d’Italia, it appears that the Italy’s housing market is recovering gradually, despite the country’s struggling economy. The tax incentives introduced will help boost real estate companies and lease companies activities which is leading to a rise in demand and increase in residential and logistic construction activity, with an overall market outlook improvement.


By Francesco Dori, HLB Italy

Get in touch

Whatever your question our global team will point you in the right direction

Start the conversation

Italy introduces new tax incentives to attract foreign talent

7 February 2020

When the labour market is competitive, recruiting from aboard is a solution to finding the best talent. However, attracting foreign professionals to Italy has been a challenge due to its taxes and the country has tried multiple times to reduce the amount foreigners would have to pay. This has now changed as of 2020, as Italy has revised and extended the benefits initially established by article 16 of Legislative Decree no. 147/2015 for workers who transfer their tax residence to Italy. 

This reduction is one of the widest across Europe and will allow foreign people, whether they be employees, freelancers or retired, to come to Italy with a relatively low tax rate on their worldwide income.


Here are some details to be noted: 

  • For five years, 70% of income from freelance work, employment or pension will be considered as exempt from tax if 1) the worker has not been resident in Italy during the two tax periods prior to moving the tax residence to Italy (no longer five, as in the original formulation);  2) the worker agrees to remain in Italy for at least 2 years;  3) the work is predominantly done in Italy.  
  • The benefit has been extended to all workers and not only those in managerial roles and those having a higher/specialist qualification or degree.  
  • The benefits also apply to business income produced by people who return to Italy who start a business from 2020. 
  • A further five tax periods are envisaged (for a total of 10 years): 50% of taxable income, for workers with at least one child who is dependent or under 18, or for those who purchase a house in Italy after moving to the country or in the 12 months prior to moving; 90% of taxable income, for workers with at least three children who are dependent or under 18.  
  • The amount increases up to 90% if the worker moves to Abruzzo, Basilicata, Calabria, Campania, Molise, Puglia, Sardinia or Sicily.  
  • Specific rules have been decided for sport players 

This benefit can also be used in some cases, provided the requirements are met, by seconded workers who return to Italy. More specifically, the worker can use these benefits, alternatively:  

  • if the duration of the secondment was especially long – due to an extension of the secondment – and so it is possible to affirm weakened ties to Italy and consequent rootedness in the foreign country;  
  • if, on returning from the secondment, the worker takes on a different role to the one held originally, partly because of the know-how and experience gained abroad. The key is thus that the role on returning to Italy is not a continuation of the prior one. 

By Luca Pirola, HLB Italy

Additionally, a particular regulation has been approved for teachers and researchers who have undertaken research or taught abroad for 2 years in a row and then officially move back to Italy (i.e. return residence to Italy): they will only pay 10% tax on their employee income or on their self-employed income as follows:  

  • for seven years following the official date of moving back to Italy, if they have a minor or dependent child, including in pre-adoption care, or if they purchase at least one home in Italy after moving to Italy or in the twelve months prior to moving;  
  • for ten years following the official date of moving back to Italy, if they have two minor or dependent children, including in pre-adoption care;  
  • for twelve years following the official date of moving back to Italy, if they have three minor or dependent children, including in pre-adoption care.  

While a careful check on a case by case basis in order to verify if the tax break is applicable is highly recommended, this his tax reduction makes Italy one of the most tax attractive states of Europe. 

Get in touch

Whatever your question our global team will point you in the right direction

Start the conversation

New double taxation treaty between the Netherlands and Ireland 

3 February 2020

The new income and capital tax treaty between Ireland and the Netherlands was signed on 13 June 2019. Once in force and effective, it will replace the 1969 tax treaty between the two countries. It is expected that the new treaty will become effective on taxable events from 1 January 2021.  

In light of this new treaty, it is advisable to review any existing structures throughout 2020. Companies are already acting upon this, and it may be one of the reasons Alphabet, (Google’s parent company) abolished it’s so called “Double Irish Dutch Sandwich” structure as from 1 January 2020. 


1969 tax treaty between the Netherlands and Ireland 

The 1969 tax treaty entered into force on 12 May 1970, when Ireland was not yet part of the European Union. The 1969 treaty is based on the 1963 OECD Model Tax Convention. In those days, the purposes of a tax treaty were to attribute taxation rights and tavoid double taxation. The 1969 tax treaty does not include a general anti-abuse clause. 

Furthermore, the amount of specific anti-abuse clauses is very limited. For example, the article regarding dividend withholding tax does not even include a beneficial ownership condition. 

The national rate of dividend withholding tax in the Netherlands is 15%. Interposing an Irish holding company (without real substance) in a structure was a simple solution to avoid the levy of Dutch dividend withholding tax (so called treaty shopping). Under the tax treaty, the Netherlands was not allowed to levy withholding tax on dividends paid to a shareholder in Ireland. 


Developments in international taxation 

On the one hand, anti-abuse measures were introduced in Dutch national legislation and EU Directives. More recently, as part of the Base Erosion and Profit Shifting Project (BEPS), the OECD issued the Multilateral Instrument (MLI) allowing governments to implement minimum standards in existing tax treaties to counter treaty abuse. The 1969 tax treaty between the Netherlands and Ireland is not a “covered tax agreement” under the MLI-project, because the Netherlands and Ireland were already negotiating on a completely new tax treaty for several years. 

On the other hand, the Netherlands decided to no longer levy withholding tax in genuine structures whereby the corporate shareholder carries on an enterprise and is a resident of an EU/EER member state or a resident of a country which has closed a tax treaty with the Netherlands. Dutch dividend withholding tax is now – in line with EU legislation and case law – only due in non-genuine structures which are used to avoid the levy of taxation by the Netherlands. 


2019 tax treaty between the Netherlands and Ireland 

The new tax treaty has now entered force and will became effective on taxable events as from 1 January 2021. The new tax treaty includes several anti-abuse measures which are also part of the MLI-project, such as: 

  • The preamble mentions that the purpose of the tax treaty is not only to avoid double taxation, but also to avoid tax evasion and tax avoidance; 
  • Mutual agreement procedure for dual resident companies, whereby the place of effective management may no longer be decisive; 
  • Provisions to counter artificial avoidance of permanent establishments in the source country; 
  • Beneficial ownership conditions for exemption from dividend, interest and royalty withholding tax; 
  • Holding period of 365 days for exemption of dividend withholding tax; 
  • General anti-abuse clause in the form of a principal purpose test. This means that the tax treaty will not apply if obtaining a treaty benefit is one of the principal purposes of an arrangement or transaction, unless the desired outcome is in line with the object and purpose of the relevant provision of the tax treaty. 

As previously mentioned, it is advisable to review any existing structures throughout 2020 because it may still be possible to restructure without incurring any adverse tax consequences.


By Rob Huisman and Pascal Scheerder, HLB The Netherlands 

Get in touch

Whatever your question our global team will point you in the right direction

Start the conversation

Are Business Leaders ready for the 2020’s?

6 January 2020

What does the new decade have in store for you and your business? The 2010s were a period of political and economic upheaval. Business has been troubled by unforeseen geopolitical, social and trade developments, and unsettled by rapid technological change. Will the 2020s bring more of the same? Or are boom times on the way?

As a new decade dawns, we sought out insight into how business leaders see the future through HLB’s Inaugural Survey of Business Leaders.

We’ve asked 368 business leaders in five continents about their concerns and their priorities for the coming 12 months. What issues will define the coming year? What new business opportunities excite them? And what will their priorities be in 2020?

Their answers are illuminating, and surprising.

Business thrives on certainty, and given the upheavals of recent years, it’s no surprise that leaders are looking ahead to the new decade with trepidation – at least, when it comes to the economy.


However, when it comes to discussing prospects for their own firms, business leaders are remarkably upbeat. While only 16% of leaders feel that global economic growth rates are likely to increase in 2020, 87% have confidence (58% somewhat confident, 29% very confident) in their ability to grow their businesses in the next 12 months.

Are business leaders right to be so blasé?

Leaders acknowledge that businesses will have to adopt more flexible models if they are to succeed in the 2020s. There’s a consensus among business leaders that companies will have to change – and change radically – if they are to keep pace with technological progress.

Despite this, our survey reveals that business leaders are in no rush to update existing operational models. In fact, when asked their priority for the year ahead, more leaders choose ‘operational effectiveness’ than any other option.

Changes to business models will be driven primarily by advances in technology. Though business leaders recognise the revolutionary implications of new technology, ‘digital capabilities’ ranks only third – behind ‘innovation’ and ‘operational effectiveness’ – in leaders’ priorities. Given the extraordinary potential of these technologies, should business leaders be doing more to ensure they are not caught out? And why the lack of urgency?

Do business leaders underestimate the extent to which their own firms will have to change in order to keep pace?

To get the full picture, join HLB for the global launch of its inaugural survey of business leaders, The Execution Challenge for the Next Decade on 16 January 2020.

Register for launch event

Hybrid mismatches tackled by the Dutch implementation of the EU Anti-Tax Avoidance Directive 2 (ATAD 2)

10 September 2019

On 2 July 2019, the Dutch State Secretary of Finance published a legislative proposal to implement the EU Anti-Tax Avoidance Directive 2 (ATAD 2) into Dutch domestic legislation. Given the variety of measures taken by ATAD 2, every structure that might be involved with hybrid mismatches, especially CV-BV structures, CV holding structures and imported hybrid mismatches, should be reviewed.

ATAD 2 aims to neutralize hybrid mismatches resulting in mismatch outcomes between associated enterprises, head offices and permanent establishments (i.e. situations with a double deduction or a deduction without inclusion). It covers especially financial instrument mismatches; hybrid entity mismatches; reverse hybrid mismatches; permanent establishment mismatches; tax residency mismatches and imported mismatches.

The newly proposed legislation will be effective as of 1 January 2020, albeit the rules on reverse hybrid mismatches will be effective as from 1 January 2022.

Financial instrument mismatches

A financial instrument is a debt, equity or derivative instrument. ATAD 2 defines a mismatch as a situation where a payment with respect to the instrument is deducted but does not lead to a corresponding inclusion at the level of the payee. A hybrid financial instrument also includes a hybrid transfer. This contains any arrangement to transfer a financial instrument where the underlying return on the transferred financial instrument is treated simultaneously by more than one of the parties to that arrangement.

The deduction of a such a payment shall not be allowed in the Netherlands when the payer is Dutch resident taxpayer. In addition, an optional second rule may apply in case the deduction is not already tackled by the primary rule, under which rule the payment will be included in the taxable income of the Netherlands if the receiver is a Dutch resident (the secondary rule).

Hybrid entity mismatches

An entity qualifies as a hybrid entity if according to one state the entity is non-transparent for tax purposes whereas according to another state the entity is transparent.

The mismatch may concern a payment to a hybrid entity which gives rise to a deduction without inclusion. This might be the case when the entity is considered as non-transparent by the jurisdiction in which the persons with a controlling interest in the entity are resident, but is considered transparent in its residence state, as a result of which the payment is not included in the taxable income of the recipient. In such a case, the deduction shall be denied in the Netherlands if the payer is a Dutch resident (primary rule). If the deduction is not denied by the state of which the payer is a resident (i.e. a non-EU Member State), the payment should be included in the taxable income in the Netherlands if the receiver is a Dutch resident (secondary rule).

It may also concern a payment made by a hybrid entity which results in a deduction without inclusion. This could be the case when the entity is considered as non-transparent in its residence state and makes a payment to a person that has a controlling interest in the entity and this person is resident in a state that treats the entity as transparent and therefore disregards the payment made by the hybrid entity. In such a situation, the payment will not be deductible at the level of the hybrid entity if the payer is a Dutch resident (primary rule). Otherwise, the payment should be included in the taxable income in the payee jurisdiction (secondary rule).

Finally, a hybrid entity mismatch may concern a payment by a hybrid entity resulting in double deduction. This might happen if the hybrid entity is considered as non-transparent in its residence state and considered transparent in the state that controls the hybrid entity, payments made by the hybrid entity are deductible in both the state of which the entity and the state of which the investor is a resident. Under the primary rule, if the investor is a Dutch resident, the Netherlands will deny the deduction if and to the extent the payment is deductible against taxable income. Otherwise, under the secondary rule, the deduction will be denied in the Netherlands if the payer is a Dutch resident taxpayer.

Reverse hybrid mismatches

This concerns the situation where an entity that is incorporated or established in the Netherlands and is treated as transparent, whereas the jurisdiction of one or more associated non-resident entities that hold in aggregate a direct interest of 50% or more of the voting rights, capital interest or profit shares in the entity treats this entity as non-transparent, resulting in a deduction without inclusion. Under the reverse-hybrid entity rule, such hybrid entity will be regarded as a resident taxpayer in the Netherlands. As one might notice, the reverse hybrid entity rule will not neutralize the effect of the hybrid mismatch, but rather tackle the hybrid mismatch at the source by making the hybrid entity entirely subject to tax.

Payments made to hybrid entities that result in a deduction without inclusion will in principle be tackled by the primary and secondary rule as from 1 January 2020 (see section B). As from 1 January 2022, these neutralizing rules will however no longer be necessary as there will be no mismatches anymore.

The reverse-hybrid rule will mainly affect Dutch transparent CV’s that are used in for example CV-BV structures, whereby the CV is considered as a transparent entity for Dutch tax purposes and non-transparent by the jurisdictions in which associated entities that hold qualifying interests in the CV are incorporated or established. Many of these structures have been set up because of the US check-the-box regime. As a result of the reverse-hybrid rule, such CV’s will be subject to tax in the Netherlands.

Permanent establishment mismatches

Hybrid permanent establishment (PE) mismatches concern situations where the business activities in a jurisdiction are treated as being carried on through a PE by the head office jurisdiction whereby such jurisdiction exempts the income derived from the PE while the other jurisdiction does not recognize a PE. In case the head office resides in the Netherlands, the object exemption for foreign profits will be denied as primary rule.

There may also arise mismatches in the allocation of income relating to deductible payments and mismatches in relation to deemed payments between a head office and a PE. In such situations the state of which the payer (PE) is a resident, should disallow the deduction (primary rule). If that state does not allow the deduction, the state where the head office is located, e.g. the Netherlands should deny the object exemption for foreign profits.

Finally, a hybrid mismatch may concern a deductible payment in the PE state and the head office state. In such a case, the state where the head office is located should deny the deduction if and to the extent the payment is deductible against taxable income. Where the deduction is denied in the head office jurisdiction, the deduction should be denied in the state of the PE.

Tax residency mismatches

A tax residency mismatch occurs when a taxpayer is a resident for tax purposes in two or more jurisdictions. This could result in deductions of payments, expenses or loses of taxable income in more than one jurisdiction. In such a situation, the deductibility or set-off should be denied by the EU Member State of which the taxpayer is deemed not to be a resident according to the tax treaty between those Member States.

Imported mismatches

An imported hybrid mismatch shifts the effect off a hybrid mismatch into the jurisdiction of an EU Member State using a non-hybrid instrument within the framework of a structured arrangement. In order to neutralize these imported mismatches, the EU Member State should deny the deduction of interest, expect to the extent that the other states involved have made equivalent adjustments in respect of hybrid mismatches.

By Erik de Ruijter and Corney Versteden, HLB Netherlands

Get in touch

Whatever your question our global team will point you in the right direction

Start the conversation

US tax reform impacts inbound foreign companies

6 June 2019

As 2017 ended, the United States (US) government implemented sweeping tax reform that impacts non-US companies doing business in the US. If you do business in or operate a subsidiary in the US, here are some key changes to consider:  

Reduced corporate tax rate 

The US has been well known as having one of the highest corporate tax rates in the world. Effective January 1, 2018, the US corporate tax rate changed from 35 percent to 21 percent. Many multinationals are considering whether prior earnings stripping and transfer pricing strategies may need to be evaluated due to this change.  

Foreign derived intangible income 

For US companies that have sales to foreign customers, a new tax incentive is available which allows for a deduction of 37.5 percent for qualifying sales. This deduction results in an effective rate of 13.125 percent and has the potential to reduce state taxes as well. Qualifying sales include unrelated and related party sales of property for foreign consumption and services provided to persons or with respect to property located outside the US. To qualify, the qualifying foreign income needs to exceed 10 percent of the US corporation’s qualified business asset investment (fixed assets). Many foreign companies are considering whether to shift activities to the US to reduce the effective tax rate on such income.  

Interest deduction limitation 

Foreign parented US companies were previously subject to an interest deduction limitation when interest payments were made to a related party and the debt to equity ratio of the US company exceeded 1.5 to 1. Due to tax reform, the interest deduction limitation applies to companies with gross receipts over US$25 million. The limitation applies to all interest, whether paid to related or unrelated parties, and is generally the excess of the total of a) business interest income b) 30% of the US company’s Adjusted Taxable Income and c) floor plan financing. Companies that utilize leverage need to evaluate the impact of this change and the need for potential changes to their capitalization strategy. 

Base Erosion and Anti-Abuse Minimum Tax (BEAT) 

US Corporations who have average annual gross receipts of US$500 million for the prior three years may be subject to a minimum tax of 10% (12.5% after 2025) on intercompany payments.  The BEAT will apply if the total deductible payments made to related parties is 3% or more of deductible expenses and the minimum tax exceeds the regular tax liability. Companies with significant intercompany payments may need to evaluate supply chain and transfer pricing strategies in light of the BEAT. 

Sale of US partnership interests 

As part of tax reform, the US government codified their view that the sale of an interest in a US partnership by a foreign person should be considered US effectively connected income (ECI) and subject to US taxation. In addition, they implemented a mandatory 10 percent withholding tax on the disposition of a US partnership interest by a foreign partner. Foreign partners operating as a partnership or joint venture should consider this change in planning their exit strategy. 


By Shannon Lemmon, International Tax Partner, HLB USA

Get in touch

Whatever your question our global team will point you in the right direction

Start the conversation
Get in touch

Share to:

Copy link:

Copied to clipboard Copy