EUROPE-WIDE Trends and Developments Contributed by: Munshya Mupela, Semra Altıntaş, Shirley Li and Joyce Lo, TPA Global
Lessons for multinational groups European DEMPE cases reveal several lessons, as set out below. Substance must match returns Holding IP in a low tax jurisdiction without performing DEMPE is no longer defensible. Courts want evidence of: • skilled personnel; • strategic decision-making; • oversight of risks; and Courts repeatedly disregard formal legal arrangements when conduct contradicts them. This was evident in both the Swedish and Italian cases, where economic reality dictated revenue allocation. Routine functions do not create intangible ownership Marketing, distribution, and administrative activities – even when important locally – do not constitute DEMPE unless accompanied by strategic, risk bear - ing roles. DEMPE documentation is essential Lack of robust DEMPE evidence often leads to: • denied deductions; • income reallocations; and • recharacterisation of transactions. • financial capacity to bear risks. Contracts must reflect conduct The message from European and non-European courts is clear: substance over form. If the IP owner lacks DEMPE substance, transfer pricing outcomes may be recharacterised under the OECD Transfer Pricing Guidelines. How Tax Technology Is Changing the Landscape in Europe and How Tax Authorities and Taxpayers Should Operate Author: Semra Altıntaş Introduction Tax technology is reshaping how tax systems operate across Europe. Developments such as DAC7, DAC8, Pillar Two, and VAT in the Digital Age (ViDA) are shifting compliance away from periodic reporting toward more
continuous, data-driven processes. Tax authorities increasingly rely on more frequent and granular data reporting combined with enhanced analytical capabili - ties, which in certain regimes may approximate near real-time visibility. This directly affects how taxpayers organise their internal processes. Tax is no longer a year-end exercise but is becoming embedded in day-to-day business operations, driven by data from enterprise resource planning systems and other digital sources. While technology plays a central role, the main challenge lies in how both tax authorities and taxpayers adapt their operating models. Tax processes are particularly suited to this transformation given their structured, rule-based and data-driven nature. This section of this Trends and Developments article examines how tax authorities and taxpayers should redesign their processes and governance frameworks to operate effectively in an increasingly technology- driven tax environment. How tax authorities and taxpayers should operate A three‑layer governance structure In a technology-driven tax environment, governance must operate across clearly defined layers. Generic AI protocols establish overarching principles, including accountability, transparency and ethical use of AI in tax processes. At an operational level, tool-specific protocols govern the application of individual tech - nologies in practice, including usage parameters and review responsibilities. Micro-certifications ensure that professionals have the competence to operate, supervise, and assess automated outputs. Govern - ance and capability development therefore form part of a single control framework. Four generations of tax technology maturity Tax functions operate at different levels of technologi - cal maturity. At Gen 1, processes are digitised without fundamental redesign. At Gen 2, the focus shifts to integrating and standardising data flows, improving consistency of outcomes. At Gen 3, systems support decision-making through AI-enabled recommenda - tions, while professionals retain responsibility for final judgments. At Gen 4, more advanced, artificial-gen - eral-intelligence-style environments enable integrated
69 CHAMBERS.COM
Powered by FlippingBook