West Germany has experienced a major revision of income taxation in recent times. Its major purpose was to mitigate distortive
effects of high marginal tax rates, but it also tried to achieve distributional goals—in particular, a preferenced treatment
of families with children and the exemption of tax for taxpayers with very low income. The main features of the reform are
briefly sketched in section 10.2.
In most countries applying a VAT system, the activities and transactions undertaken by public sector bodies are not subject to full taxation. The rationale usually invoked to justify lack of full taxation is of a mixed conceptual and political kind. On one hand, there is a view that the activities of those bodies are hard to tax and that, in practice, it is almost impossible to establish a single VAT treatment applicable to all of them. One the other hand, and more importantly, there is a perception that exclusion of the products supplied by public sector bodies from full taxation, achieves social and distributional aims. The rule under the EU VAT system is that supplies by public sector bodies are non-taxable. In practice, however, the VAT treatment of public sector bodies is extremely complex, giving rise to significant legal problems and economic distortions. The aim of this paper is to consider the current legislative framework, with special consideration being given to recent developments in this area, at both legislative and jurisprudential levels, in an attempt to determine whether they constitute positive progress, or whether together they represent a slow and subtle move towards a further deepening of the system’s already existing flaws.
The United States’ cost sharing regime enables multinational enterprises to export United States intangible property to low or no tax jurisdictions, essentially tax-free. This is in stark contrast to long standing United States policy, and the explicit tax agenda of the Obama administration. Two recent cases have circumvented attempts by the IRS to mitigate cost sharing based tax avoidance. This article explains the regime, how the insistence of the IRS on arm’s length based transfer pricing rules contributed to the current non taxation of foreign income of United States multinational enterprises, and explores alternative reforms.
This paper critically examines the rulings of the Bombay High Court and the Income Tax Appellate Tribunal (Mumbai) in SET Satellite Pte. Ltd. v Deputy Director of Income Tax (International Taxation) and the ruling of the Supreme Court in Morgan Stanley & Co. Inc. v Director of Income Tax, Mumbai. In light of this, the attempt is to find out whether Indian courts treat dependent agent and PE as the same taxable entity and what profits are attributable to the PE of a non-resident enterprise in case the dependent agent is remunerated at an arms' length standard.
Today we live in a globalizing economy: national open markets are steadily developing towards a global market. Within the European Union, the internal market without internal frontiers has been established. However, the fiscal sovereignty of nation states remains limited to economic activities taking place within their territory. Fiscal sovereignty is purely a domestic matter. The combination of a globalizing economy and the geographically restricted fiscal sovereignty of states lead to distortions in the allocation of tax among taxpayers and between states. In this article, the author addresses the question of how these distortions may be dissolved with respect to the taxation of corporate business income in a global market.
Within the EU the relation between financial and tax accounting will be significantly influenced by the regulation adopted in June 2002 that obliges all listed companies to prepare their consolidated accounts according to International Accounting Standards / International Financial Reporting Standards (IAS/IFRS). Since dependency of financial and tax accounting according to different degrees prevails in all EU member states a linkage between IAS/IFRS and tax accounting seems to be possible. Compared to national GAAP the advantage of IAS/IFRS as a starting point for tax accounting derives from the advantages of the creation of a common tax base in the EU. However, the adoption of IAS/IFRS has to be restricted to those standards that are convenient for tax purposes. In particular, this means that tax accounting still has to follow the realisation principle as a general principle; the IAS/IFRS ?fair value-accounting? therefore cannot be adopted for tax purposes. In this paper we present estimates for the consequences of IAS/IFRS-based tax accounting on the comparative effective tax burdens of companies in 13 countries (Austria, Belgium, the Czech Republic, France, Germany, Hungary, Ireland, Latvia, the Netherlands, Poland, Slovakia, the United Kingdom, and the USA). Therefore, certain provisions of IAS/IFRS were considered as a starting point for the tax base. The effective tax burdens are calculated on the basis of the European Tax Analyzer model which was enhanced for the purposes of this study. A further question arises as to what extent an exclusive harmonisation of the tax base will effectively reduce the current EU-wide differences of effective company tax burdens. It turns out that a common tax base cannot alleviate the current EU-wide differences of effective company tax burdens. A major finding of our study reveals that the effective tax burdens in all countries considered here (except Ireland) tend to increase slightly since the tax bases tend to become broader. This offers the possibility to member states to reduce the nominal tax rate leaving the overall effective tax burden unchanged. A tax policy of tax cut cum base broadening would not only tend to increase the attractiveness of the member states as a location for companies. At the same time, this would reduce dispersions of effective tax burdens across industries. Therefore, such a tax policy is in line of the long term Community goals to become more competitive in international terms.
The US Treasury Department regards treaty shopping as an abuse of its bilateral income tax treaty network and has developed a model anti-treaty shopping article which it insists on including in all of its income tax treaties. Treasury has explained that its position is based on the rationale that treaty shopping inappropriately benefits residents of countries that have not "paid" for treaty advantages by making reciprocal concessions to the United States and that successful treaty shopping lessens the incentive for other countries to enter into treaty negotiations with United States. This article examines the exceptions to the US anti-treaty shopping article and finds that, because these exceptions are significantly inconsistent with Treasury's announced anti-treaty shopping rationale, Treasury's true rationale is uncertain and its model anti-treaty shopping article is, in fact, vulnerable to substantial treaty shopping behavior.
Australia, Canada and the United States have all in recent years introduced more severe penalties for non-compliance with transfer pricing documentation rules. At the same time, they have taken steps to enhance their APA programs to deal with the ensuing proliferation of transfer pricing controversies. These countries have also adopted the practice of issuing annual reports of their APA programs, documenting such issues as APA processing times, types and methodologies, along with the perceived benefits of entering into an APA from the point of view of the ATO, the CRA and the IRS.
This paper will provide a comparative review of the abovementioned APA programs, looking at recent developments and outlining future directions.
The use of arbitration to solve taxation disputes will not only lead to cost-effective and equitable resolution of tax controversies, but also the enhancement of global economic growth and development through elimination of unintended instances of double taxation.
(Robert Briner, president of the International Chamber of Commerce's court of arbitration)
Most member states of the European Union only grant tax incentives for donations to resident charities. This restricts the free movement of capital and freedom of establishment and results in limiting the choice of donors to domestic charities and limits charities to resident donors in their fundraising. In the Stauffer case and the Persche case, the ECJ has forbidden this restriction. However, not only did most member states not adjust their legislation after the Stauffer case, the ‘host-state control’ solution of the ECJ may in fact still make it impossible for charities to attract funds from different member states. This paper first discusses an alternative solution at a decentralised level: home-state control through mutual recognition. However, it seems unlikely that this solution is politically feasible. Therefore, the paper addresses the question whether some form of harmonisation would be a solution, using the subsidiarity test derived from fiscal federalism theory as a theoretical framework. The application of this test indicates that some harmonisation would be appropriate. The suitable degree of harmonisation (a directive or a resolution) depends on political factors, such as the trust member states have in each other’s supervisory institutions of charities.
As part of a "tax package" aimed at combating harmful tax competition, the European Community (now European Union) decided to implement a legislative instrument to allow for the effective taxation of cross-border interest payments, known today as the "Savings Directive". However, what remained unregulated was the structure of tax levies on cross border payments made from Member States into territories that are not part of the European Community. As a result, the European Community expressed its need to establish bilateral tax treaties with third countries and territories associated with the United Kingdom and the Netherlands and that are not Member States. This move has produced conflicting schools of thought. On the one hand, the European Community has an interest in maintaining common policies with respect to taxes levied on cross-border payments within its internal market. On the other hand, its regulation of taxes levied on cross-border payments to third parties has arguably set a precedent for an "implied external competence" on issues that its Directives already regulate within the internal market. This paper introduces this push and pull scenario and studies the general impact of these EU Agreements with respect to taxes levied on cross-border savings.
Cross-border loss relief may well be the last milestone, barring total tax consolidation, in the EU market integration from a tax law perspective. As the Commission’s Communication on the Tax Treatment of Losses in Cross-Border Situations demonstrates, there is yet a lot of ground to be covered in harmonizing this aspect of corporation income taxes. While the CCCTB proposal seems to be stalled, a series of relatively recent ECJ cases (among other, X Holding BV) may be tilting the balance in the interest of Member States, for the first time allowing the safeguard of revenues, or the “balanced allocation of taxing powers” to be the deciding argument in allowing restrictions on the offsetting of losses. Losses cannot be analyzed in isolation of the rules to determine the taxable base, as they are one more piece in the tax base puzzle. In the paper I focus on two issues: multinational groups and permanent establishments, as they comprise the main problems arising in Cross-border Loss Relief. The different methods employed to grant loss relief are assessed, as well as the new OECD proposals on the taxation of permanent establishments. My main argument is that restrictions of loss relief have an effect that go beyond discriminating or restricting, i.e., beyond making it “less attractive” to move around the EU. Such restrictions touch the core of taxation of income. If no loss relief is provided, the tax is not reflecting the real ability to pay, thus not only is it not being neutral and it is being inefficient, it is also creating a fictional tax debt.
The neat division of company finance into equity and debt does not in reality do justice to the enormous diversity of financial instruments available. A wide variety of instruments incorporate elements of both equity and debt. Usually, these financial instruments are referred to as hybrid instruments, or mezzanine finance. Although hybrid instruments may be issued for a variety of non-tax reasons, taxation issues have a considerable impact on management's financing decisions with respect to hybrid instruments. Tax treatment of hybrid instruments varies among coutries. This may cause severe distortions to most countries efforts to ensure single taxation of the yield.The purpose of this paper is to test the effectiveness of existing measures of international tax coordination (Double Taxation Conventions, EU Directives) in the field of cross-border intragroup finance. In order to do so, the paper provides a comprehensive survey of the possible fiscal consequences of intra-group cross-border hybrid finance on the basis of a formal analysis of the relevant provisions in national, international and European tax law.The paper demonstrates that despite the various measures to prevent double taxation and ensure single taxation of remuneration of equity and debt within groups of companies, the use of hybrid instruments can still generate cases of double taxation as well as cases of double non-taxation (white income). This is a major issue for tax planning, because it implies that an enterprise with operations in a given group of countries can choose instruments that result in double non-taxation. Similarly, an enterprise with given financial needs can choose appropriate countries to establish subsidiaries so as to optimise or even entirely eliminate taxes on the payments received. For national and international legislators, this is important because it shows that existing systems for the taxation of dividends and interest on hybrid finance in many cases fail to ensure single taxation of the income received.
In the world-business economy, the increase of economic activities by companies results in companies carrying out cross-border transactions at a fast pace around the world. This increase in international activities is to a great extent the result of the economic globalization influencing companies, markets, capitals, labor, etc. A general consequence in cross-border transactions is that the rules of at least two different jurisdictions will be applicable to the international activities of these companies. One of the differences of importance in this article is that some countries have tax rules and accounting rules that coexist separately whereas in other countries tax rules and accounting rules are contained in one single set of rules. The main result is that tax and/or accounting rules might differ within a country and among countries. The outcome of these differences is companies dealing in cross-border transactions with two different jurisdictions and different types of rules. In general, these differences may increase companies’ compliance costs, complexity of business transactions and changes in tax and/or accounting provisions to tackle tax avoidance that might not be so favorable to companies when structuring their businesses at an European and/or international level. At an European level separate initiatives initiated by the European Commission are taking place. These initiatives aim at reducing the differences in taxation and accounting, at simplifying business within the EU and at increasing transparency and consistency among EU companies, The two main initiatives of importance for this article are (i) the implementation in 2002 of the International Financial Reporting Standards (hereinafter “IFRS”) for listed companies in the European Union (as per 1 January 2005) and (ii) the proposed (since 2001 and revisited in 2007) use (or not) of the IFRS as starting point for the introduction of a Common Consolidated Corporate Tax Base (hereinafter “CCCTB”). The IFRS contains guidelines for the presentation of financial statements by companies as published by the International Accounting Standards Board. The implementation of the IFRS aims at harmonizing or at achieving convergence of the financial statements of listed companies in order to guarantee the protection of investors and creditors. This article reviews the obstacles to harmonization of tax and accounting in the European Union. Furthermore, the consequences of the technical note presented by the EU Working Group in CCCTB dated September 2007 (including the comments of December 2007) are also analyzed (hereinafter 2007 EU working paper). The 2007 EU working paper provides the type of instrument i.e., Directive, and a description of the main elements for a CCCTB. Moreover, in this paper, the approach suggested to use earlier the IFRS as starting point for the CCCTB has been removed. Instead the use of the national GAAP with adjustments for tax purposes is suggested. With this proposal, the EU changes its approach by means of proposing the use of national GAAP as starting point for a CCCTB instead of the use of the IFRS. The main aim of this article is to evaluate whether with this new change of approach the harmonization of direct taxation is feasible. For this purpose, the use of national GAAP for a CCCTB in light of the differences in tax and accounting in the EU is analyzed. The structure of this article is as follows: A general overview and historical background to the use of the IFRS in EU accounting and the use of the IFRS as a starting point for the CCCTB are described in paragraph two and three of this article. The fourth item discussed in this article is the contents of the 2007 EU working paper (technical note). The fifth issue analyzed in this article addresses the advantages and disadvantages including obstacles to the feasibility of the proposal of the use of national GAAP for a CCCTB as presented in this technical note. Finally, conclusions are drawn and some points of reflection for future working papers in this subject are provided.
Extract: Where once Hong Kong was the automatic investment entry route into Mainland China, this is no longer the case. However, Hong Kong remains one of the most important financial centres in the region and it is for that and its significant tax advantages that it remains a favoured investment location in its own right. The Mainland has developed its tax system to make it attractive and more certain for foreign investors, who increasingly favour direct investment. Nonetheless, foreign investors must deal with a tax system and business regulatory environment that bears little similarity to those found in OECD countries. This article examines these tensions and explores the critical features of the tax system in Hong Kong and Mainland China from a foreign investment perspective.
The easy enforcement and effective protection of rights in the arena of Community law cannot be isolated from the question of how much chances are for the European integration to be juridified. Disparities in national law may constitute obstacles to the smooth operation of the internal market. The question of the development of Community law cannot still be confined to that of simple statutory harmonization. This has been obvious since two decades at least when the state-centred, categorical, comprehensive and detailed statutory harmonization has been replaced by the more relaxed forms of the coordination of Member States in Community legislation. There has been even more emphasis placed on the self-regulation of professions, acknowledged subsequently by Community bodies (in terms of decisions, communications, white papers, etc.). This way, bottom up initiatives, arising from the negotiating of legitimate interests and the enforcement of individual rights, have contributed to the development of an additional source of Community law armonization. This paper seeks to explore the interplay between the enforcement of taxpayer rights and Community law harmonization.
The jurisdiction of the Constitutional Court has been changed recently. According to Section 32A (2) of the Act XX of 1949 on the Constitution of the Republic of Hungary (as amended), effective as of 20 November 2010, the provisions of budget and tax laws cannot be reviewed by the Constitutional Court unless the application filed with the Constitutional Court exclusively has referred to the infringement of the right to life and human dignity, the right to privacy, the freedom of conscience or the rights of citizens. Under Paragraph 3 of the same Section, budget and tax laws cannot be repealed by the Constitutional Court unless the infringement by them of the Constitution affects one of the same rights as indicated in Paragraph 2. The Constitutional Court was not prevented before from any review of any law. Truly, one of the weaknesses of the Hungarian tax system is that it is instable. However, the current restriction of the scope of the constitutional review clearly debilitates the rule of law principle. Although the role of the Constitutional Court in serving as a guardian of the rule of law has been diminished, the Court did not have to wait for a long time to exploit an opportunity, and carry out a test of tax law provisions, now strictly in the light of the protection of human dignity. This is unusual because tax cases have not been dealt with before by referring to the protection of human dignity. Bearing in mind the new constitutional law environment and the recent activity the Constitutional Court has shown in connection with the application of the principle of the protection of human dignity to a tax case, tax lawyers started entertaining interest in this principle. The present paper seeks to explore a link between the protection of human dignity and taxation through the analysis of a specific decision of the Constitutional Court.
The international corporate income and capital gains tax (CGT) systems of basically all modern nation states share a common objective. All seek to effectively ‘capture’ multinational enterprises (‘MNEs’) that are economically present within the respective taxing state’s geographical borders for corporate tax purposes. In their operation, however, these systems typically subject groups to different corporate tax treatment dependant on their legal structuring or the question of whether the business operations are performed in a (non-)cross-border context. This affects the corporate tax burden imposed, which in turn influences the distribution of production factors. In addition, this affects corporate tax revenues. In individual cases, things may work out for the benefit or detriment of individual MNEs or tax administrations. If observed as a whole, it can nevertheless be said that the international tax systems of states distort the functioning of domestic markets, the internal market within the European Union (EU), and the emerging global market. This is problematical for all parties involved in the corporate taxation of proceeds from multinational business operations. The author addresses the question of how states may mitigate the distortions they unilaterally impose when taxing MNEs on the corporate business income earned and the capital gains realized within their respective territories.
This contribution identifies the main determinants and key persons that constituted the tax treaty policy of the Netherlands. This policy is rooted in the political chess games in 19th century mainland Europe. In this century, European states gained experience in negotiating trade and tax agreements. Not only were the Germans experts in divide and rule strategies; they also developed instruments that form the core of contemporary tax treaty law. Dutch tax treaty policy blossomed when the Netherlands opened tax treaty negotiations with Germany. Negotiations that followed an erratic course, making their mark on the notorious tax treaty policy of the Dutch. The Dutch legislator refined the tax system to support a fruitful tax treaty policy, focusing on becoming an intermediary state for international investment. However, the firm position of the Dutch on bank secrecy had thrown a spanner in the works. Finally, the erratic course of these early tax treaty negotiations inspired the League of Nations tax committees through some of their key members.
This article aims to analyse the paragraphs 1.119 to 1.128 of the 2017 OECD Transfer Pricing Guidelines and their relation to the comparability analysis, sham transactions and domestic anti-avoidance rules. For this purpose, the authors discuss the nature of the transfer pricing rules, the limits of the OECD transfer pricing guidelines to the application of transfer pricing rules and the main features of the comparability analysis, sham transactions and the anti-avoidance rules. It is concluded that part of these paragraphs contains recommendations that exceed the purpose of the transfer pricing rules when they are structured over the arm’s length principle.
OECD Transfer Pricing Guidelines, arm’s length principle, transfer pricing rules, comparability analysis, sham transactions, anti-avoidance rules.
The year 2020 got off to an encouraging start. On 29-30 January 2020 … the 137 countries and jurisdictions of the G20/OECD Inclusive Framework on BEPS reaffirmed their commitment to reach a consensus-based solution and endorsed the ‘Outline of the Architecture of a Unified Approach on Pillar One.’(OECD, OECD Secretary-General Tax Report to G20 Finance Ministers and Central Bank Governors (Riyadh, Saudi Arabia) (OECD Publishing, Feb. 2020), available at http://www.oecd.org/ctp/oecd-secretary-general-tax-report-g20-finance-ministers-riyadhsaudi- arabia-february-2020.pdf (accessed 11 June 2020).)
League of Nations, international tax, tax treaty, Great War, international institutions, International Financial Conference, tax evasion, double taxation, model treaties.
On the basis of sound economic reasoning, numerous tax systems have provisions that allow for tax-free exchanges of like-kind property. When the property is sold after the exchange the gain will usually be taxed so that it is in fact not a tax-free exchange but rather a deferral of taxation until the sale of the property.
After a brief overview of the basic like-kind exchange rules under the US Internal Revenue Code (IRC) and the basic concepts of the German Controlled Foreign Corporations (CFC-) rules, this article discusses the possible consequences of a like-kind exchange of US property by a US corporation, owned and controlled by shareholders resident in Germany under German CFC-rules. As a few examples will demonstrate, a like-kind exchange under US law could - if certain conditions are met - lead to the application of German CFC-rules thereby reversing the non-recognition event. In these instances, German CFC legislation overreaches the basic purpose of CFC-rules - to prevent or reduce abuse and designs for tax evasions.
The European Commission is currently exploring how to make full use of the market distortion provisions of Article 116-117 TFEU to end prolonged veto deadlocks in tax matters and to fully deliver on the EU’s fair tax agenda. This article sets out why the market distortion rules do not seem appropriate for any far-reaching EU tax integration initiatives. However, they could complement the diplomatic EU Code of Conduct Group’s work, and the Commission’s use of the State aid rules, in addressing national market distorting tax measures and tax ruling practices of Member States.
Market distortion, state aid, harmful tax competition.