Ruiyuan Chen, Sadok El Ghoul, O. Guedhami, Helen Wang, Yang Yang
Using a sample of cross-listed firms from 51 countries and a difference-in-differences approach that exploits corporate governance shocks induced by cross-listing in the U.S., we find that firms tend to engage in less tax avoidance after cross-listing. This effect is more pronounced for firms that experience significant improvements in corporate governance, and for firms from countries with weaker shareholder protection and disclosure requirements. Taken together, the results indicate that cross-listing in the U.S. helps align the interests of managers and shareholders and reduces managerial diversion.
{"title":"Corporate Governance and Tax Avoidance: Evidence from U.S. Cross-listing","authors":"Ruiyuan Chen, Sadok El Ghoul, O. Guedhami, Helen Wang, Yang Yang","doi":"10.2139/ssrn.3409587","DOIUrl":"https://doi.org/10.2139/ssrn.3409587","url":null,"abstract":"Using a sample of cross-listed firms from 51 countries and a difference-in-differences approach that exploits corporate governance shocks induced by cross-listing in the U.S., we find that firms tend to engage in less tax avoidance after cross-listing. This effect is more pronounced for firms that experience significant improvements in corporate governance, and for firms from countries with weaker shareholder protection and disclosure requirements. Taken together, the results indicate that cross-listing in the U.S. helps align the interests of managers and shareholders and reduces managerial diversion.","PeriodicalId":22313,"journal":{"name":"Tax eJournal","volume":"20 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2019-05-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83690484","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-04-24DOI: 10.15587/2312-8372.2019.160934
L. Shkulipa
The object of research is the factors that can directly or indirectly affect the income tax both at the local and macro level. In the study of the dynamics of changes in the income tax in Ukraine, under the influence of various factors, an abstract-logical method is used, which investigated the significant place of the income tax in the national economy of the country. It is obtained that the tax on the profits of enterprises in Ukraine can be characterized as an analogue of the corporate profits tax in the world. This is due to the fact that large taxpayers, of which less than 1 % of legal entities in Ukraine as a whole, are of great fiscal importance, in particular, provide about 55–59 % of income tax revenue in the consolidated budget. Compared with the EU countries from 2011 to 2016, the income tax rate in Ukraine decreased from 25 % to 18 %, although the country's income has not decreased. The share of income tax in GDP, according to statistics, has tended to decline and is approaching the average level in the countries of the Organization for Economic Cooperation and Development. Factors influencing the income tax and current reforms are considered: the size of the tax rate, GDP, expenditures on scientific and technical work, the volume of financial results of production institutions and organizations before taxation, their seasonal characteristics. Profit tax dynamics significantly influenced the economy of the country, its income and cash flows as a result of all tax changes. The system of taxation of profits of enterprises requires further reform to establish the optimal rate of recovery from profits, eliminate unreasonable benefits, integrate the dividend taxation system, and improve administration. Thus, in 2015–2016, the number of reasons for receiving tax benefits decreased by 4 times – to 24 and 22, respectively.
{"title":"Analysis of Influence of Factors on Income Tax in Ukraine","authors":"L. Shkulipa","doi":"10.15587/2312-8372.2019.160934","DOIUrl":"https://doi.org/10.15587/2312-8372.2019.160934","url":null,"abstract":"The object of research is the factors that can directly or indirectly affect the income tax both at the local and macro level. In the study of the dynamics of changes in the income tax in Ukraine, under the influence of various factors, an abstract-logical method is used, which investigated the significant place of the income tax in the national economy of the country. It is obtained that the tax on the profits of enterprises in Ukraine can be characterized as an analogue of the corporate profits tax in the world. This is due to the fact that large taxpayers, of which less than 1 % of legal entities in Ukraine as a whole, are of great fiscal importance, in particular, provide about 55–59 % of income tax revenue in the consolidated budget. Compared with the EU countries from 2011 to 2016, the income tax rate in Ukraine decreased from 25 % to 18 %, although the country's income has not decreased. The share of income tax in GDP, according to statistics, has tended to decline and is approaching the average level in the countries of the Organization for Economic Cooperation and Development. Factors influencing the income tax and current reforms are considered: the size of the tax rate, GDP, expenditures on scientific and technical work, the volume of financial results of production institutions and organizations before taxation, their seasonal characteristics. Profit tax dynamics significantly influenced the economy of the country, its income and cash flows as a result of all tax changes. The system of taxation of profits of enterprises requires further reform to establish the optimal rate of recovery from profits, eliminate unreasonable benefits, integrate the dividend taxation system, and improve administration. Thus, in 2015–2016, the number of reasons for receiving tax benefits decreased by 4 times – to 24 and 22, respectively.","PeriodicalId":22313,"journal":{"name":"Tax eJournal","volume":"71 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2019-04-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83339537","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Standard compliance theory assumes that individuals evade to the extent it benefits them monetarily. However, a growing empirical literature suggests that many underlying cognitive considerations, including lying aversion, may play a non-trivial role when individuals make decisions. This study aims to analyze whether optimal audit rules that are the result of standard models survive a model with agents that are lying averse. I show the canonical cut-off audit rule where above a certain threshold no reported income is audited (introduced by Reinganum and Wilde (1986a) and further developed by Sanchez and Sobel (1993)) is not optimal in this setting. Moreover, a Bayesian incentive compatible audit probability does not need to be monotone in reported income, i.e. a higher report might be subject to a higher probability than a lower report.
{"title":"Tax Enforcement with Somewhat Honest Taxpayers","authors":"Yeliz Kaçamak","doi":"10.2139/ssrn.3374563","DOIUrl":"https://doi.org/10.2139/ssrn.3374563","url":null,"abstract":"Standard compliance theory assumes that individuals evade to the extent it benefits them monetarily. However, a growing empirical literature suggests that many underlying cognitive considerations, including lying aversion, may play a non-trivial role when individuals make decisions. This study aims to analyze whether optimal audit rules that are the result of standard models survive a model with agents that are lying averse. I show the canonical cut-off audit rule where above a certain threshold no reported income is audited (introduced by Reinganum and Wilde (1986a) and further developed by Sanchez and Sobel (1993)) is not optimal in this setting. Moreover, a Bayesian incentive compatible audit probability does not need to be monotone in reported income, i.e. a higher report might be subject to a higher probability than a lower report.","PeriodicalId":22313,"journal":{"name":"Tax eJournal","volume":"21 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2019-04-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"78462069","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The role of competition in corporate tax avoidance is theoretically unclear in the existing literature. This paper empirically clarifies this role, with a focus on import competition. I exploit financial statements to measure tax avoidance of US-listed firms and the conferral of Permanent Normal Trade Relations status on China as a quasi-natural experiment to establish causality. The results reveal that import competition fosters corporate tax avoidance. The average effect is mainly driven by multinational enterprises implanted in tax havens. They invested in intangible assets to escape competition pressures, but these intangibles also allowed them to intensify their profit shifting activities. The findings shed light on the determinants of corporate tax avoidance. More generally, they help understand the decline in the average effective tax rate of US-listed firms, the current backlash against large corporations and globalization, and the calls for reform of the international tax system.
{"title":"The Indirect Effect of Import Competition on Corporate Tax Avoidance","authors":"Baptiste Souillard","doi":"10.2139/ssrn.3662998","DOIUrl":"https://doi.org/10.2139/ssrn.3662998","url":null,"abstract":"The role of competition in corporate tax avoidance is theoretically unclear in the existing literature. This paper empirically clarifies this role, with a focus on import competition. I exploit financial statements to measure tax avoidance of US-listed firms and the conferral of Permanent Normal Trade Relations status on China as a quasi-natural experiment to establish causality. The results reveal that import competition fosters corporate tax avoidance. The average effect is mainly driven by multinational enterprises implanted in tax havens. They invested in intangible assets to escape competition pressures, but these intangibles also allowed them to intensify their profit shifting activities. The findings shed light on the determinants of corporate tax avoidance. More generally, they help understand the decline in the average effective tax rate of US-listed firms, the current backlash against large corporations and globalization, and the calls for reform of the international tax system.","PeriodicalId":22313,"journal":{"name":"Tax eJournal","volume":"27 13","pages":""},"PeriodicalIF":0.0,"publicationDate":"2019-04-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"91434135","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We model the behaviour of a buyer trying to evade the real estate transfer tax. We identify over-appraisal as a key, easily-observable element that is inversely related with tax evasion. We conclude that the tax authority could focus auditing efforts on low-appraisal transactions. We include ‘behavioural’ components (shame and stigma) allowing to introduce buyers' (education) and societal (social capital) characteristics that explain individual and idiosyncratic variations. Our empirical analysis confirms the predictions using a unique database, where we directly observe: real payment, value declared to the authority, appraisal, buyers' educational level and local levels of corruption and trust.
{"title":"Transaction-Tax Evasion in the Housing Market","authors":"J. Montalvo, Amedeo Piolatto, J. Raya","doi":"10.2139/ssrn.3360356","DOIUrl":"https://doi.org/10.2139/ssrn.3360356","url":null,"abstract":"We model the behaviour of a buyer trying to evade the real estate transfer tax. We identify over-appraisal as a key, easily-observable element that is inversely related with tax evasion. We conclude that the tax authority could focus auditing efforts on low-appraisal transactions. We include ‘behavioural’ components (shame and stigma) allowing to introduce buyers' (education) and societal (social capital) characteristics that explain individual and idiosyncratic variations. Our empirical analysis confirms the predictions using a unique database, where we directly observe: real payment, value declared to the authority, appraisal, buyers' educational level and local levels of corruption and trust.","PeriodicalId":22313,"journal":{"name":"Tax eJournal","volume":"21 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2019-03-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87613729","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This Article describes the rise of a new form of regulatory havens. Jurisdictions that have traditionally been characterized as “tax havens” are gradually becoming hubs for blockchain-based ventures. These jurisdictions attract blockchain entrepreneurs by offering refuge from regulatory and tax burdens imposed by developed economies. These new “Blockchain Havens” create a regulatory “race to the bottom” that is traditionally associated with the world of international tax evasion and avoidance. Over the past several years, developed economies have put to use—mostly through coordinated efforts—several regulatory frameworks aimed to address some of the negative effects of tax havens. These regulatory instruments are aimed against the haven jurisdictions themselves, or the private institutions operating in such jurisdictions. However, this Article argues that the unique nature of blockchain-based technology—most importantly, decentralization and temper resistance—makes such traditional anti-tax haven policies ineffective in the blockchain context. This Article argues that coordinated international regulatory policies must be quickly developed to address certain important aspects of blockchain technology. Such coordination is necessary to prevent an uncontrolled regulatory race to the bottom, while at the same time preserving the benefits of blockchain-based applications.
{"title":"Blockchain Havens and the Need for Their Internationally-Coordinated Regulation","authors":"Omri Y. Marian","doi":"10.5744/FTR.2020.2011","DOIUrl":"https://doi.org/10.5744/FTR.2020.2011","url":null,"abstract":"This Article describes the rise of a new form of regulatory havens. Jurisdictions that have traditionally been characterized as “tax havens” are gradually becoming hubs for blockchain-based ventures. These jurisdictions attract blockchain entrepreneurs by offering refuge from regulatory and tax burdens imposed by developed economies. These new “Blockchain Havens” create a regulatory “race to the bottom” that is traditionally associated with the world of international tax evasion and avoidance. Over the past several years, developed economies have put to use—mostly through coordinated efforts—several regulatory frameworks aimed to address some of the negative effects of tax havens. These regulatory instruments are aimed against the haven jurisdictions themselves, or the private institutions operating in such jurisdictions. However, this Article argues that the unique nature of blockchain-based technology—most importantly, decentralization and temper resistance—makes such traditional anti-tax haven policies ineffective in the blockchain context. This Article argues that coordinated international regulatory policies must be quickly developed to address certain important aspects of blockchain technology. Such coordination is necessary to prevent an uncontrolled regulatory race to the bottom, while at the same time preserving the benefits of blockchain-based applications.","PeriodicalId":22313,"journal":{"name":"Tax eJournal","volume":"40 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2019-03-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77509506","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
As a result of the OECD/G20 project on base erosion profit shifting as well as the adoption of the EU anti-tax avoidance directive, many countries have recently introduced or strengthened general anti-avoidance rules (GAARs) in their tax treaties and domestic tax legislations. Arguably, such general anti-avoidance rules are turning the responsibility to obey the spirit of the law from a CSR expectation into a legal obligation. Against this background, it is discussed whether CSR can or should (still) play an important role with respect to measuring and guiding MNEs’ tax planning behaviour. It is concluded that the widespread use of GAARs cannot be expected to eliminate or significantly reduce the need for CSR considerations and guidance – at least not in the foreseeable future, inter alia because these provisions bring along significant interpretive uncertainty and cannot be expected to prevent all tax planning that compromises the spirit of the tax legislation. Accordingly, instead of downplaying the role of CSR and responsible business conduct, it is suggested to update the chapter on taxation in the OECD Guidelines for Multinational Enterprises in order to provide better and more detailed guidance on how MNEs should strike a proper balance between tax planning and CSR.
{"title":"Taxation, General Anti-Avoidance Rules and Corporate Social Responsibility","authors":"Peter Koerver Schmidt, K. Buhmann","doi":"10.2139/SSRN.3347108","DOIUrl":"https://doi.org/10.2139/SSRN.3347108","url":null,"abstract":"As a result of the OECD/G20 project on base erosion profit shifting as well as the adoption of the EU anti-tax avoidance directive, many countries have recently introduced or strengthened general anti-avoidance rules (GAARs) in their tax treaties and domestic tax legislations. Arguably, such general anti-avoidance rules are turning the responsibility to obey the spirit of the law from a CSR expectation into a legal obligation. Against this background, it is discussed whether CSR can or should (still) play an important role with respect to measuring and guiding MNEs’ tax planning behaviour. It is concluded that the widespread use of GAARs cannot be expected to eliminate or significantly reduce the need for CSR considerations and guidance – at least not in the foreseeable future, inter alia because these provisions bring along significant interpretive uncertainty and cannot be expected to prevent all tax planning that compromises the spirit of the tax legislation. Accordingly, instead of downplaying the role of CSR and responsible business conduct, it is suggested to update the chapter on taxation in the OECD Guidelines for Multinational Enterprises in order to provide better and more detailed guidance on how MNEs should strike a proper balance between tax planning and CSR.","PeriodicalId":22313,"journal":{"name":"Tax eJournal","volume":"59 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2019-03-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"72871421","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We examine the relation between corporate cash holdings and tax net operating loss carryforwards (NOLs). The literature demonstrates that firms should distribute cash to shareholders rather than retain it and generate passive investment income taxed at both corporate and investor levels. However, if the firm's tax rate on passive income is lower than shareholders'-as when the firm has NOLs-theory also shows that the firm should retain cash and invest on the shareholders' behalf. Consistent with this, we find that NOLs are associated with higher levels of savings; firms save an additional $0.12 to $0.17 per dollar of tax-effected NOL benefit. Furthermore, investors place a higher value on corporate cash in tax loss firms, consistent with NOLs increasing the after-tax returns on passive investments. The paper adds to the literature studying corporate financial policy responses to taxation and quantifies the role of NOLs in corporate savings decisions.
{"title":"Net Operating Loss Carryforwards and Corporate Savings Policies","authors":"Shane Heitzman, Rebecca Lester","doi":"10.2139/ssrn.3185018","DOIUrl":"https://doi.org/10.2139/ssrn.3185018","url":null,"abstract":"We examine the relation between corporate cash holdings and tax net operating loss carryforwards (NOLs). The literature demonstrates that firms should distribute cash to shareholders rather than retain it and generate passive investment income taxed at both corporate and investor levels. However, if the firm's tax rate on passive income is lower than shareholders'-as when the firm has NOLs-theory also shows that the firm should retain cash and invest on the shareholders' behalf. Consistent with this, we find that NOLs are associated with higher levels of savings; firms save an additional $0.12 to $0.17 per dollar of tax-effected NOL benefit. Furthermore, investors place a higher value on corporate cash in tax loss firms, consistent with NOLs increasing the after-tax returns on passive investments. The paper adds to the literature studying corporate financial policy responses to taxation and quantifies the role of NOLs in corporate savings decisions.","PeriodicalId":22313,"journal":{"name":"Tax eJournal","volume":"52 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2019-02-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"89558171","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Lori Shefchik Bhaskar, P. Hopkins, Joseph H. Schroeder
The majority of U.S. public companies release annual earnings prior to the completion of audit fieldwork. We investigate this phenomenon in a controlled experiment with audit partners and senior managers. We find that releasing earnings before completion of the audit pressures auditors to adopt the goals of management, thereby reducing the likelihood of post‐announcement audit‐adjustment recommendations. We also examine the effect of audit committee (AC) strength in improving auditors’ judgments after annual earnings are released. When ACs are actively involved in accounting issues and proactively communicating with auditors—characteristics currently lacking in most ACs—the negative effects on auditors’ judgments are completely mitigated. Our study provides evidence on potential unintended consequences of early release of earnings and the importance of investing in high‐quality ACs to mitigate adverse effects of client pressures on audit judgment and financial reporting quality.
{"title":"An Investigation of Auditors' Judgments When Companies Release Earnings Before Audit Completion","authors":"Lori Shefchik Bhaskar, P. Hopkins, Joseph H. Schroeder","doi":"10.2139/ssrn.3097241","DOIUrl":"https://doi.org/10.2139/ssrn.3097241","url":null,"abstract":"The majority of U.S. public companies release annual earnings prior to the completion of audit fieldwork. We investigate this phenomenon in a controlled experiment with audit partners and senior managers. We find that releasing earnings before completion of the audit pressures auditors to adopt the goals of management, thereby reducing the likelihood of post‐announcement audit‐adjustment recommendations. We also examine the effect of audit committee (AC) strength in improving auditors’ judgments after annual earnings are released. When ACs are actively involved in accounting issues and proactively communicating with auditors—characteristics currently lacking in most ACs—the negative effects on auditors’ judgments are completely mitigated. Our study provides evidence on potential unintended consequences of early release of earnings and the importance of investing in high‐quality ACs to mitigate adverse effects of client pressures on audit judgment and financial reporting quality.","PeriodicalId":22313,"journal":{"name":"Tax eJournal","volume":"69 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82288889","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The international tax debate as regards hybrid entities has certainly changed after the OECD BEPS Project. Since then, the trend has been focused exclusively on matching transactions involving hybrids and reverse hybrid entities and double non-taxation, however without questioning whether these two elements are necessarily interconnected or whether they should serve each other in the design of domestic anti-hybrid provisions. This is particularly evident as regards the notion of ‘hybrid (entity) mismatch arrangements’ the design of which is based on the assumption that income should be taxed somewhere – no matter where – and as regards the complex set of domestic solutions proposed (‘linking rules’) the true efficacy of which is nevertheless still unknown. In this vein, this article adopts a critical approach both as regards the diagnosis of the problems and as regards the solutions proposed. As to the diagnosis, the author argues that the artificial attempt to match transactions involving hybrid entities and double non-taxation not only disregards the fundamental issue as regards hybrid entity mismatches (i.e. the disparate tax characterization of the same entity by two different states), but also carries with it the risk of creating presumptions of abusive practices in all those cases in which a hybrid entity structure is simply not taxed at all. As to the remedies, the author argues against the complexity, excessive reliance on foreign laws and potential economic double taxation issues that the implementation of linking rules might cause from a tax policy perspective. From a practical perspective, the author questions the proper interaction between linking rules and other anti-base erosion provisions, such as interest limitations and CFC rules. This article ultimately concludes that a re-orientation in the international debate regarding hybrids and reverse hybrid entities is crucial in order to open the door for more fundamental – and perhaps also more coordinated – solutions.
{"title":"Hybrid Entity Mismatches and the International Trend of Matching Tax Outcomes: A Critical Approach","authors":"L. Parada","doi":"10.54648/taxi2018104","DOIUrl":"https://doi.org/10.54648/taxi2018104","url":null,"abstract":"The international tax debate as regards hybrid entities has certainly changed after the OECD BEPS Project. Since then, the trend has been focused exclusively on matching transactions involving hybrids and reverse hybrid entities and double non-taxation, however without questioning whether these two elements are necessarily interconnected or whether they should serve each other in the design of domestic anti-hybrid provisions. This is particularly evident as regards the notion of ‘hybrid (entity) mismatch arrangements’ the design of which is based on the assumption that income should be taxed somewhere – no matter where – and as regards the complex set of domestic solutions proposed (‘linking rules’) the true efficacy of which is nevertheless still unknown. In this vein, this article adopts a critical approach both as regards the diagnosis of the problems and as regards the solutions proposed. As to the diagnosis, the author argues that the artificial attempt to match transactions involving hybrid entities and double non-taxation not only disregards the fundamental issue as regards hybrid entity mismatches (i.e. the disparate tax characterization of the same entity by two different states), but also carries with it the risk of creating presumptions of abusive practices in all those cases in which a hybrid entity structure is simply not taxed at all. As to the remedies, the author argues against the complexity, excessive reliance on foreign laws and potential economic double taxation issues that the implementation of linking rules might cause from a tax policy perspective. From a practical perspective, the author questions the proper interaction between linking rules and other anti-base erosion provisions, such as interest limitations and CFC rules. This article ultimately concludes that a re-orientation in the international debate regarding hybrids and reverse hybrid entities is crucial in order to open the door for more fundamental – and perhaps also more coordinated – solutions.","PeriodicalId":22313,"journal":{"name":"Tax eJournal","volume":"4 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85259717","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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