Deferral of home-country tax on the income of foreign subsidiary corporations produces the twin evils of business and investment location distortion and profit shifting. In 1961, the Kennedy administration proposed the almost complete elimination of this type of deferral from the US income tax system. Because of strong opposition lobbying, the result was a political compromise commonly known as Subpart F. This article explains why Subpart F was largely a failure, in spite of its being copied to various degrees by the controlled foreign corporation (CFC) regimes of many developed countries. The article also explores the extent to which the 2017 Tax Cuts and Jobs Act (TCJA) has, or has not, cured Subpart F’s failure to effectively address location distortion and profit shifting. Deferral, profit shifting, Subpart F, CFC regimes, US international income taxation, 2017 Tax Cuts and Jobs Act
{"title":"Tax In History: Acknowledging (Celebrating? Regretting?) Sixty Years of Subpart F","authors":"J. Fleming","doi":"10.54648/taxi2023042","DOIUrl":"https://doi.org/10.54648/taxi2023042","url":null,"abstract":"Deferral of home-country tax on the income of foreign subsidiary corporations produces the twin evils of business and investment location distortion and profit shifting. In 1961, the Kennedy administration proposed the almost complete elimination of this type of deferral from the US income tax system. Because of strong opposition lobbying, the result was a political compromise commonly known as Subpart F. This article explains why Subpart F was largely a failure, in spite of its being copied to various degrees by the controlled foreign corporation (CFC) regimes of many developed countries. The article also explores the extent to which the 2017 Tax Cuts and Jobs Act (TCJA) has, or has not, cured Subpart F’s failure to effectively address location distortion and profit shifting.\u0000Deferral, profit shifting, Subpart F, CFC regimes, US international income taxation, 2017 Tax Cuts and Jobs Act","PeriodicalId":45365,"journal":{"name":"Intertax","volume":" ","pages":""},"PeriodicalIF":0.6,"publicationDate":"2023-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42727687","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 present article seeks to analyse the overall potential impact that the new permanent establishment (hereinafter PE) concept that has emerged from the Base Erosion and Profit Shifting (hereinafter BEPS) Project is expected to have as it is gradually incorporated into actual tax treaties worldwide by using Spain as an illustrative example. Firstly, the role that the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (hereinafter MLI) is playing in the implementation of the new rule in tax treaties will be analysed (section 1). Secondly, the wording and scope of the new PE clause will be scrutinized, highlighting its obvious resemblance to ideas foreseen in both prior versions of the Commentaries to the Organization for Economic Cooperation and Development Model Convention (hereinafter OECD MC) and certain domestic administrative resolutions and judgments (e.g., the ‘Spanish PE approach’, a doctrine widely held by the Spanish tax administration and some courts advocating for a singular interpretation of the PE clause and the rules attributing profits to it) (section 2). Thirdly, there will be an attempt to advance the effects of the arrival of the new clause in actual tax treaties in terms of the expected volume of affected treaties, the expected reaction of tax administrations and courts (in respect of unaffected treaties keeping the classic version of the PE concept), the potential coexistence between the new treaty PE rule and current domestic PE rules and, lastly, the expected (extra) tax revenues for jurisdictions hosting these new forms of PEs (section 3). The intention throughout the contribution is to portray the risks derived from the implementation of this new rule and the need for further regulatory modifications to counteract such risks. Finally, some final remarks will be put forward (section 4). Digital nomads’, work mobility, international taxation, tax residence, employment income, digital economy
{"title":"The Arrival Of The New Beps Pe Clause In Actual Tax Treaties Via The Mli: Impact, Risks And Need For Further Regulatory Changes (Particular Focus On Spain)","authors":"Eva Escribano","doi":"10.54648/taxi2023034","DOIUrl":"https://doi.org/10.54648/taxi2023034","url":null,"abstract":"The present article seeks to analyse the overall potential impact that the new permanent establishment (hereinafter PE) concept that has emerged from the Base Erosion and Profit Shifting (hereinafter BEPS) Project is expected to have as it is gradually incorporated into actual tax treaties worldwide by using Spain as an illustrative example. Firstly, the role that the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (hereinafter MLI) is playing in the implementation of the new rule in tax treaties will be analysed (section 1). Secondly, the wording and scope of the new PE clause will be scrutinized, highlighting its obvious resemblance to ideas foreseen in both prior versions of the Commentaries to the Organization for Economic Cooperation and Development Model Convention (hereinafter OECD MC) and certain domestic administrative resolutions and judgments (e.g., the ‘Spanish PE approach’, a doctrine widely held by the Spanish tax administration and some courts advocating for a singular interpretation of the PE clause and the rules attributing profits to it) (section 2). Thirdly, there will be an attempt to advance the effects of the arrival of the new clause in actual tax treaties in terms of the expected volume of affected treaties, the expected reaction of tax administrations and courts (in respect of unaffected treaties keeping the classic version of the PE concept), the potential coexistence between the new treaty PE rule and current domestic PE rules and, lastly, the expected (extra) tax revenues for jurisdictions hosting these new forms of PEs (section 3). The intention throughout the contribution is to portray the risks derived from the implementation of this new rule and the need for further regulatory modifications to counteract such risks. Finally, some final remarks will be put forward (section 4).\u0000Digital nomads’, work mobility, international taxation, tax residence, employment income, digital economy","PeriodicalId":45365,"journal":{"name":"Intertax","volume":" ","pages":""},"PeriodicalIF":0.6,"publicationDate":"2023-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45875993","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}
{"title":"Literature Review: Anti-tax Avoidance in Corporate Taxation under EU Law, Ivan Lazarov. IBFD Doctoral Series. 2022","authors":"Daniel S. Smit","doi":"10.54648/taxi2023022","DOIUrl":"https://doi.org/10.54648/taxi2023022","url":null,"abstract":"","PeriodicalId":45365,"journal":{"name":"Intertax","volume":" ","pages":""},"PeriodicalIF":0.6,"publicationDate":"2023-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47407982","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 relationship between international investment law (IIL) and EU law is not without problems as evidenced by the Achmea ruling. These tensions have become more evident in the Micula case in which the commission resorted to the state aid rules in order to attack arbitration awards arising from intra-EU Bilateral investment treaties (BITs) (deeming its enforcement as state aid). Despite its two rulings relating to the Micula saga, the Court of Justice of the European Union (CJEU) has not yet validated (or not) the application of state aid rules to the enforcement of intra-EU awards. Hopefully, the upcoming general court’s judgment shall rule on the merits of the Micula case thereby dispelling doubts. Nevertheless, it is foreseeable that further clarifying judgments will be required concerning the recognition and enforcement of intra-EU awards in non-EU jurisdictions. This article reviews the current situation to show that, while state aid rules could adequately prevent the enforcement of an intra-EU award within EU borders, they lack effectiveness for blocking enforcement beyond its borders. Arbitration award, intra-EU BIT, State aid, Tax benefit repeal, Damages, Award recognition, Award enforcement, Public policy, Micula, Achmea, ICSID Convention, New York Convention.
{"title":"Article: State Aid Through Arbitration Awards: EU Law as a Ground for Non-enforcement","authors":"Begoña Pérez-Bernabeu","doi":"10.54648/taxi2023006","DOIUrl":"https://doi.org/10.54648/taxi2023006","url":null,"abstract":"The relationship between international investment law (IIL) and EU law is not without problems as evidenced by the Achmea ruling. These tensions have become more evident in the Micula case in which the commission resorted to the state aid rules in order to attack arbitration awards arising from intra-EU Bilateral investment treaties (BITs) (deeming its enforcement as state aid). Despite its two rulings relating to the Micula saga, the Court of Justice of the European Union (CJEU) has not yet validated (or not) the application of state aid rules to the enforcement of intra-EU awards. Hopefully, the upcoming general court’s judgment shall rule on the merits of the Micula case thereby dispelling doubts. Nevertheless, it is foreseeable that further clarifying judgments will be required concerning the recognition and enforcement of intra-EU awards in non-EU jurisdictions. This article reviews the current situation to show that, while state aid rules could adequately prevent the enforcement of an intra-EU award within EU borders, they lack effectiveness for blocking enforcement beyond its borders.\u0000Arbitration award, intra-EU BIT, State aid, Tax benefit repeal, Damages, Award recognition, Award enforcement, Public policy, Micula, Achmea, ICSID Convention, New York Convention.","PeriodicalId":45365,"journal":{"name":"Intertax","volume":" ","pages":""},"PeriodicalIF":0.6,"publicationDate":"2023-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45199247","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}
{"title":"Literature Review: The DEMPE Concept and Intangibles, Karol Dziwinski. Kluwer Law International. 2022","authors":"Aitor Navarro","doi":"10.54648/taxi2023020","DOIUrl":"https://doi.org/10.54648/taxi2023020","url":null,"abstract":"","PeriodicalId":45365,"journal":{"name":"Intertax","volume":" ","pages":""},"PeriodicalIF":0.6,"publicationDate":"2023-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48950190","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 design of corporate income tax systems and thus the taxation of (cross-border) dividends are encompassed within the sovereignty of the Member States of the European Union (EU). However, these rules are restricted by the EU regulatory framework and the case law of the European Court of Justice (ECJ) which prohibit discrimination of foreign- against domestic-sourced dividends. Therefore, five EU Member States abolished their discriminatory imputation systems in favour of shareholder relief systems between 1999 and 2019 which had not only legal but also economic implications. In this simulation study, the authors assess how and to what extent the abolishment of discriminatory imputation systems in the EU Member States affected a country’s tax location attractiveness for capital investments and tax competition. The analysis is based on the cost of capital (CoC) and effective average tax rates (EATR) using the Devereux/Griffith methodology. Overall, under the discriminatory imputation systems, the authors find lower CoC and EATR for investments located in the shareholder’s residence country compared to foreign investment alternatives. The advantageousness is, on average, reversed after the switch to the shareholder relief systems and places additional tax competition pressure on the affected Member States. Corporate tax systems, Dividend taxation, Devereux/Griffith methodology, European Court of Justice, Internal market, Effective tax rates, Cost of capital JEL classification: H21, H24, H25, K34
{"title":"Article: The Distorting Effects of Imputation Systems on Tax Competition in the EU","authors":"Christoph Spengel, L. Fischer, Jessica M. Müller","doi":"10.54648/taxi2023021","DOIUrl":"https://doi.org/10.54648/taxi2023021","url":null,"abstract":"The design of corporate income tax systems and thus the taxation of (cross-border) dividends are encompassed within the sovereignty of the Member States of the European Union (EU). However, these rules are restricted by the EU regulatory framework and the case law of the European Court of Justice (ECJ) which prohibit discrimination of foreign- against domestic-sourced dividends. Therefore, five EU Member States abolished their discriminatory imputation systems in favour of shareholder relief systems between 1999 and 2019 which had not only legal but also economic implications. In this simulation study, the authors assess how and to what extent the abolishment of discriminatory imputation systems in the EU Member States affected a country’s tax location attractiveness for capital investments and tax competition. The analysis is based on the cost of capital (CoC) and effective average tax rates (EATR) using the Devereux/Griffith methodology. Overall, under the discriminatory imputation systems, the authors find lower CoC and EATR for investments located in the shareholder’s residence country compared to foreign investment alternatives. The advantageousness is, on average, reversed after the switch to the shareholder relief systems and places additional tax competition pressure on the affected Member States.\u0000Corporate tax systems, Dividend taxation, Devereux/Griffith methodology, European Court of Justice, Internal market, Effective tax rates, Cost of capital JEL classification: H21, H24, H25, K34","PeriodicalId":45365,"journal":{"name":"Intertax","volume":" ","pages":""},"PeriodicalIF":0.6,"publicationDate":"2023-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43981674","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 Mauritian global business sector’s favourable tax regime, combined with its extensive treaty network, has made it an attractive investment hub for investments into Africa. Aggressive tax planning strategies targeted at shifting profits to lower tax jurisdictions such as Mauritius, have eroded many higher tax jurisdictions’ tax bases. An exodus of (taxable) funds from South Africa to Mauritius is evident from South Africa’s listing as one of the top five contributors to Mauritius’s foreign direct investments (FDIs). While the base erosion and profit-shifting (BEPS) action plan is aimed at curbing profit-shifting practices, limited research is available on the successful implementation of the BEPS action plan. This article conducts a review of the implementation of the BEPS action plan by both jurisdictions, namely Mauritius (as a low tax jurisdiction) and South Africa (as a high tax jurisdiction). The success of the BEPS action plan in curbing profit-shifting practices from South Africa to Mauritius is measured in conjunction with the South African anti-avoidance legislation. The findings highlight that only Action 5 has been successfully adopted by both South Africa and Mauritius. A preliminary analysis was conducted which indicates that the implementation of the BEPS action plan will not result in less profit-shifting, due to gaps in the South African anti-avoidance legislation that facilitates these profit-shifting practices. It is suggested that the implementation of the BEPS action plan by higher tax jurisdictions should be prioritized. This article contributes to scholarship on evaluating the effectiveness of the BEPS action plan minimum standards for African countries. Action 5, aggressive tax planning strategies, base erosion and profit-shifting, base erosion and profit-shifting action plan, global business companies, foreign direct investments, Mauritius global business sector, minimum standards, offshore trust, profit-shifting, South African anti-avoidance legislation, tax avoidance, tax planning vehicles.
{"title":"Article: The Impact of Multilateral and Unilateral Measures on Profit-Shifting from South Africa to Mauritius","authors":"C. Botha, R. Ramfol, O. Swart","doi":"10.54648/taxi2023005","DOIUrl":"https://doi.org/10.54648/taxi2023005","url":null,"abstract":"The Mauritian global business sector’s favourable tax regime, combined with its extensive treaty network, has made it an attractive investment hub for investments into Africa. Aggressive tax planning strategies targeted at shifting profits to lower tax jurisdictions such as Mauritius, have eroded many higher tax jurisdictions’ tax bases. An exodus of (taxable) funds from South Africa to Mauritius is evident from South Africa’s listing as one of the top five contributors to Mauritius’s foreign direct investments (FDIs). While the base erosion and profit-shifting (BEPS) action plan is aimed at curbing profit-shifting practices, limited research is available on the successful implementation of the BEPS action plan. This article conducts a review of the implementation of the BEPS action plan by both jurisdictions, namely Mauritius (as a low tax jurisdiction) and South Africa (as a high tax jurisdiction). The success of the BEPS action plan in curbing profit-shifting practices from South Africa to Mauritius is measured in conjunction with the South African anti-avoidance legislation. The findings highlight that only Action 5 has been successfully adopted by both South Africa and Mauritius. A preliminary analysis was conducted which indicates that the implementation of the BEPS action plan will not result in less profit-shifting, due to gaps in the South African anti-avoidance legislation that facilitates these profit-shifting practices. It is suggested that the implementation of the BEPS action plan by higher tax jurisdictions should be prioritized. This article contributes to scholarship on evaluating the effectiveness of the BEPS action plan minimum standards for African countries.\u0000Action 5, aggressive tax planning strategies, base erosion and profit-shifting, base erosion and profit-shifting action plan, global business companies, foreign direct investments, Mauritius global business sector, minimum standards, offshore trust, profit-shifting, South African anti-avoidance legislation, tax avoidance, tax planning vehicles.","PeriodicalId":45365,"journal":{"name":"Intertax","volume":" ","pages":""},"PeriodicalIF":0.6,"publicationDate":"2023-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48322012","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 reviews the growth of Vietnam’s tax treaties and shifts in its treaty policies over the thirty-year period since the country created opportunities to attract foreign investment. It follows the incorporation of the Model Tax Treaties of the Organization for Economic Co-operation and Development (OECD) and the United Nations (UN) into its bilateral treaties and considers the limited apparent connection between treaties and foreign direct investment (FDI). A particularly interesting finding is the extent to which Vietnam’s treaties from the outset favoured the use of the UN Model provisions with respect to the definition of permanent establishments (PEs) and capital gains on the disposal of immovable property, particularly in its treaties with OECD members. This is ironic as measures from the OECD Model precedents are more likely to be found in treaties with non-OECD members. Nevertheless, it is clear that the treaties overall favour the allocation of taxing rights to Vietnam as a capital importing jurisdiction. These findings, when considered along with the country’s success at attracting FDI, suggest that developing economies can retain taxing rights and attract foreign investment at the same time. OECD Model treaty, UN Model treaty, tax treaties and foreign direct investment, transitional economy, evolving treaty policy
{"title":"Article: A Study of Vietnam’s Double Tax Treaties: Patterns of Treaty Growth and Shifting Treaty Policy","authors":"Loan N. T. Pham","doi":"10.54648/taxi2023019","DOIUrl":"https://doi.org/10.54648/taxi2023019","url":null,"abstract":"This article reviews the growth of Vietnam’s tax treaties and shifts in its treaty policies over the thirty-year period since the country created opportunities to attract foreign investment. It follows the incorporation of the Model Tax Treaties of the Organization for Economic Co-operation and Development (OECD) and the United Nations (UN) into its bilateral treaties and considers the limited apparent connection between treaties and foreign direct investment (FDI). A particularly interesting finding is the extent to which Vietnam’s treaties from the outset favoured the use of the UN Model provisions with respect to the definition of permanent establishments (PEs) and capital gains on the disposal of immovable property, particularly in its treaties with OECD members. This is ironic as measures from the OECD Model precedents are more likely to be found in treaties with non-OECD members. Nevertheless, it is clear that the treaties overall favour the allocation of taxing rights to Vietnam as a capital importing jurisdiction. These findings, when considered along with the country’s success at attracting FDI, suggest that developing economies can retain taxing rights and attract foreign investment at the same time.\u0000OECD Model treaty, UN Model treaty, tax treaties and foreign direct investment, transitional economy, evolving treaty policy","PeriodicalId":45365,"journal":{"name":"Intertax","volume":" ","pages":""},"PeriodicalIF":0.6,"publicationDate":"2023-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42543351","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}
{"title":"Literature Review: Handbook on the Politics of Taxation, Lukas Hakelberg & Laura Seelkopf. Edward Elgar. 2021","authors":"A. Pirlot","doi":"10.54648/taxi2023012","DOIUrl":"https://doi.org/10.54648/taxi2023012","url":null,"abstract":"","PeriodicalId":45365,"journal":{"name":"Intertax","volume":" ","pages":""},"PeriodicalIF":0.6,"publicationDate":"2023-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47437558","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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