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Transfer Pricing As a Vehicle in Corporate Tax Avoidance
The Journal of Applied Business Research – January/February 2017 Volume 33, Number 1 Transfer Pricing As A Vehicle In Corporate Tax Avoidance Joel Barker, Borough of Manhattan Community College, USA Kwadwo Asare, Bryant University, USA Sharon Brickman, Borough of Manhattan Community College, USA ABSTRACT Using transfer pricing, U.S. Corporations are able to transfer revenues to foreign affiliates with lower corporate tax rates. The Internal Revenue Code requires intercompany transactions to comply with the “Arm’s Length Principle” in order to prevent tax avoidance. We describe and use elaborate examples to explain how U.S. companies exploit flexibility in the tax code to employ transfer pricing and related tax reduction and avoidance methods. We discuss recent responses by regulatory bodies. Keywords: Transfer Pricing; Tax avoidance; Inversion; Tax Evasion; Arm’s Length Principle; R & D for Intangible Assets; Cost Sharing Agreements; Double Irish; Profit Shifting INTRODUCTION ver the last decade U.S. corporations have been increasing their use of Corporate Inversions. In an inversion, corporations move their domestic corporations to foreign jurisdictions in order to be eligible O for much lower corporate tax rates. Furthermore, inversions allow U.S. corporations that have accumulated billions of dollars overseas through transfer pricing to access those funds tax free. With an inversion a U.S. corporation becomes a foreign corporation and would not have to pay tax to the U.S. government to access the funds accumulated abroad as the funds no longer have to be repatriated to be spent. Corporations continue to avoid taxation through Transfer Pricing. This article explains transfer pricing and discusses some of the tax issues that transfer pricing pose including recommendations and proposed legislation to mitigate the practice. -
Time for a Tobin Tax? Some Practical and Political Arguments
Oxfam GB Time for a Tobin Tax? Some practical and political arguments May 1999 This paper was written for Oxfam (Great Britain) by Heinz Stecher with contributions from Michael Bailey. Comments from readers are welcome. For further information or feedback, please contact Jenny Kimmis, Oxfam GB Policy Department (+44 1865 312212 or [email protected]). Oxfam GB is a member of Oxfam International. Time for a Tobin Tax? Some practical and political arguments Summary This paper is intended to further discussion on ‘Tobin taxes’. It provides information on the currency aspect of international financial instability, looks at the arguments around a global currency transaction tax and its potential value, explores the possibility of the proposal’s further political advance, and concludes with comments on prospects for advocacy. Why a currency transaction tax? James Tobin, an American economist, made his proposal for a levy on international currency transactions in 1978. The tax was designed to deter the speculation that causes sharp exchange rate fluctuations and serious damage to economies. In the 1990s, two additional facts have sharpened interest in Tobin’s proposal and its variants. The first is the huge growth in foreign exchange trading to about $1.8 trillion per day and the corresponding increase in currency instability and related financial crises. Second, since the tax could generate substantial sums, the idea has attracted the attention of those concerned with financing development – a concern accentuated by the fiscal challenges faced by the state as well as by the growing need for international co-operation on problems of poverty, the environment and security. -
Financial Transaction Tax and Economic Crisis: Is It Time for a Tax on International Transactions?
RDTI Atual 05 IBDT | INSTITUTO BRASILEIRO DE DIREITO TRIBUTÁRIO Revista Direito Tributário Internacional Atual e-ISSN 2595-7155 FINANCIAL TRANSACTION TAX AND ECONOMIC CRISIS: IS IT TIME FOR A TAX ON INTERNATIONAL TRANSACTIONS? IMPOSTO SOBRE TRANSAÇÕES FINANCEIRAS E CRISE ECONÔMICA: É CHEGADA A HORA DE UM IMPOSTO SOBRE TRANSAÇÕES INTERNACIONAIS? Pedro Adamy Professor da Escola de Direito da Pontifícia Universidade Católica do Rio Grande do Sul (PUCRS). Doutorando em Direito na Universidade de Heidelberg, Alemanha. Mestre em Direito pela Universidade Federal do Rio Grande do Sul (UFRGS). E-mail: [email protected] Recebido em: 15-04-2019 Aprovado em: 04-06-2019 ABSTRACT This paper aims at the legal problems that arise concerning the introduction of a financial transaction tax. The article analyzes the impact, characteristics and challenges of a tax on international financial transactions and its relationship to economic crises. KEYWORDS: FINANCIAL TRANSACTION TAX, ECONOMIC CRISIS, INTERNATIONAL TAXATION, REGULATORY MEASURES RESUMO Este artigo visa os problemas jurídicos que surgem com a introdução de um imposto sobre transações financeiras. O artigo analisa o impacto, as características e os desafios de um imposto sobre transações financeiras internacionais e sua relação com crises econômicas. PALAVRAS-CHAVE: IMPOSTO SOBRE TRANSAÇÕES FINANCEIRAS, CRISES ECONÔMICAS, TRIBUTAÇÃO INTERNACIONAL, MEDIDAS ADMINISTRATIVAS 157 Revista Direito Tributário Internacional Atual nº 05 p.157-171 - 2019 RDTI Atual 05 IBDT | INSTITUTO BRASILEIRO DE DIREITO TRIBUTÁRIO Revista Direito Tributário Internacional Atual e-ISSN 2595-7155 1. INTRODUCTORY REMARKS “Crisis is not the best advisor on formulating rules for normal times.”1 In the event of a financial crisis two phenomena will certainly occur: first, money will flow from unstable and poorer countries into more stable and richer ones; second, the discussion about a financial transaction tax (henceforth FTT) will be revived and gain attention among the press, economists, tax law professionals and oppositional politicians2. -
Environmental Taxation: Mirrless and Beyond
Original citation: McEldowney, John F. and Salter, David. (2016) Environmental taxation in the UK : the Climate Change Levy and policy making. Denning Law Journal. http://ubplj.org/index.php/dlj/index Permanent WRAP URL: http://wrap.warwick.ac.uk/80815 Copyright and reuse: The Warwick Research Archive Portal (WRAP) makes this work by researchers of the University of Warwick available open access under the following conditions. Copyright © and all moral rights to the version of the paper presented here belong to the individual author(s) and/or other copyright owners. To the extent reasonable and practicable the material made available in WRAP has been checked for eligibility before being made available. Copies of full items can be used for personal research or study, educational, or not-for-profit purposes without prior permission or charge. Provided that the authors, title and full bibliographic details are credited, a hyperlink and/or URL is given for the original metadata page and the content is not changed in any way. A note on versions: The version presented here may differ from the published version or, version of record, if you wish to cite this item you are advised to consult the publisher’s version. Please see the ‘permanent WRAP URL’ above for details on accessing the published version and note that access may require a subscription. For more information, please contact the WRAP Team at: [email protected] warwick.ac.uk/lib-publications Denning Law Journal – special issue - ‘Contemporary Legal and Policy Issues in the Global Oil and Gas Sector’ Environmental Taxation in the UK: the Climate Change Levy and policy making John McEldowney* and David Salter** ABSTRACT Environmental taxation is different from many other forms of taxation as it is not only used to raise revenue but it is also able to marginally influence behaviour to protect and enhance the environment. -
Tax Competition and Tax Coordination in the European Union: a Survey
A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Keuschnigg, Christian; Loretz, Simon; Winner, Hannes Working Paper Tax competition and tax coordination in the European Union: A survey Working Papers in Economics and Finance, No. 2014-04 Provided in Cooperation with: Department of Social Sciences and Economics, University of Salzburg Suggested Citation: Keuschnigg, Christian; Loretz, Simon; Winner, Hannes (2014) : Tax competition and tax coordination in the European Union: A survey, Working Papers in Economics and Finance, No. 2014-04, University of Salzburg, Department of Social Sciences and Economics, Salzburg This Version is available at: http://hdl.handle.net/10419/122170 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu TAX COMPETITION AND TAX COORDINATION IN THE EUROPEAN UNION: A SURVEY CHRISTIAN KEUSCHNIGG, SIMON LORETZ AND HANNES WINNER WORKING PAPER NO. -
The Financial Transactions Tax Versus (?) the Financial Activities Tax
The Financial Transactions Tax Versus (?) the Financial Activities Tax Daniel Shaviro NYU Law School Stanford Law School, February 21, 2012 1 Intervening in a horse race Prepared for conference (Amsterdam 12/9/11) discussing recent European Commission (EC) proposal to enact an FTT (financial transactions tax). Natural contrast to Int’l Monetary Fund (IMF) staff proposal to enact any of 3 variants of an FAT (financial activities tax). Key difference: gross tax on certain sales, vs. net tax on a broader range of activities. Discussion is organized around (but not chained to) stated rationales for taxing financial firms. Main conclusions: (1) I favor a hybridized version of the 3 FATs discussed by the IMF (and generally reject stated rationales for the FTT). (2) A possible FTT rationale (not identified by the EC) might conceivably support its enactment, whether or not an FAT is enacted. 2 Why has the European Commission proposed an FTT? The main stated grounds are (1) to ensure a fair contribution by the financial sector, (2) to respond to under-taxation of the sector, and (3) it “might be an appropriate tool to reduce excessive risk-taking.” Other possible grounds: harmonize FTT-like taxes that EU countries may be doing anyway; political feasibility & revenue? Grounds for rejecting FAT unclear. FTT’s greater revenue potential & direct impact on risks from excessive trading outweigh higher risks of relocation of transactions,” negative effects on GDP & employment? Possible unstated political feasibility rationale? (From FTT’s nominally lower rate, popular identification as the “Robin Hood tax.”) 3 FTT: History and Rationale > 200 years old (U.K. -
FINANCE Offshore Finance.Pdf
This page intentionally left blank OFFSHORE FINANCE It is estimated that up to 60 per cent of the world’s money may be located oVshore, where half of all financial transactions are said to take place. Meanwhile, there is a perception that secrecy about oVshore is encouraged to obfuscate tax evasion and money laundering. Depending upon the criteria used to identify them, there are between forty and eighty oVshore finance centres spread around the world. The tax rules that apply in these jurisdictions are determined by the jurisdictions themselves and often are more benign than comparative rules that apply in the larger financial centres globally. This gives rise to potential for the development of tax mitigation strategies. McCann provides a detailed analysis of the global oVshore environment, outlining the extent of the information available and how that information might be used in assessing the quality of individual jurisdictions, as well as examining whether some of the perceptions about ‘OVshore’ are valid. He analyses the ongoing work of what have become known as the ‘standard setters’ – including the Financial Stability Forum, the Financial Action Task Force, the International Monetary Fund, the World Bank and the Organization for Economic Co-operation and Development. The book also oVers some suggestions as to what the future might hold for oVshore finance. HILTON Mc CANN was the Acting Chief Executive of the Financial Services Commission, Mauritius. He has held senior positions in the respective regulatory authorities in the Isle of Man, Malta and Mauritius. Having trained as a banker, he began his regulatory career supervising banks in the Isle of Man. -
The Notion of Tax and the Elimination of International Double Taxation Or Double Non-Taxation”
IFA 2016 MADRID CONGRESS “The notion of tax and the elimination of international double taxation or double non-taxation” Luxembourg national report Branch reporters: Chiara Bardini*, Sandra Fernandes** Summary and conclusions The concept of tax under Luxembourg domestic law is based on the basic distinction between compulsory levies that qualify as taxes (“impôts”) and other compulsory levies, such as fees (“taxes”). In general, the term tax can be defined as a compulsory monetary levy imposed by public authorities on the taxpayers in order to mainly raise revenue for which nothing is received in return. In Luxembourg, taxes can only be raised by the Luxembourg State and the municipalities in accordance with the principles of legality, equality and annuality. The Luxembourg tax system relies on the basic distinction between direct and indirect taxes. The Luxembourg direct taxes are levied on items of income and of capital. The main Luxembourg income taxes are the individual income tax, the corporate income tax and the municipal business tax. The net wealth tax, the real estate tax and the subscription tax are the most important Luxembourg taxes levied on items of capital. The Luxembourg notion of “tax” is crucial for the purpose of granting the domestic unilateral foreign tax credit, of applying the domestic participation exemption regime. As a rule, a foreign levy only qualifies for the purpose of such domestic provisions provided that such foreign levy is an income tax and that its main features are comparable to the Luxembourg income tax (i.e. a national income tax imposed on a similar taxable base. -
Optimal Benefit-Based Corporate Income
Optimal Benefit-Based Corporate Income Tax Simon M Naitram∗ Adam Smith Business School, University of Glasgow June 26, 2019 Abstract I derive an optimal benefit-based corporate tax rate formula as a function of the public input elasticity of profits and the (net of) tax elasticity of profits. I argue that the existence of the corporate income tax should be justified by the benefit-based view of taxation: firms should pay tax according to the benefits they receive from the use of the public input. I argue that benefit-based corporate taxation is normatively fair. Since the public input is a location-specific factor, a positive benefit-based corporate tax rate is also feasible even in a small open economy. The benefit-based view gives three clear principles of corporate tax design. First, we should tax corporate profits at source. Second, the optimal tax base is location-specific rents. Third, profit shifting is normatively wrong. An empirical application of the formula suggests the optimal benefit-based corporate tax rate on public corporations in the United States lies in the range of 35 to 52 percent. JEL: H21; H25; H32; H41 Keywords: benefit principle; optimal corporate tax; public input 1 Introduction The view that `corporations must pay their fair share' dominates public opinion. In 2017, Amer- icans' biggest complaint about the federal tax system was the feeling that some corporations do not pay their fair share of tax. Sixty-two percent of respondents said they were bothered `a lot' by corporations who did not pay their fair share (Pew Research Center, 2017a). -
Tax Heavens: Methods and Tactics for Corporate Profit Shifting
Tax Heavens: Methods and Tactics for Corporate Profit Shifting By Mark Holtzblatt, Eva K. Jermakowicz and Barry J. Epstein MARK HOLTZBLATT, Ph.D., CPA, is an Associate Professor of Accounting at Cleveland State University in the Monte Ahuja College of Business, teaching In- ternational Accounting and Taxation at the graduate and undergraduate levels. axes paid to governments are among the most significant costs incurred by businesses and individuals. Tax planning evaluates various tax strategies in Torder to determine how to conduct business (and personal transactions) in ways that will reduce or eliminate taxes paid to various governments, with the objective, in the case of multinational corporations, of minimizing the aggregate of taxes paid worldwide. Well-managed entities appropriately attempt to minimize the taxes they pay while making sure they are in full compliance with applicable tax laws. This process—the legitimate lessening of income tax expense—is often EVA K. JERMAKOWICZ, Ph.D., CPA, is a referred to as tax avoidance, thus distinguishing it from tax evasion, which is illegal. Professor of Accounting and Chair of the Although to some listeners’ ears the term tax avoidance may sound pejorative, Accounting Department at Tennessee the practice is fully consistent with the valid, even paramount, goal of financial State University. management, which is to maximize returns to businesses’ ownership interests. Indeed, to do otherwise would represent nonfeasance in office by corporate managers and board members. Multinational corporations make several important decisions in which taxation is a very important factor, such as where to locate a foreign operation, what legal form the operations should assume and how the operations are to be financed. -
Tanzania the Panama Papers in Africa
Tanzania The Panama Papers in Africa: Tax Avoidance, Money Laundering or Illicit Financial Flows? Olwethu Majola-Kinyunyu LLB, LLM PhD Candidate, Centre of Criminology, University of Cape Town, Cape Town, South Africa Email: [email protected] Abstract Early in 2016 the international community was shaken by the news of the biggest data leak in history. Political figures, prominent business people, sportstars and even criminals were the topic of discussion in news outlets across the globe. Following the release of the Panama Papers, many called for the leaders who were implicated to resign from their positions and for business executives to be investigated. There were reports of offshore accounts and companies operating in tax havens and accusations of money laundering, terrorism financing and tax avoidance. What do the Panama Papers mean for Africa? This paper assesses the effects of the Panama Papers on the African continent and evaluates whether the responses by African states are sufficient. What are the Panama Papers? tax haven jurisdictions in the facilitation of tax evasion, money laundering, organised crime, illicit The ?Panama Papers? is the colloquial term referring to the leak of client documents belonging to financial flows and other issues of grave concern to Panama-based law firm Mossack Fonseca. Details of the the international community. Panama documents were leaked by German newspaper, The Legality of Offshore Accounts and Companies in Süddeutsche Zeitung, in conjunction with the African Jurisdictions International Consortium of Investigative Journalists Holding ownership of a shell company or an offshore (ICIJ), consisting of over 100 media partners in 82 account, in most cases, is not unlawful. -
Guidance for Taxpayers on the Mutual Agreement Procedure (Q&A)
Guidance for Taxpayers on the Mutual Agreement Procedure (Q&A) July, 2019 Office of the Mutual Agreement Procedure National Tax Agency, Japan This guidance is to complement the contents of the Commissioner’s Directive on the Mutual Agreement Procedure (Administrative Guidelines)*1. This provides clear MAP guidance to taxpayers required by the recommendation of the BEPS Action14 Final Report*2 published in October, 2015. For further information about the Mutual Agreement Procedure, please refer to the Commissioner’s Directive on the Mutual Agreement Procedure (Administrative Guidelines). *1 Amended on May 7, 2019. *2 The BEPS Action14 Final Report: Element 2.1 Countries should publish rules, guidelines and procedures to access and use the MAP and take appropriate measures to make such information available to taxpayers. Countries should ensure that their MAP guidance is clear and easily accessible to the public. Table of Contents 1. The Outline of the Mutual Agreement Procedure (MAP) Q1-1 What is a MAP? Q1-2 What is the purpose of MAP? Q1-3 Which provisions of a tax treaty allow a MAP? Q1-4 Please provide information regarding the number of MAP cases? Q1-5 Which countries can Japan’s competent authorities negotiate with on MAP cases? Q1-6 Please give details about the circumstances surrounding MAP around the world. Q1-7 How long does it take to resolve a MAP case after its request is made? Q1-8 What items should taxpayers pay attention to for making a MAP request? 2. MAP Q2-1 Who is eligible to request for MAP assistance? Q2-2 How can a taxpayer request for MAP assistance? Q2-3 Can a taxpayer consult with the NTA before requesting MAP assistance? Q2-4 Is there a deadline for holding a pre-filing consultation? Q2-5 What kind of documents should be prepared for a pre-filing consultation? Q2-6 Please provide the application form for requesting MAP assistance.