DOCSLIB.ORG

Does Financial Secrecy Affect Profit Shifting?

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Does Financial Secrecy Affect Profit Shifting? VOLUME 1 NO 1 | OKTOBER 2019 ISSN 2686-5718 DOES FINANCIAL SECRECY AFFECT PROFIT SHIFTING? I Wayan Agus Eka Direktorat Jenderal Pajak. Email: [email protected] ABSTRACT Global efforts to increase financial transparency have been made throughout the last decade. Nevertheless, profit shifting among Multinational Companies still become a crucial issue worldwide. This study investigated whether financial secrecy is one of the determinants of profit shifting that has been overlooked in previous profit shifting studies. Using multiple regression analysis, I concluded that financial secrecy negatively affects profit shifting, meaning an increased transparency will induce taxpayers to shift profit out of the country since ending secrecy equals higher risk for the tax evaders. The finding implies two important recommendations: first, to continue the global efforts to promote financial information exchange for tax purposes and second, to strengthen domestic anti-profit shifting regulations. Keywords: financial secrecy, financial transparency, banking secrecy, profit shifting, exchange of informa- tion. ABSTRAK Inisiatif global untuk meningkatkan transparansi telah dilakukan dalam satu dekade belakangan ini. Di sisi lain, pengalihan laba oleh perusahaan multinasional tetap menjadi isu penting. Penelitian ini menginvestigasi apakah kerahasiaan data keuangan merupakan salah satu variabel determinan dari pengalihan laba yang selama ini belum pernah diperhitungkan dalam penelitian-penelitian sebelumnya. Menggunakan analisis regresi berganda, penelitian ini menyimpulkan bahwa kerahasiaan data keuangan secara negatif memengaruhi pengalihan laba, yang berarti bahwa peningkatan transparansi memberikan insentif kepada Wajib Pajak untuk mengalihkan laba ke luar suatu negara karena peningkatan risiko yang dialami para Wajib Pajak. Penelitian ini menghasilkan dua rekomendasi: pertama, usaha untuk mewujudkan pertukaran informasi keuangan secara menyeluruh harus tetap dilanjutkan dan kedua, diperlukan penguatan peraturan untuk mencegah dan mengatasi pengalihan laba. 27 I Wayan Agus Eka / Does Financial Secrecy Affect Profit Shifting? (2019) 27-40 1. INTRODUCTION A better understanding of profit shifting cannot be separated from the study of tax Over the last decade, taxation has havens. One of its characteristics is finan- become a major issue for top political cial secrecy. Jansky and Prats (2015) leaders. They have started to realize the argued that there are two main reasons importance of raising tax revenue to why tax havens play an important role in finance sustainable developments. profit shifting: (i) low or nil tax rate and (ii) Taxation has also become a mandatory secrecy provision (banking secrecy, lack of agenda in global economic forums in exchange of tax information, etc.). Johan- the midst of economic uncertainty and nesen and Zucman (2014) also found that trade wars. the end of Swiss bank secrecy through a Since tax revenue has become tax treaty amendment with France results the major revenue source after the in a roughly 11% decline in the Swiss declining of commodities prices, every deposits held by French residents. OECD nation has an interest to protect its tax (1998) report emphasizes that defining tax base. It is not an easy job since 30% of haven is not only from a tax perspective, the international transactions involve but also stress on the lack of exchange of affiliated multinational corporations information and transparency. (MNCs) that raise the concern of profit Tax haven, offshore financial center shifting (United Nation, 2017). G20/O- and secrecy jurisdiction are usually used ECD countries then took an initiative to interchangeably to describe a country that curb the base erosion and profit shifting induces profit shifting. However, the known as BEPS Action Plan (OECD, unclear and disagreement on tax haven 2015). and offshore financial center definition There is no precise number of contributed to the weakness in analyses how much the tax revenue is lost to (Cobham, Jansky & Meinzer, 2015). The profit shifting. OECD estimated the last term, secrecy jurisdiction, was promot- revenue loss at 4%-10% of the corpo- ed by Murphy (2008). He defined the rate tax revenue or USD100-240billion secrecy jurisdiction as a jurisdiction which at 2014 levels (OECD, 2015a). Among all provides facilities that enable people or countries, non-OECD countries (which entities escape or undermine the laws, are commonly developing countries) rules and regulations of other jurisdictions bear more costs from profit shifting elsewhere, using secrecy as a prime tool than developed countries (Crivelli, de (Murphy, 2008). Mooij & Keen, 2015). Clausing (2016) In connection with profit shifting, estimated that profit shifting is costing there are relatively more studies that use roughly between $77billion to $111bil- tax haven and offshore financial center lion of 2012 US tax revenue. Further- terms than secrecy jurisdiction. Two nota- more, the most recent research from ble studies, Hines and Rice (1994) and Torslov, Wier, and Zucman (2018) Johannesen and Zucman (2014), study estimated that 40% of MNCs profits are how tax haven affect US firms’ foreign shifted to low-tax countries each year. activities. 28 I Wayan Agus Eka / Does Financial Secrecy Affect Profit Shifting? (2019) 27-40 By contrast, several other research 2. LITERATURE REVIEW explores the roles of offshore financial 2.1 Profit Shifting center (Picard & Pieretti, 2011; Foad & Lundberg, 2017; Chernykh & Mityakov, There are several definitions of profit shift- 2017). ing. OECD (2018) defines profit shifting as Empirical studies on profit shift- allocation of income and expenses ing mostly concentrated on how the between related corporations or branches profit shifting was affected by tax rate of the same legal entity (e.g., by using differential, commonly called as the transfer pricing) in order to reduce the semi-elasticity of profit shifting. Hines overall tax liability of the group or corpo- and Rice (1994), the pioneers of this ration. Similar objective is expressed by study, estimated the semi-elasticity of Huizinga and Laeven (2008) where profit 2.3, meaning a reduction in the tax rate shifting should reduce MNC profits by one percentage point will increase reported in high-tax countries. the reported profit by 2.3%. Dozens of There are two main ways to shift similar studies then followed Hines and profit: transfer pricing and financing struc- Rice. In the latest study by Beer, de ture (Maffini & Mokkas, 2011; Buettner, Mooij and Liu (2018) who reviewed all of Overesch & Wamser, 2017). Another way these empirical studies, it was found involves treaty shopping and strategic that one percentage point reduction in location of intellectual property (Beer et the tax rate increases the before tax al., 2018). profit by 1.5%. Transfer pricing is a neutral term. It In addition to the aforemen- is defined as a price set by a taxpayer tioned, empirical research studying the when selling to, buying from, or sharing connection between financial secrecy resource with a related person (Arnold & and profit shifting is still not well-devel- McIntyre, 2002). To minimize taxable oped in the literature. The study by profit, MNCs locating in high-tax country Akhtar, Akhtar, John and Wong (2017) will overstate the import price and/or might be the closest one, as they inves- understate its export price (Huizinga & tigated whether corporate governance Laeven, 2008). Moreover, transfer pricing affects the probability of tax evasion. is considered the dominant profit shifting This paper tries to fill the gap in the channel based on meta-database analysis literature by empirically studying the from 27 empirical studies (Heckemeyer & impact of the financial secrecy on profit Overesch, 2017). shifting. This paper also contributes to In the context of financing struc- the literature since it tries to extend the ture, reducing tax burden can be achieved determinants of profit shifting by by imposing high interest rate to affiliated including secrecy issue that was over- company located in high tax country looked in the previous research. (Huizinga & Laeven, 2008). The main reason is that interest is deductible mean- while dividends are not deductible hence 29 I Wayan Agus Eka / Does Financial Secrecy Affect Profit Shifting? (2019) 27-40 debt financing is considered more fixed effect. Dharmapala and Riedel (2013) effective than equity financing (Arnold found that parents’ positive earning & McIntyre, 2002). shocks are associated with a significantly positive increase in pretax profits at 2.2 Determinant of Profit Shifting low-tax affiliates, relative to the effect on the pretax profits of high-tax affiliates. Most of the empirical research in profit In addition to the tax differential as shifting regards tax rate as the main one of the main important variables, the profit shifting determinant since the study about profit shifting cannot be sep- potential tax savings rely on the differ- arated from the existence of tax havens. In ence in the corporate tax rate. Grubert principle, tax haven is a location with a and Mutti (1991) and Hines and Rice very low tax rate and other tax-favorable (1994) are considered the pioneers in characteristics to attract foreign direct empirical profit shifting study. Their investment (Dharmapala & Hines, 2009). papers used cross-sectional regression Dyreng and Lindsey (2009) studied how analysis for 1982 country-level data, tax haven affect tax burden of US multina- resulted
Load more

Recommended publications
  • REPLACING CORPORATE TAX REVENUES with a MARK to MARKET TAX on SHAREHOLDER INCOME Eric Toder and Alan D
    REPLACING CORPORATE TAX REVENUES WITH A MARK TO MARKET TAX ON SHAREHOLDER INCOME Eric Toder and Alan D. Viard October 2016 ABSTRACT We propose reducing the corporate tax rate to 15 percent and replacing the foregone revenue with a tax at ordinary income rates on the accrued, or mark-to-market income of American shareholders of publicly traded corporations, accompanied by an imputation credit for U.S. corporate income taxes paid. The proposal would dramatically reduce the tax significance of the source of corporate profits and the residence of corporations, both of which can be easily manipulated. Lowering the corporate tax rate to 15 percent would encouraging a capital inflow to the United States and reduce incentives to shift reported profits overseas and engage in inversion transactions while continuing to impose tax on foreigners who earn economic rents from investing in the United States. The proposal includes provisions for averaging of mark-to- market income, transition relief for firms that move from closely held to publicly traded status, and other measures to address the challenges of mark-to-market taxation. We estimate that the proposal would be approximately revenue-neutral and would make the distribution of the tax burden slightly more progressive. A revised version of the article was been published in the September 2016 issue of the National Tax Journal, Volume 69 (3), 701-731. The findings and conclusions contained within are those of the author and do not necessarily reflect positions or policies of the Tax Policy Center or its funders. I. INTRODUCTION This paper presents a proposal for reform of the taxation of corporate income.
    [Show full text]
  • TTB F 5000.24Sm Excise Tax Return
    OMB No. 1513-0083 DEPARTMENT OF THE TREASURY 1. SERIAL NUMBER ALCOHOL AND TOBACCO TAX AND TRADE BUREAU (TTB) EXCISE TAX RETURN (Prepare in duplicate – See instructions below) 3. AMOUNT OF PAYMENT 2. FORM OF PAYMENT $ CHECK MONEY ORDER EFT OTHER (Specify) NOTE: PLEASE MAKE CHECKS OR MONEY ORDERS PAYABLE TO THE ALCOHOL AND TOBACCO TAX AND 4. RETURN COVERS (Check one) BEGINNING TRADE BUREAU (SHOW EMPLOYER IDENTIFICATION NUMBER ON ALL CHECKS OR MONEY ORDERS). IF PREPAYMENT PERIOD YOU SEND A CHECK, SEE PAPER CHECK CONVERSION ENDING NOTICE BELOW. 5. DATE PRODUCTS TO BE REMOVED (For Prepayment Returns Only) FOR TTB USE ONLY 6. EMPLOYER IDENTIFICATION NUMBER 7. PLANT, REGISTRY, OR PERMIT NUMBER TAX $ PENALTY 8. NAME AND ADDRESS OF TAXPAYER (Include ZIP Code) INTEREST TOTAL $ EXAMINED BY: DATE EXAMINED: CALCULATION OF TAX DUE (Before making entries on lines 18 – 21, complete Schedules A and B) PRODUCT AMOUNT OF TAX (a) (b) 9. DISTILLED SPIRITS 10. WINE 11. BEER 12. CIGARS 13. CIGARETTES 14. CIGARETTE PAPERS AND/OR CIGARETTE TUBES 15. CHEWING TOBACCO AND/OR SNUFF 16. PIPE TOBACCO AND/OR ROLL-YOUR-OWN TOBACCO 17. TOTAL TAX LIABILITY (Total of lines 9-16) $ 18. ADJUSTMENTS INCREASING AMOUNT DUE (From line 29) 19. GROSS AMOUNT DUE (Line 17 plus line 18) $ 20. ADJUSTMENTS DECREASING AMOUNT DUE (From line 34) 21. AMOUNT TO BE PAID WITH THIS RETURN (Line 19 minus line 20) $ Under penalties of perjury, I declare that I have examined this return (including any accompanying explanations, statements, schedules, and forms) and to the best of my knowledge and belief it is true, correct, and includes all transactions and tax liabilities required by law or regulations to be reported.
    [Show full text]
  • The Power of States and Business: Explaining
    Ref. Ares(2017)5230581 - 26/10/2017 The power of states and business: Explaining transformative change in the fight against tax evasion and avoidance The Power of States and Business v2.0 19 September 2017 Document Details Work Package WP3 Lead Beneficiary University of Bamberg Deliverable ID D3.2 Date 05, 03, 2017 Submission 07, 28, 2017 Dissemination Level PU – Public / CO – Confidential / CI – Classified Information Version 1.0 Author(s) Lukas Hakelberg University of Bamberg Political Science [email protected] Acknowledgements The project “Combatting Fiscal Fraud and Empowering Regulators (COFFERS)” has received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No 727145. Document History Date Author Description 03-05-2017 Lukas Hakelberg First draft 19-09-2017 Lukas Hakelberg Second draft Page 2 of 52 The Power of States and Business v2.0 19 September 2017 Contents Document Details 2 Acknowledgements 2 Document History 2 Contents 3 Executive Summary 4 1. Introduction 5 2. Power in International Tax Policy 7 3. Post-Crisis Initiatives Against Tax Evasion and Avoidance 15 3.1 The Emergence of Multilateral AEI 16 3.1.1 Points of Departure: Savings Directive and Qualified Intermediary Program 16 3.1.2 Setting the Agenda: Left-of-Center Politicians and Major Tax Evasion Scandals 17 3.1.3 Towards New Rules: Legislative Initiatives in Europe and the US 20 3.1.4 The Role of Domestic Interest Groups: Tax Evaders and Financial Institutions 22 3.1.5 Reaching International Agreement: From Bilateral FATCA Deals to Multilateral AEI 25 3.2 Incremental Change in the Fight against Base Erosion and Profit Shifting 28 3.2.1 Points of Departure: Limiting Taxation at Source Through Transfer Pricing 28 3.2.2 Setting the Agenda: Starbuck’s and the Inclusion of Emerging Economies 30 3.2.3 Towards New Rules: The BEPS Report’s Ambiguous Recommendations 32 3.2.4 The Role of Interest Groups: In Defense of the Arm’s Length Principle 33 3.2.5 Reaching International Agreement? Ongoing EU-US Bargaining over BEPS 36 4.
    [Show full text]
  • Tax Haven Networks and the Role of the Big 4 Accountancy Firms
    -RXUQDORI:RUOG%XVLQHVV[[[ [[[[ [[[²[[[ Contents lists available at ScienceDirect Journal of World Business journal homepage: www.elsevier.com/locate/jwb Tax haven networks and the role of the Big 4 accountancy firms Chris Jonesa,⁎, Yama Temouria,c, Alex Cobhamb a Economics & Strategy Group, Aston Business School, Aston University, Birmingham B4 7ET, UK b Tax Justice Network, Oxford, UK c Faculty of Business, University of Wollongong Dubai, UAE ARTICLE INFO ABSTRACT Keywords: This paper investigates the association between the Big 4 accountancy firms and the extent to which multi- Tax havens national enterprises build, manage and maintain their networks of tax haven subsidiaries. We extend inter- Varieties of capitalism nalisation theory and derive a number of hypotheses that are tested using count models on firm-level data. Our Corporate taxation key findings demonstrate that there is a strong correlation and causal link between the size of an MNE’s tax Poisson regression haven network and their use of the Big 4. We therefore argue that public policy related to the role of auditors can Big 4 accountancy firms have a significant impact on the tax avoidance behaviour of MNEs. 1. Introduction 2014 which has provided a number of clear insights. These documents showed that PwC assisted MNEs to obtain at least 548 legal but secret Given the impact that the recent financial crisis of 2008 has had on tax rulings in Luxembourg from 2002 to 2010. The rulings allowed the public finances of developed economies, the use of tax avoidance MNEs to channel hundreds of billions of dollars through Luxembourg, measures by multinational enterprises (MNEs) has come under in- arising from economic activities that took place in other jurisdictions creasing scrutiny from various governments and civil society organi- and with effective tax rates so low that they saved billions of dollars in sations across the world.
    [Show full text]
  • An Analysis of the Graded Property Tax Robert M
    TaxingTaxing Simply Simply District of Columbia Tax Revision Commission TaxingTaxing FairlyFairly Full Report District of Columbia Tax Revision Commission 1755 Massachusetts Avenue, NW, Suite 550 Washington, DC 20036 Tel: (202) 518-7275 Fax: (202) 466-7967 www.dctrc.org The Authors Robert M. Schwab Professor, Department of Economics University of Maryland College Park, Md. Amy Rehder Harris Graduate Assistant, Department of Economics University of Maryland College Park, Md. Authors’ Acknowledgments We thank Kim Coleman for providing us with the assessment data discussed in the section “The Incidence of a Graded Property Tax in the District of Columbia.” We also thank Joan Youngman and Rick Rybeck for their help with this project. CHAPTER G An Analysis of the Graded Property Tax Robert M. Schwab and Amy Rehder Harris Introduction In most jurisdictions, land and improvements are taxed at the same rate. The District of Columbia is no exception to this general rule. Consider two homes in the District, each valued at $100,000. Home A is a modest home on a large lot; suppose the land and structures are each worth $50,000. Home B is a more sub- stantial home on a smaller lot; in this case, suppose the land is valued at $20,000 and the improvements at $80,000. Under current District law, both homes would be taxed at a rate of 0.96 percent on the total value and thus, as Figure 1 shows, the owners of both homes would face property taxes of $960.1 But property can be taxed in many ways. Under a graded, or split-rate, tax, land is taxed more heavily than structures.
    [Show full text]
  • Download Article (PDF)
    5th International Conference on Accounting, Auditing, and Taxation (ICAAT 2016) TAX TRANSPARENCY – AN ANALYSIS OF THE LUXLEAKS FIRMS Johannes Manthey University of Würzburg, Würzburg, Germany Dirk Kiesewetter University of Würzburg, Würzburg, Germany Abstract This paper finds that the firms involved in the Luxembourg Leaks (‘LuxLeaks’) scandal are less transparent measured by the engagement in earnings management, analyst coverage, analyst accuracy, accounting standards and auditor choice. The analysis is based on the LuxLeaks sample and compared to a control group of large multinational companies. The panel dataset covers the years from 2001 to 2015 and comprises 19,109 observations. The LuxLeaks firms appear to engage in higher levels of discretionary earnings management measured by the variability of net income to cash flows from operations and the correlation between cash flows from operations and accruals. The LuxLeaks sample shows a lower analyst coverage, lower willingness to switch to IFRS and a lower Big4 auditor rate. The difference in difference design supports these findings regarding earnings management and the analyst coverage. The analysis concludes that the LuxLeaks firms are less transparent and infers a relation between corporate transparency and the engagement in tax avoidance. The paper aims to establish the relationship between tax avoidance and transparency in order to give guidance for future policy. The research highlights the complex causes and effects of tax management and supports a cost benefit analysis of future tax regulation. Keywords: Tax Avoidance, Transparency, Earnings Management JEL Classification: H20, H25, H26 1. Introduction The Luxembourg Leaks (’LuxLeaks’) scandal made public some of the tax strategies used by multinational companies.
    [Show full text]
  • Narrative Report on Ireland
    Financial Secrecy Index Ireland Narrative Report on Ireland Ireland is ranked at 47th position on the 2013 Financial Secrecy Index. This ranking is based on a combination of its Chart 1 - How Secretive? Moderately secrecy score and a scale weighting based on its share of the secretive 31-40 global market for offshore financial services. 41-50 Ireland has been assessed with 37 secrecy points out of a 51-60 potential 100, which places it into the moderately secretive 61-70 category at the bottom of the secrecy scale (see chart 1). 71-80 Ireland accounts for over 2 per cent of the global market for 81-90 offshore financial services, making it a small player compared with other secrecy jurisdictions (see chart 2). Exceptionally secretive 91-100 Part 1: Telling the story1 Chart 2 - How Big? Ireland as a financial centre: history and background Overview huge Ireland’s role as a secrecy jurisdiction or tax haven is based on two broad developments. The first, dating from 1956, is a regime of low tax rates and tax loopholes that have large encouraged transnational businesses to relocate – often small only on paper – to Ireland. The second is the role of the tiny Dublin-based International Financial Services Centre (IFSC), a Wild-West, deregulated financial zone set up in 1987 under the corrupt Irish politician Charles Haughey, which has striven particularly to host international ‘shadow banking’ activity2. Ireland’s secrecy score of 37 makes it one of the least secretive jurisdictions on our index: secrecy was never a central part of its ‘offshore’ offering.
    [Show full text]
  • Imports in GST Regime (Goods & Services Tax)
    Imports in GST Regime (Goods & Services Tax) Introduction Under the GST regime, Article 269A constitutionally mandates that supply of goods, or of services, or both in the course of import into the territory of India shall be deemed to be supply of goods, or of services, or both in the course of inter-State trade or commerce. So import of goods or services will be treated as deemed inter-State supplies and would be subject to Integrated tax. While IGST on import of services would be leviable under the IGST Act, the levy of the IGST on import of goods would be levied under the Customs Act, 1962 read with the Custom Tariff Act, 1975. The importer of services will have to pay tax on reverse charge basis. However, in respect of import of online information and database access or retrieval services (OIDAR) by unregistered, non-taxable recipients, the supplier located outside India shall be responsible for payment of taxes (IGST). Either the supplier will have to take registration or will have to appoint a person in India for payment of taxes. Supply of goods or services or both to a Special Economic Zone developer or a unit shall be treated as inter-State supply and shall be subject to levy of integrated tax. Directorate General of Taxpayer Services CENTRAL BOARD OF EXCISE & CUSTOMS www.cbec.gov.in Imports in GST Regime (Goods & Services Tax) Importer Exporter Code (IEC): As per DGFT’s Trade Notice No. 09 The taxes will be calculated as under: dated 12.06.2017, the PAN of an entity would be used as the Import Particulars Duty Export code (IEC).
    [Show full text]
  • Ecotaxes: a Comparative Study of India and China
    Ecotaxes: A Comparative Study of India and China Rajat Verma ISBN 978-81-7791-209-8 © 2016, Copyright Reserved The Institute for Social and Economic Change, Bangalore Institute for Social and Economic Change (ISEC) is engaged in interdisciplinary research in analytical and applied areas of the social sciences, encompassing diverse aspects of development. ISEC works with central, state and local governments as well as international agencies by undertaking systematic studies of resource potential, identifying factors influencing growth and examining measures for reducing poverty. The thrust areas of research include state and local economic policies, issues relating to sociological and demographic transition, environmental issues and fiscal, administrative and political decentralization and governance. It pursues fruitful contacts with other institutions and scholars devoted to social science research through collaborative research programmes, seminars, etc. The Working Paper Series provides an opportunity for ISEC faculty, visiting fellows and PhD scholars to discuss their ideas and research work before publication and to get feedback from their peer group. Papers selected for publication in the series present empirical analyses and generally deal with wider issues of public policy at a sectoral, regional or national level. These working papers undergo review but typically do not present final research results, and constitute works in progress. ECOTAXES: A COMPARATIVE STUDY OF INDIA AND CHINA1 Rajat Verma2 Abstract This paper attempts to compare various forms of ecotaxes adopted by India and China in order to reduce their carbon emissions by 2020 and to address other environmental issues. The study contributes to the literature by giving a comprehensive definition of ecotaxes and using it to analyse the status of these taxes in India and China.
    [Show full text]
  • 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.
    [Show full text]
  • 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.
    [Show full text]
  • Taxation in Islam
    Taxation in Islam The following article is based on the book Funds in the Khilafah State which is a translation of Al-Amwal fi Dowlat Al-Khilafah by Abdul-Qadeem Zalloom.1 Allah (swt) has revealed a comprehensive economic system that details all aspects of economic life including government revenues and taxation. In origin, the permanent sources of revenue for the Bait ul-Mal (State Treasury) should be sufficient to cover the obligatory expenditure of the Islamic State. These revenues that Shar’a (Islamic Law) has defined are: Fa’i, Jizya, Kharaj, Ushur, and income from Public properties. The financial burdens placed on modern states today are far higher than in previous times. When the Caliphate is re-established it will need to finance a huge re-development and industrial programme to reverse centuries of decline, and bring the Muslim world fully into the 21st century. Because of this, the Bait ul-Mal’s permanent sources of revenue may be insufficient to cover all the needs and interests the Caliphate is obliged to spend upon. In such a situation where the Bait ul-Mal’s revenues are insufficient to meet the Caliphate’s budgetary requirements, the Islamic obligation transfers from the Bait ul-Mal to the Muslims as a whole. This is because Allah (swt) has obliged the Muslims to spend on these needs and interests, and their failure to spend on them will lead to the harming of Muslims. Allah (swt) obliged the State and the Ummah to remove any harm from the Muslims. It was related on the authority of Abu Sa’id al-Khudri, (ra), that the Messenger of Allah (saw) said: “It is not allowed to do harm nor to allow being harmed.” [Ibn Majah, Al-Daraqutni] Therefore, Allah (swt) has obliged the State to collect money from the Muslims in order to cover its obligatory expenditure.
    [Show full text]