Objective To compare estimated losses from internationalcorporatetax avoidance in individual countries and domestic government health expenditure, with reference to the annual threshold of 86 United States dollars (US$) per capita required to achieve universal health coverage. Methods I obtained and compared estimates of internationalcorporatetax avoidance and domestic government health expenditure for 2013. Findings Data were available for 100 countries: 24 low-, 28 lower-middle-, 21 upper-middle- and 27 high-income countries. Domestic government health expenditure was under US$ 86 per capita in all 24 low-income countries and in 24 of 28 lower-middle-income countries. Internationalcorporatetax lost per capita was higher than domestic government health expenditure in 19 low-income and 10 lower-middle- income countries. If the revenue lost to tax avoidance were recouped and allocated to the health sector, average annual government health expenditure could increase from US$ 8 to US$ 24 per capita in the low-income countries studied and from US$ 54 to US$ 91 per capita in the lower-middle-income countries.
If one consolidates the concepts of substantial activities, core commercial activity, controls over risks, economic reality and substantial economic activities, it could be argued that if the taxpayer demonstrates not only the commercial rationale of the arrangement (non-fiscal purposes) but also its economic rationale, then that taxpayer should be given access to the benefits offered by the internationalcorporatetax framework. To elaborate, from an economic standpoint, the taxpayer can demonstrate that it carries out the relevant economic activities (or core income generating activities) with respect to the underlying income that it receives. This would typically be the case when a taxpayer entity in a corporate group demonstrates that: 1. its personnel (board and/or operating staff to the extent relevant) make key decisions with respect to the risks associated with that entity’s activities; 2. the core income generating functions of the entity are carried out by the entity’s personnel; 3. the entity owns/leases the necessary office space and/or equipment to carry out its activities. In these circumstances, the taxpayer entity should be:
Two other aspects might make these effects even lower or perhaps reverse the sign. First, the effect of debt capital is not incorporated into any of these models. Because about a third of the capital stock is financed by debt, the magnitude of the first set of estimates (using capital stock estimates) should be reduced by about one-third to account for the presence of debt. This would be the expected outcome if returns to debt-financed investment were taxed at a zero rate, as would be the case if there were no inflation and no accelerated depreciation. However, since both of these conditions exist in the U.S. tax code, debt is subsidized at the corporate level because inflation is generally positive and the effective marginal tax rate is below the statutory rate. Lowering the statutory rate reduces these subsidies and discourages debt. This effect may be desirable for issues such as the debt-equity distortion, but can actually discourage capital inflows, as suggested in one study. 30
determine documentation requirements, include various specific requirements in its application needed to support the transfer prices used, and set penalties if mispricing is detected or adequate documentation is not provided. Their effectiveness in curbing internationaltax avoidance is supported in two concurrent studies, which show that introduction and tightening of transfer pricing rules can diminish the tax sensitivity of corporate profits by 50 percent (Riedel et al, 2015), though with much weaker effects for firms with many intangible assets or complex group structures (Beer and Loeprick, 2015). A later study shows that stricter regulations reduce reported profits of MNCs, possibly due to the combination of lower profit inflows into countries that are intermediate hubs for profit shifting and higher compliance costs of MNCs (Saunders-Scott, 2013). 10
Countries worldwide have accepted the logic of the support role of the state in areas where achieving greater competitiveness of the economy in the international framework. Among these areas are located and creating an entrepreneurial climate, with an effective support network that includes various forms of technical assistance, financial assistance instruments, technological parks and business areas. Entrepreneurship is the driving force of sustainable economic growth. Therefore it needs external business support, especially during the early stage of development of small and medium enterprises, would create opportunities for growth and development. In that sense, government agencies have developed numerous initiatives including a “voucher” system aimed at support in consultation with opportunities to combine with information and training. As part of the government program for entrepreneurship development, since 2005 actively involved Voucher system for subsidized counseling. This support system is introduced as a tool to improve performance in small businesses by subsidizing specific advisory services in accordance with the needs of entrepreneurs. Objectives of the voucher program (subsidized) counseling are: (1) greater number of potential entrepreneurs to start implementation of new business, and (2) a growing number of firms to achieve higher growth rates. The paper presents the basic concept of the “voucher” system, methodology, rules and procedures for full access as well as organizational structure and functions of various stakeholders. In addition the paper presents the results of recent research by the method of survey and interviews (end of 2011 and beginning of 2012) for different aspects of the voucher system of subsidized counseling: (1) Profile of companies involved in the system, (2) causes for their involvement, (3) areas of counseling, (4) satisfaction with counselors and organizers – enforcers of the voucher system, (5) the impact of counseling on general business, (6) challenges and problems of Macedonian entrepreneurs.
• Country A which collect 50$ of tax, is equivalent to country B, which collect 100$ of tax and grants a subsidy of 50$, and country C, which collect 100$ tax but the liability of the corporation in torts within in is lower and reduced the cost of conducting business by 50$.
the european Union has only asked for a “cost-benefit” analysis of such an upgrade, while the measure is strongly supported by many developing and emerging economies 44 . in brussels, the european Commission’s proposal for an eU position on ffD is also rather
disappointing when it comes to helping developing countries to mobilise their domestic resources. the european Member States when finalising the eU position for Addis in May 2015 should acknowledge that developing countries are more affected by corporatetax dodging, and therefore should be fully involved in internationalcorporatetax reform - which is not the case today. they should call for a Ministerial roundtable during the Addis conference to allow sufficient time and space to discuss this important matter. Such a roundtable will be the perfect opportunity to support the creation of an intergovernmental body on tax cooperation, and a step in the right direction to make the internationaltax governance landscape fairer in the future.
Development (OECD) is in the process of working with G-20 countries to develop a Base Erosion and Profit Shifting Action Plan, a plan that aims in part to bring about major internationalcorporatetax reform. In light of these developments, this paper aims to explain the incentives behind corporate inversions and the different policies being discussed on both the national and international level that could discourage this practice. Through the analysis of government reports and interviews with experts, this paper shows that actions on the national level to stop inversions are indeed possible, although the most meaningful actions will probably be carried out by the Administration, not Congress. The OECD effort to create a multilateral tax instrument, however, is much less promising; the governments currently involved have strongly divergent interests when it comes to setting standards for corporate taxation, and developing countries are almost completely left out of the conversation. Based on these conclusions, the paper makes
the idea that `the grouping together of companies of different Member States . . . ought not to be hampered by restrictions, disadvantages or distortions arising in particular from the tax provisions of the Member States', while the cooperation among these companies would otherwise be hampered by tax provisions `less advantageous than those applicable to parent compa- nies and subsidiaries of the same Member State'. In the above framework, the withholding tax exemption has been provided `in order to ensure tax neutrality'. In the Zythopoiia case, such a restriction (or distorsion) does not seem to exist, since the questioned Greek provision is applicable to both resident and non- resident shareholders. In fact, not only does the Greek system not distinguish on the basis of the residence of the shareholder but, from a wider perspective, neither is unequal (overall) treatment of the shareholder recognisable, taking into consideration that ± in the case in question ± both the Hellenic system and the Dutch system (subject to certain conditions) provide for the exemption of dividends, ensuring, in fact, a situation of perfect neutrality. 29 The effect of the
This report is distributed to all individual ACT members (Regular and Associate). For security and privacy reasons, the survey database is kept at ACT. However, as an added benefi t for Regular members of ACT, the survey database is available for consultation on issues covered in the survey free of charge. Regular members can call, fax or email in questions such as “What tax software is being used by other companies in my geographic area and in my business/industry?” Our staff queries the database and faxes or emails the results back to the ACT member. Regular Members can then contact other members as needed to share experiences and ideas on tax automation. Non-Members and Associate Members may also request queries, but all information is non-identifying and queries are granted on a case-by-case basis.
Expense for CT = ∆ Liability for Current Tax + ∇ Asset for Current Tax ∇ Liability for Current Tax + ∆ Asset for Current Tax = Revenue for CT
Expense for DT = ∆ Liability for Deferred Tax + ∇ Asset for Deferred Tax ∇Liability for Deferred Tax + ∆ Asset for Deferred Tax = Revenue for DT
more than seven times in only twenty years in seven low-tax nations: the Netherlands, Ireland, Bermuda, Luxembourg, Switzerland, the British Caribbean and Singapore, as Brad Setser showed in a NY Times Op-Ed on 6 February 2019. Today, Ireland alone is as important for US corporate pro ts as Italy, France, Germany, Japan, India and China combined. It comes as no surprise that the tax privileges for large multinational companies creates an outrage among ordinary citizens that do not have the same options to reduce their legal tax obligations. Fighting
The biggest issue that arose from the Apple senate hearing was how tax laws in the United States allowed for large companies like Apple to avoid U.S. taxation. One proposed solution was to end the rule allowing the indefinite deferring of U.S. taxes by U.S. corporations. Another suggested solution was to block these types of tax avoidance techniques by strengthening certain tax rules. There were also other recommendations for policy solutions that resulted from the Apple Senate hearing. Overall, this tax avoidance scandal made it very clear that the United States tax laws are not sufficient in stopping large multinational corporations and a need for greater tax transparency does truly exist. (Citizens for Tax Justice Staff, 2013).
► Establish governance to understand the implications of changing business models and transactions. ► Establish processes to obtain and retain the right talent to deal with controversy and risk management ► Establish processes to obtain and retain the right talent to deal with controversy and risk management. ► Identify documentation that will be viewed by multiple tax administrators.
The impact of the news media on setting a public agenda and shaping public opinions is a well-established proposition which has been supported by a broad range of socio-political research (Park, 1940; McCombs and Shaw, 1972; Gamson et al., 1989; 1992; Soroka, 2003; McCombs, 2014). Such a strong influence of news media is observed for issues in which individuals have no direct experience; therefore news media becomes the only main source of obtaining information (Ader, 1995; Power, 2004). Where the issue of corporatetax avoidance is concerned, news media exerts an effect by translating complex and obscure tax issues into simple and provocative messages which then easily penetrate into the public’s mind through repetitive broadcasting. As a survey by the Oxford Centre for Business Taxation indicates, corporatetax issues remain out of the public eye until the media discovers them, and they then become part of social concern only if the media and the public begin to focus their attention on those matters (Freedman et al., 2007).
Since the 1980s, notable corporatetax base broadening and rate reductions have occurred throughout the rich democracies. Scholars agree that tax competition for mobile assets shapes this transformation. I address two questions in this paper. First, what form has tax competition taken and, second, how have domestic institutions conditioned competition’s impact? I build on past work and argue that tax competition is characterized by the (Stackelberg) leadership of the United States as opposed to alternative forms of competition. At the same time, domestic institutions, especially the degree to which the nation is a coordinated versus liberal market economy, are central determinants of the pace of reform. I test these propositions with models of 1982-to-2008 tax rate change in 18 capitalist democracies. I find that rising trade openness and capital mobility place downward pressures on tax rates, the U. S. adoption of the neoliberal tax model engenders significant competitive responses from other nations, and that the institutions of coordinated economies slow the pace of neoliberal reforms. High public debt, left-leaning
Our paper relates to several strands of literature. In line with previous contri- butions on the topic, we highlight the differences between developed and devel- oping countries with respect to optimal tax policy. 4 There are several obstacles, like, e.g., weak institutions, bureaucratic corruption, and lacking expertise of tax agents, that may hinder revenue collection and lead to widespread tax evasion and the persistence of substantial informal sectors, especially in less developed coun- tries. For instance, La Porta and Shleifer ( 2014 ) find that economic development is associated with a decline of the informal sector, which should make it easier to raise tax revenue. Exploiting a large formalization program in Brazil, Rachter et al. ( 2018 ) demonstrate that lowering taxes reduces firm informality, yet only at the cost of lower net tax revenue. Gokalp et al. ( 2017 ) find that competition from the informal sector may induce formal firms to evade taxes, especially if institu- tions and regulations are inefficient and burdensome. Similarly, Schneider and Torgler ( 2007 ) identify governance and institutional quality as well as tax morale as limiting factors of informal activity, and Dreher et al. ( 2009 ) provide evidence that institutional quality reduces both the size of the shadow economy and the corruption level. Bird et al. ( 2008 ) suggest that tax revenue could be significantly higher if corruption was reduced and ‘voice and accountability’ were improved. Furthermore, several studies analyze governments’ optimal tax policy in a setting where tax collection and enforcement are imperfect, which should be particularly true in less developed countries. For instance, Best et al. ( 2015 ) show that charg- ing taxes on turnover, rather than profits, may reduce tax evasion by firms, which explains why many developing countries rely on such a production inefficient tax policy. 5 Dharmapala et al. ( 2011 ) demonstrate how administrative costs of tax collection can justify the exemption of firms from taxation if their output level is below a certain threshold, although such a policy leads to tax-avoidance behavior by firms and may induce a “missing middle”. The latter suggests that only small
earned, that is, domestically or internationally and are allowed a credit for foreign taxes paid on net foreign source income so that corporations are not taxed twice on the same income (first by a foreign tax authority and then by the Internal Revenue Service). Because US owned foreign corporation with exclusive operations overseas are not subject to US corporate income tax on their profits, the tax code stipulates that such profits will be taxed to the US shareholders only upon repatriation back to the US as dividends. However, because some corporations may continue to defer indefinitely any US tax on all their foreign profits and never divvy them back to the US, there exist a potential for abuse. To fix this exploitation Congress enacted provisions to limit the availability of deferral. Under the controlled foreign corporation (CFC) rules of subpart F, the US taxes certain types of income earned by CFCs, whether or not it is distributed to plug the loophole of indefinite deferral.
To combat the growing concerns of inversions, congress enacted an anti-inversion provision (Section 7874) in the American Jobs Creation Act of 2004 (AJCA; P.L. 108-357). This provision in the act targeted inversions occurring after March 4, 2003. The inverted foreign parent company was treated as a domestic corporation if it is owned by at least 80% of the former parent’s stockholders. That is to say, if the domestic corporation retained 80% or more interest, it would continue to be tax on worldwide income. If the domestic corporation retains at least 60% but less than 80%, the new foreign parent company is not tax like a domestic corporation but any U.S. taxes on gain from asset transfers are not permitted to benefit from foreign tax credit or net operating losses (NOLs). Inversions that were created through substantial economic activity in foreign countries were exempted from the anti-inversions provisions. Prior to AJCA of 2004, the U.S. Treasury had defined substantial business activity as being 10% of worldwide activity. Failure to define what constitutes substantial business activity in AJCA of 2004 thus created the exploration and exploitation of another loophole.
income and cash flow. Tax avoidance is the focus point of the practical operation and theoretical research. In 2001, Shackelford and Shevlin called for a study of the tax avoidance in their paper. Now, because of the differences of corporates, there is no consequence in this aspect. Many foreign scholars focus on the role of institutional investors in the proportion of ownership, the personal characteristics of managers, board characteristics and other factors on the regulatory role between the tax avoidance and corporate value. But a few scholars in China focus on this area. Through the study of the relationship between corporatetax avoidance and corporate value, we can enrich the research of corporate value in the field of asset evaluation and broaden the research ideas. When appraising corporate value in the future, we can fully consider the impact of tax avoidance on enterprise value, and get more accurate evaluation result.