The tax gap between taxes that are “actually” paid and taxes that “ought” to have been paid by multinational corporate entities has become an area of huge public policy concern in the recent decades. This study reviews the impact of new legislation to reveal the tax gap created by the EU banks and financial institutions passed in 2013 and in particular of the quality of the resulting country-by-country reporting (CBCR) requirement for banks. Although resulting tax gap estimates are noted, they suffer due to significant problems in the published data; much of it is due to the quality of the regulation requiring its publication and implementation. The findings reveal a lack of understanding of the technical and structural weaknesses of accounting in a transnational context in the design of this regulation. CBCR is destined to fail in achieving its regulatory objectives in this context unless necessary reform of the regulation is undertaken.
Old age, illness, and/or physical and/or mental disabilities may limit the ability of an individual to generate enough income to cover basic costs of living. Most developed nations provide financial assistance to persons with limited abilities. In 1974, an Icelandic government passed an act of law providing a tax credit, payable to taxpayers under certain conditions. The tax allowance was applied first to settle the taxes and public levies owed by the taxpayer, with any amount remaining paid out to the individual. This system can be seen as a first, limited attempt at establishing a partial universal basic income of sorts. This social interaction between stakeholders on how to share the tax revenue between the taxpayers led to a government crisis. The shareholders in this partial universal basic income system, the state and municipalities, the old age community, the trade unions, and the employers all have different financial and political interests and were affected by this reform. The lesson is that a basic income would need strong supporters if implemented, where the role of the government and/or the parliament would be mapped. Its supporters must be able to withstand the pressure from the social partners in the labor market because of the interactivity of the social security system and the pension fund system, which is not a part of the fiscal system in Iceland. The conflict of interests becomes apparent.
For a correct application of tax laws, it is central to know at what time or period the conditions of each case are to be tested against the respective tax rule. For example, in many questions, the conditions at the time of the transaction are decisive, but not seldom the tax rules take aim at the conditions at the end of the year – or some other time or period. It is also important to know what significance should be given to events after this time or period, not least when the income declaration is made and assessed. Here, these partly overlooked questions are presented and analyzed from the Swedish, Norwegian and Finnish income tax-perspectives.
Prescribed levels of acceptable tax risk are increasingly used to articulate degrees of corporate tax responsibility, but the theoretical basis for doing so is not well established. This article (i) develops a theory of the relationship between tax risk and tax responsibility and (ii) shows that acceptable levels of tax risk could be used as a meaningful metric for these purposes, provided that the filing positions a n ticipated from proposed planning are reviewed against the prescribed level of acceptable risk without taking into account any mitigation of the risk factors that are introduced by the planning. Further, the article reviews the evolving tax risk policies of 20 large European companies, showing that while some progress is being made towards meaningful discourse, even the companies with the most well-developed policies are still making their claims in such a way as to conflate socially responsible tax behavior with diligence in implementing antisocial tax behavior.
The article analyzes whether the investment in a private equity fund may create a permanent establishment (PE) for foreign investors. The analysis is divided into two main parts, as the question of creating a PE for the foreign investors is considered with respect to both the main PE rule and the agency PE rule. The amendments to the PE definition prescribed in the OECD/G20 BEPS report on Action 7, and incorporated into the 2017 version of the OECD Model with Commentary, are taken into consideration. It is concluded that the final outcome depends on the specific setup of the private equity fund at hand and that some degree of uncertainty may often remain. Moreover, the recent amendments to the PE definition do not appear to have reduced this uncertainty—rather the contrary.
Until 2018, Belgium had a unique corporate income tax system due to its notional interest deduction, also known in public finance literature as the allowance for corporate equity. At the same time, it had one of the highest corporate tax rates in Europe at 34 percent. The latter came under severe pressure to reform and, as of 2018, the government has started to reduce the rate, gradually to reach 25 percent in 2020. The reduction is accompanied by other measures, including a limitation of the notional interest deduction. This paper argues that the lower CIT rate is likely to be conducive to economic growth. Yet, the effects on growth would have been more favorable if the notional interest deduction would have been strengthened, rather than diminished.
In personal income taxation, Finland had used the dualistic income tax model, known as the Nordic model, since 1993. The basic idea is that taxation of earned income is progressive, whereas taxation of capital income is proportional. Here, the model is reviewed from different perspectives: What kind of tax policy background does it have and how is the distinction between types of income argued for on theoretical grounds? How has the borderline of earned and capital income been drawn in tax legislation, and how is it drawn in the court cases, in particular in those related to tax avoidance? The dualistic model has often been criticized using equity arguments, but there are still strong arguments for the model. In any case, the model has not always worked too well in practice. The distinction has required special tax legislation as well as given rise to many court cases.
Cross-border employees and self-employed workers are confronted with the regulations of at least two states when it comes to taxation and social security. Without delving into the specifics of national regulations, this article examines the applicable rules concerning the levy of taxes and social security contributions in the context of cross-border employment. Regulations aimed at avoiding double taxation are different from those aimed at avoiding the double payment of social security contributions. Because social security in the Member States can be financed in different ways, the levying of so-called economic double taxation is possible. This is true in particular where states use a large part of the tax revenues to finance their social security system. Cross-border workers that are required to pay taxes in these states and also pay social security contributions in another state can feel that they are paying double social security contributions. This contributes to a sense of injustice and is undesirable. The conclusion is that possible double economic contributions must be studied in a broader European context. First, the problem must be identified and then solutions formulated in order to prevent double levying.
This contribution analyzes the origin and creation of Denmark’s tax treaty network in a historical perspective. The development of the Danish treaty network is studied through an international perspective and by discussing a number of milestone events. It is concluded that the general tendency has pointed toward a continuously growing Danish treaty network and also that the question on abuse of the treaties has become of greater concern during the past decades. Moreover, it is argued that the growing number and importance of Denmark’s tax treaties over time created a need for the Danish parliament to be more directly involved in the conclusion of new tax treaties.
The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI), which was signed in June 2017, raises a multitude of questions relating not only to the text of the treaty provisions but also to the way the MLI will interact with tax treaties, for instance, and what it will mean for the future development of tax treaty law and international cooperation in tax matters. This article focuses on two aspects of the MLI. First, it deals with the substance of the MLI by providing an overview of its background and content, including the many options available to the contracting states under the MLI. Second, some thoughts are presented on the effects of the MLI in terms of complexity and uncertainty.