Interest Expenses as a Technique of Profit Shifting Used by Slovak Companies

Ištok, Michal; Kanderová, Mária

doi:10.36689/uhk/hed/2019-01-029

Cited by 7 publications

(5 citation statements)

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“…The most recent investigations have confirmed several claims regarding CSPs, e.g. the importance of interest expenses as a technique of profit-shifting (Ištok & Kanderová, 2019).…”

Section: Introductionmentioning

confidence: 61%

International Corporate Structuring of Slovak Companies Using Tax Havens

Ištok¹,

Kanderová²,

Krištofík³

et al. 2019

JOC

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Recently a trend has come about of transferring the registered offices of parent companies or their subsidiaries to jurisdictions often marked as tax havens worldwide. This trend can also be seen in Slovakia. Our main aim is to examine the possible links between criteria such as the NACE sector, the jurisdiction category, the size of share capital invested, ownership interests and the number of years from the start of business (company formation) to the year of transferring the registered office to the tax haven, and to justify the tendencies in behaviour from the subsidiaries point of view. The formulation of assumptions is based on the statements of corporate service providers (CSPs), which directly, partially or fully, help companies set up or restructure their international corporate structures by using tax haven jurisdictions. This survey is based on the available database of Slovak companies obtained from the databases of Bisnode Slovakia, ltd. We analysed the available data on 3,483 Slovak companies between 2005-2015 by using both graphical methods and statistical induction methods (mainly Fisher's exact test of independence) of randomly selected data from the entire database. Our results confirm that there is a statistically significant relationship between the jurisdiction category and three parameters: the NACE sector, ownership interests and the share capital. On the other hand, the relationship between the jurisdiction category and the period of transferring of registered office to tax havens has not been statistically confirmed.

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“…The most recent investigations have confirmed several claims regarding CSPs, e.g. the importance of interest expenses as a technique of profit-shifting (Ištok & Kanderová, 2019).…”

Section: Introductionmentioning

confidence: 61%

International Corporate Structuring of Slovak Companies Using Tax Havens

Ištok¹,

Kanderová²,

Krištofík³

et al. 2019

JOC

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“…When assessing the previous research on Slovak companies [4,5], we can conclude that debt as a profit-shifting technique (before and after getting links to a tax haven) is used more by Slovak companies with ownership links to a midshore category (mainly Cyprus). Regarding tax optimization, it is essential to recognize interest expenses as a tax-deductible expense under conditions that consider the so-called thin-capitalization rules and the EU directive on interest and royalty payments (the EU Interest and Royalties Directive).…”

Section: Discussionmentioning

confidence: 87%

“…They primarily affect the cost size and structure and thus influence the size of profit and level of profitability. Ištok and Kanderová [4] provided empirical evidence of the use of debt as a channel of profit-shifting out of the Slovak Republic. Their analysis confirmed that the use of interest expenses as deductible expenses is very intensive, as Slovak companies, after transferring their registered offices to a tax haven, reported an increase in interest expenses per asset indicator of 75%.…”

Section: Literature Review and Theoretical Considerationsmentioning

confidence: 99%

A Study from Slovakia on the Transfer of Slovak Companies to Tax Havens and Their Impact on the Sustainability of the Status of a Business Entity

et al. 2019

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The main aim of this paper is to provide empirical evidence about profit-shifting to selected tax havens by Slovak companies. This contribution focused on the very rare evidence of use of tax havens by Slovak companies not only in the field of corporate income tax, but also in selected areas of profitability. Two sources of data were used. Lists of Slovak companies with tax haven links were provided by the company, Bisnode, and financial statements of investigated companies were gained from the Finstat database. Based on the available data, the investigated period was between 2008 and 2016. We statistically tested selected indicators (ETR, taxes per assets, ROE, ROA, and ROS) of Slovak companies with direct ownership links to tax havens compared to their counterparts. Our findings suggest that Slovak companies with an ownership link to tax havens pay significantly lower taxes compared to companies without ownership links to tax havens during the period monitored. The aggressive tax planning was not only confirmed by the significantly lower reported values of ETR and taxes per assets, but also by the lower values of ROA. On the one side, Slovak companies with ownership links to midshore tax havens had the highest values of ROE, ROA, and ROS, but on the other side, these Slovak companies reported the highest ETR among the appointed categories (onshore, midshore, and offshore). The lowest taxes paid per unit of total assets were found in Slovak companies with ownership links to onshore tax havens. The analysis was supplemented by the changes of the selected indicators before and after obtaining an ownership link to a tax haven.

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“…Based on the available investigations (e.g. Kanderová, 2019a and it is clear that Slovak companies after transferring their headquarter/registered office to a low tax jurisdiction reported an increase of indicator interest expenses over total assets e.g. by 75% for 2015.…”

Section: Summary Of Findingsmentioning

confidence: 99%

Transfer Pricing in V4 Countries

Poreisz¹,

Brychta²,

Ištok³

et al. 2020

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International Visegrad Fund, whose mission is to advance ideas for sustainable regional cooperation in Central Europe. In this respect, all the members of the research team would like to express their gratitude and thanks to the support provided and, at the same, declare their hope that the results of this project fulfil the mission of the Visegrad Fund. The authors of the monograph would like to thank the project manager, Mr. Dániel Péter. Dear Dániel, we thank you for your fast responses and willingness to help us. We have appreciated it very much.

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Interest Expenses as a Technique of Profit Shifting Used by Slovak Companies

Cited by 7 publications

References 0 publications

International Corporate Structuring of Slovak Companies Using Tax Havens

International Corporate Structuring of Slovak Companies Using Tax Havens

A Study from Slovakia on the Transfer of Slovak Companies to Tax Havens and Their Impact on the Sustainability of the Status of a Business Entity

Transfer Pricing in V4 Countries

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