Profit Shifting &amp; Controlled Foreign Corporation Rules the Thin Bridge between Corporate Tax Systems

Prettl, Axel

doi:10.2139/ssrn.3102553

Cited by 4 publications

(3 citation statements)

References 55 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…But most authors are CLIFFORD (2019), RUF and WEICHENRIEDER (2015), PRETTL (2018), DEVEREUX and MAFFINI (2007) agree that the implementation of transfer pricing controls has a positive effect on tax revenues and the behavior of multinational companies in the field of tax optimization: forcing TNCs to profit from the high tax jurisdictions in which they were actually established; changing the structure of enterprise groups towards reducing the number of subsidiaries in low-tax jurisdictions; there is an increase in tax revenues in countries that enforce transfer pricing controls.…”

Section: Independent Journal Of Management and Production (Ijmandp)mentioning

confidence: 99%

The results of implementation of european requirements in management of transfer pricing audit (experience of Ukraine)

Fesenko

Vakulchyk

Guba

et al. 2020

Ind. Jour. Manag. & Prod.

View full text Add to dashboard Cite

Since 2017 four of fifteen steps of the BEPS plan (base erosion and profit shifting) have been introduced in Ukraine to resist various areas of aggressive tax planning. The implementation of the BEPS plan is primarily made through frame working a transfer pricing control system in Ukraine, which aims to reduce illegal tax sheltering through foreign economic transactions with interdependent or interested parties as well as through transactions with contractors that are registered or make business in low-tax jurisdictions. The purpose of this study is to evaluate the results of implementation of European requirements in the system of audit of foreign economic activity in Ukraine. The study is based on data from the State Statistics Committee of Ukraine, the State Fiscal Service of Ukraine for 2015-2019.The article identifies the amounts of Ukrainian exports (imports) to (from) low-tax jurisdictions, analyzes the controlled exports and imports by geographical segment. The study presents evidence of the use of transfer pricing mechanisms by Ukrainian companies to optimize income taxation, which is contrary to the interests of the state. Therefore, a special need consists in improvement of the state control over operations of the foreign economic activity. The changes and current trends in foreign economic operations during the implementation of transfer pricing controls since 2013 in accordance with the BEPS plan were examined. This study proves that immediately after expanding the list of low tax jurisdictions, there has been a significant fall in the volume of controlled exports and imports, which we regard as a loss of cost-effectiveness of trade operations through low tax jurisdictions due to increased controls and enlarged list of territories, transactions through which are under strict control.

show abstract

Section: Independent Journal Of Management and Production (Ijmandp)mentioning

confidence: 99%

The results of implementation of european requirements in management of transfer pricing audit (experience of Ukraine)

Fesenko

Vakulchyk

Guba

et al. 2020

Ind. Jour. Manag. & Prod.

View full text Add to dashboard Cite

show abstract

“…For German MNEs, Ruf and Weichenrieder (2012) detect that CFC rules are effective in reducing passive investments in low-tax countries. The studies of Prettl (2018) and Clifford (2019) show that CFC rules lead to less tax-motivated profit shifting within MNEs regarding greenfield investment. These studies suggest that CFC rules reach the intended goal of reducing profit shifting to low-tax subsidiaries.…”

Section: Introductionmentioning

confidence: 99%

“…This reasoning is indicated byPrettl (2018) andClifford (2019); deeper analysis of this topic would go beyond the scope of this study and will not be further analyzed.25 In simple words, the low-tax rate threshold of CFC rules could be circumvented by a potential acquirer within the EEA, if the EEA target was still in compliance with another-less rigorous-threshold about the passive-to-active-income ratio of that target. In line with this argumentation,Ruf and Weichenrieder (2013) find evidence for a relative increase in passive investments in low-tax EEA subsidiaries and a parallel decrease in passive investments in non-EEA subsidiaries Schenkelberg (2019).…”

mentioning

confidence: 98%

Multinational ownership patterns and anti-tax avoidance legislation

Prettl

Hagen

2022

Int Tax Public Finance

Self Cite

View full text Add to dashboard Cite

We investigate whether controlled foreign corporation (CFC) rules influence cross-border merger and acquisition (M&A) activity on a global scale. CFC rules are one main anti-tax avoidance measure and potentially lead to immediate taxation of foreign subsidiaries’ income at parent level. Analyzing a large M&A data set and detailed self-compiled CFC rule data from 27 countries using two different econometric perspectives, we show if and how CFC rules distort firm behavior and ownership patterns. First, we find that the probability of being the acquirer of a low-tax target decreases if CFC rules may be applicable to this target’s income. Second, we show that CFC rules alter an acquirer’s choice of targets’ location. Altogether, our study shows that for affected acquirer countries, CFC rules lead to less M&A activity in low-tax countries due to potentially reduced incentives to shift income. However, these effects appear to be rather small in size and decrease over time. Thus, our study suggests that CFC rules do not substantially bias the market for corporate control as lobby groups partially claim and policy makers can be confident in reaching their goals of diminishing profit shifting with this increasingly important anti-tax avoidance rule.

show abstract

Do Multinational Firms use Tax Havens to the Detriment of Other Countries?

Dharmapala

2020

SSRN Journal

View full text Add to dashboard Cite

The use of tax havens by multinational corporations (MNCs) has attracted increasing attention and scrutiny in recent years. This paper provides an exposition of the academic literature on this topic. It begins with an overview of the basic facts regarding MNCs' use of havens, which are consistent with the location of holding companies, intellectual property, and financial activities in havens. However, there is also evidence of significant frictions that limit MNCs' use of havens. These limits can be attributed to nontax frictions (such as the legal and business environment in different jurisdictions), to tax law provisions limiting profit shifting, and to the costs of tax planning. There is evidence consistent with the relevance of each of these channels. The paper also argues that nonhaven countries have available a range of powerful tax law instruments to neutralize the impact of MNCs' use of havens. To the extent that it is not due to political dysfunction, their failure to deploy these instruments more extensively can be viewed as a deliberate policy choice, attributable either to collective action problems among nonhavens or to the possibility that in certain circumstances MNCs' use of havens increases the welfare of nonhaven countries. In either case, MNCs' use of havens is facilitated in crucial respects by the laws of nonhaven countries. Finally, the paper discusses how the distinction commonly drawn in public finance theory between "tax avoidance" and "behavioral responses to taxation" can illuminate current debates about the magnitude and implications of MNCs' profit shifting to havens. JEL-Codes: H250, F230.

show abstract

Profit Shifting & Controlled Foreign Corporation Rules the Thin Bridge between Corporate Tax Systems

Cited by 4 publications

References 55 publications

The results of implementation of european requirements in management of transfer pricing audit (experience of Ukraine)

The results of implementation of european requirements in management of transfer pricing audit (experience of Ukraine)

Multinational ownership patterns and anti-tax avoidance legislation

Do Multinational Firms use Tax Havens to the Detriment of Other Countries?

Contact Info

Product

Resources

About