Taxing Cross-Border Intercompany Transactions: Are Financing Activities Fungible?
(2015) 30(3) Australian Tax Forum 627-661
2015
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Example: if you select the 1-year option for an article published in 2019 and a metric category shows 90%, that means that the article or review is performing better than 90% of the other articles/reviews published in that journal in 2019. If you select the 3-year option for the same article published in 2019 and the metric category shows 90%, that means that the article or review is performing better than 90% of the other articles/reviews published in that journal in 2019, 2018 and 2017.
Citation Benchmarking is provided by Scopus and SciVal and is different from the metrics context provided by PlumX Metrics.
Paper Description
The Organisation for Economic Cooperation and Development (‘OECD’) is currently considering best practice approaches to designing rules to prevent base erosion and profit shifting (‘BEPS’) by multinational enterprises (‘MNEs’). However, the OECD makes a distinction between combating BEPS and reducing distortions between the tax treatment of various methods of financing. Yet, an unequal tax treatment can create distortions, which incentivises tax planning behaviour. Accordingly, this paper aims to improve the tax design of anti-avoidance rules governing MNEs’ cross-border intercompany deductions by introducing the concept of the tax-induced cross-border funding bias. To date, the literature has focussed on the debt bias, which arises from the distortion in the tax treatment between debt and equity financing. On the other hand, the funding bias also includes licensing and leasing activities in addition to debt and equity financing. This presents a novel contribution to the literature. This paper examines the conceptual case for why is might be appropriate and feasible to restrict the tax deductibility of cross-border intercompany interest, dividends, royalties and lease payments given their mobility and fungibility. Specifically, it examines whether it is preferable for MNEs to be subject to economic rent taxation, as is attained through reform proposals such as the Allowance for Corporate Equity (‘ACE’), in this context. This presents a novel proposal for taxing cross-border intercompany economic rents which aligns with the main aim of corporate tax harmonisation; namely: to reduce, if not remove, distortions relating to the taxation of cross-border intercompany activities.
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