CANH TRANH THUE QUOC TE

Identify harmful tax competition Countermeasures Recent developments Hybrid entities CONTENT... • High – tax countries >< tax havens• Headquarters regimes • Holding company regimes • For

INTERNATIONAL

TAXATION

Đặng Thị Bạch Vân (MA)

bachvan@ueh.edu.vn

CHAPTER 7

INTERNATIONAL TAX

COMPETITION

INTERNATIONAL TAXATION

Identify (harmful) tax competition Countermeasures

Recent developments

Hybrid entities

CONTENT

• High – tax countries >< tax havens

• Headquarters regimes

• Holding company regimes

• Foreign income regimes

• A wide variety of other tax incentive arrangement

•  the proliferation of low-tax regimes in response

to tax competition from tax havens is what the

OECD calls a “race to the bottom”

INTRODUCTION

Many developments have contributed to the growth of tax havens and their use:

• The elimination of exchange controls and the liberalization of cross-border trade and investment;

• Improved communications, transportation, and financial services;

• The adoption by tax havens of flexible commercial regimes and strict bank secrecy and confidentiality requirements; and

• Aggressive marketing

Two types:

• Tax havens;

• Harmful preferential tax regimes

HARMFUL TAX COMPETITION

Tax haven is a country with no or nominal taxes on income from mobile activities which also meets at least one of the following three additional conditions:

• It does not exchange information effectively with other countries; or

• It provides tax benefits to taxpayers in a non-transparent fashion; or

• It does not require nonresidents to engage in substantial activities in the tax haven in order to qualify for tax benefits.

HARMFUL TAX COMPETITION

• Tax haven: has no tax base to protect and

no interest in preventing harmful tax competition;

• High-tax country: have tax base to protect

and an interest in preventing harmful tax competition

HARMFUL PREFERENTIAL TAX REGIMES

• The regime is ring-fenced* (that is, isolated

in its economic effects) from the domestic economy; or

• The country does not exchange information

effectively with other countries; or

• The regime is non-transparent

HARMFUL PREFERENTIAL TAX REGIME

Ring-fencing means that there is no cost to the country as a result of providing the low-tax regime because residents cannot take advantage of the benefits of the regime and nonresidents are prohibited from participating fully in the domestic economy.

In other words, the regime is intended to poach the tax base of other countries without any impact

on the tax base of the host country.

OECD report suggests a lengthy list of the countermeasures that countries might take to deal with tax havens and low-tax regimes:

• Unilateral countermeasures, including CFC rules, foreign investment fund rules, transparent tax rulings, and restrictions on participation exemptions;

increased administrative cooperation and exchange of information with respect to harmful tax practices and the denial of treaty benefits for income or entities that constitute harmful tax practices; and

• Countermeasures involving international cooperation

COUNTERMEASURES

Multilateral action in the tax area >< sovereignty over their tax policy: globalization

is the real threat to sovereignty

The challenge for governments in the years ahead is to achieve a proper balance of cooperation and competition among taxing regimes

Some forms of cooperation are now necessary for governments to achieve their traditional tax policy objectives, and some forms of competition are helpful in promoting will not

be easy

RECENT DEVELOPMENTS

The use of hybrid entities for tax planning is

an example of cross-border tax arbitrage: exploiting differences between the tax treatment of taxpayers or transactions in two

or more countries

See more about double-dip lease (chapter1,D)

HYBRID ENTITIES

• Limited liability companies (LLCs)

• Other silent partnerships

• The US check-the-box rules

TYPES OF HYBRID ENTITIES

International tax competition and coordination

CASE STUDY