July 2015  
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Issue No. 2 - 2015 of the World Tax Journal is now available online.

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Number 2 - 2015 contains the following:
 
The Impact of the International Tax System of the Home Country
on the Location Decision of a Foreign Permanent Establishment:
The Case of Germany
Katrin Laschewski and Christian Laschewski
This article examines the impact of the international tax system on the location decision of a foreign permanent establishment (PE) including cross-border loss relief and activity clauses. Germany, e.g., operates a hybrid system of international taxation, under which foreign income from PEs located in a tax treaty partner country is usually exempted from domestic taxation, while foreign income from non-treaty countries is subject to a tax credit regime. However, even if exemption is the standard method in a treaty, its application is often restricted by activity clauses which in fact require a switch-over from the exemption to the credit method. This hybrid system allows for an analysis of both main systems to avoid international double taxation taking into account cross-border loss relief. The case-by-case analysis in this article shows that the underlying international tax regime of the home country also shapes the location decision for foreign investments of their residents. Thereby, a hybrid system of international taxation distorts investment decisions as it provides selective location decisions for investments in foreign PEs with regard to the method to avoid double taxation and the respective tax consequences.
Intergovernmental Agreements and the Implementation of FATCA
in Europe
Leopoldo Parada
FATCA is a US domestic tax policy that requires Foreign Financial Institutions around the world to provide the IRS information regarding their US clients. Recognizing this extraterritorial characteristic and the troubles associated with it, the US Treasury Department developed the Intergovernmental Agreements (IGAs), which have served the double purpose of coordinating FATCA at an international level and influencing the new international standards on automatic exchange of information. Nevertheless, the IGAs are instruments that still need to be improved, at least in order to guarantee their successful implementation in Europe. The first part of this article explores the legal nature and the characteristic of the IGAs, concluding that they possess an asymmetric legal nature that can lead to conflicts of interpretation. Likewise, it concludes that their contribution toward international transparency is incompatible with the existence of other instruments in Europe that seek the opposite goal of protecting bank secrecy, although it recognizes the importance of the most recent achievements at the European level in order to ensure a coherent and consistent system of automatic exchange of information. The second part of this article analyses three grey areas in the IGAs implementation process in Europe (i.e., “quoted Eurobonds” in the United Kingdom; group requests under the Switzerland-United States IGA, and the “coordination timing” provision of the IGA Model 1A), concluding that there is still work to be done in order for the IGAs to grant an acceptable level of reciprocity in practice.
Bodytext
Sharing the Benefits of the EU’s Common Consolidated Corporate
Tax Base within Corporate Groups
Matthias Petutschnig
One of the main features of the CCCTB Draft Directive, the formulary apportionment of the consolidated group income, leads to a significant change in corporate income taxation paradigms. Currently, corporations are taxed on a separate entity basis using the arm’s length principle to evaluate intra-group transactions. Similarly company law uses a separate entity approach with regard to transactions between related parties. The CCCTB Draft Directive will regularly lead to allocation results that are explicitly not at arm’s length as the arm’s length principle will not be necessary anymore for tax purposes. However, without a corresponding change in company law paradigms – which is not foreseeable – the current lockstep between corporate income tax law and company law will cease to exist. Yet, not only the proposed CCCTB regime but also existing group taxation systems produce taxable outcomes that are not in accordance with the domestic company laws’ single entity approaches. This article therefore analyses group taxation systems currently employed by EU Member States and shows that the vast majority of group taxation systems employ instruments to (re-)unite the results from the joint taxation with company law’s separate entity approach. These accompanying mechanisms ensure a fair distribution of the advantages and disadvantages of the respective intra-group loss-offset system to all group members. However due to various reasons, one being the fact that every group member of the CCCTB will be responsible for a share of the group’s overall tax liability, another being the fact that different tax rates will apply within one CCCTB group, these currently employed mechanisms and techniques are not suitable for the CCCTB concept. Therefore this article develops a distinct mechanism to share the benefits of the CCCTB concept within the whole group. The current international debate on the suitability of the arm’s length to continue as a standard for the allocation of taxing powers in intra-group transactions and the new impetus for the common tax base in some EU Member States may suggest that there is a new potential momentum to make progress in the introduction of formulary apportionment within the European Union.
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