Double non-taxation and the use of hybrid entities : an alternative approach in the new era of BEPS /
Parada, Leopoldo,author.
The topics of double non-taxation and hybrid entities have acquired a particular importance in a context where transformations within the tax world seem to be leading to an international commitment most materially manifested in the OECD Base Erosion and Profit Shifting (BEPS) project. In this systematic in-depth critique of the BEPS Action Plan 2 with regard to hybrid entities, this book provides a critical review of the OECD's approach and proposes a deeply informed alternative method based on the tax policy aims of simplicity, coherence and ease of administration. The author analyses the interaction between the double non-taxation outcome and the use of hybrid entities in an approach not strictly linked to any specific tax jurisdiction. To this end, the analysis includes case studies and examples from a range of jurisdictions emphasizing the international tax context, including the application of tax treaties. Among the seminal matters covered are the following: - foundations of the concepts of double non-taxation and hybrid entities, absent of the specific limitations of domestic tax legislation; - extensive analysis based on the rules of characterization of foreign entities for tax purposes in the United States, Spain, Denmark and Germany, as well as on the Poland/United States and Canada/United States tax treaties; - detailed analysis on the implications of Article 1(2) OECD Model Tax Convention and Article 3(1) Multilateral Instrument, especially having in mind the position of developing (source) countries; and - EU tax law as part of the international context, including an extensive analysis on the EU Anti-Tax Avoidance Directive (ATAD) I and ATAD II. Detailed comparisons between the author's proposal and other existing rules elucidate common points and deviations.
Originally presented as the author's thesis (doctoral)--University of Valencia, 2017.
Includes bibliographical references (409-438) and index.
The topics of double non-taxation and hybrid entities have acquired a particular importance in a context where transformations within the tax world seem to be leading to an international commitment most materially manifested in the OECD Base Erosion and Profit Shifting (BEPS) project. In this systematic in-depth critique of the BEPS Action Plan 2 with regard to hybrid entities, this book provides a critical review of the OECD's approach and proposes a deeply informed alternative method based on the tax policy aims of simplicity, coherence and ease of administration. The author analyses the interaction between the double non-taxation outcome and the use of hybrid entities in an approach not strictly linked to any specific tax jurisdiction. To this end, the analysis includes case studies and examples from a range of jurisdictions emphasizing the international tax context, including the application of tax treaties. Among the seminal matters covered are the following: - foundations of the concepts of double non-taxation and hybrid entities, absent of the specific limitations of domestic tax legislation; - extensive analysis based on the rules of characterization of foreign entities for tax purposes in the United States, Spain, Denmark and Germany, as well as on the Poland/United States and Canada/United States tax treaties; - detailed analysis on the implications of Article 1(2) OECD Model Tax Convention and Article 3(1) Multilateral Instrument, especially having in mind the position of developing (source) countries; and - EU tax law as part of the international context, including an extensive analysis on the EU Anti-Tax Avoidance Directive (ATAD) I and ATAD II. Detailed comparisons between the author's proposal and other existing rules elucidate common points and deviations.
Machine generated contents note: 1.Object and Purpose -- 2.Scope -- 3.Methodology -- 4.Structure of the Work -- ch. 1 Double Non-taxation: A Conceptual Analysis -- 1.Introduction -- 2.The Traditional Attempts to Explain an Ambiguous Concept -- 2.1.Double Non-taxation as the Reverse Side of Double Taxation -- 2.2.Double Non-taxation: Under-Taxation and Stateless Income -- 2.3.Double Non-taxation as an Intended or Unintended Outcome -- 2.4.Double Non-taxation as a per se Undesirable Outcome -- 3.Double Non-taxation and the Single Tax Principle -- 3.1.Historical Background -- 3.2.The Downside of the Single Tax Principle -- 3.2.1.The Tax Credit Method to Ensure Single Taxation -- 3.2.2.The Agnosticism of the Exemption Method -- 3.2.3.New Voices in Defense of the Single Tax Principle -- 3.2.3.1.The 1981 LOB Provision: US Model -- 3.2.3.2.The 2016 LOB Provision: US Model -- 4.Double Non-taxation and Tax Evasion Tax Avoidance -- 4.1.Tax Evasion in a Nutshell
Note continued: 4.1.1.Tax Evasion Versus Tax Fraud -- 4.1.2.The Reactions to Tax Evasion -- 4.2.Tax Avoidance in a Nutshell -- 4.2.1.Tax Avoidance and International Tax Planning -- 4.2.2.The Reactions to Tax Avoidance -- 5.Double Non-taxation and "Aggressive Tax Planning" -- 5.1.The Notion of ATP in Brief -- 5.2.The EU Notion of ATP: A Consequentialist Approach -- 6.Final Remarks -- ch. 2 Double Non-taxation and Bilateral Tax Treaties -- 1.Introduction -- 2.Interpretation of Tax Treaties -- 2.1.General Rule of Interpretation -- 2.2.Supplementary Means of Interpretation -- 2.3.The Interpretative Role of the OECD Model and Its Commentaries -- 2.4.The Reference to Domestic Law: Article 3(2) of the OECD Model -- 3.Double Non-taxation and the OECD Model and Its Commentaries -- 3.1.The Interpretation of the Term "Liable to Tax" -- 3.2.The Concept of Beneficial Owner as a Meaning to Prevent DNT
Note continued: 3.3.Conflicts of Qualification and DNT: The New Interpretation of Article 23A(1) OECD Model -- 3.4.Conflicts of Interpretation and DNT: Article 23A(4) OECD Model -- 4.Double Non-taxation and Specific Tax Treaty Provisions -- 4.1.DNT as an Outcome Tolerated by Tax Treaties -- 4.1.1.Tax Sparing -- 4.1.2.Matching Tax Credits -- 4.2.DNT as an Outcome Specifically Avoided by Tax Treaties -- 4.2.1.Subject-to-tax Clauses -- 4.2.2.Switch-Over Clauses -- 5.The Impact of the OECD BEPS Action 6 Proposal -- 5.1.Modification of the Title of the OECD Model -- 5.2.The Inclusion of a Recommended Preamble in the OECD Model -- 5.3.The New Concept of "Special Tax Regime (STR)" -- 5.3.1.A Critical View upon the Concept of STR -- 5.3.2.The STR Rule and EU Law -- 6.Final Remarks -- ch. 3 The Hybrid Entities' Conundrum: A (Simple) Tax Characterization Issue -- 1.Introduction -- 2.Key Concepts -- 2.1.Legal Entities and Business Entities
Note continued: 2.2.Domestic Entities and Foreign Entities -- 2.3.Taxable and Nontaxable Legal Entities -- 3.Hybrid Entities and Reverse Hybrids -- 3.1.Terminology -- 3.2.The Characterization of Foreign Entities for Tax Purposes -- 3.2.1.Comparative Approach -- 3.2.2.Legal Personality Approach -- 3.2.3.Overall Approach -- 3.2.4.Fixed Approach -- 3.2.5.Elective Approach -- 4.The U.S. Elective System: The "Stone Guest" in a Worldwide Waltz -- 4.1.Introductory Issues: Domestic Foreign and Taxable Nontaxable Entities -- 4.2.The 1954 Kintner Test -- 4.3.The 1996 CTB Regulations -- 4.4.The CTB and Tax Planning Opportunities -- 4.4.1.Avoidance of Subpart F Income -- 4.4.2.Reaction from U.S. Tax Law -- 4.4.3.Use of Foreign Tax Credit -- 4.4.4.Reaction from U.S. Tax Law -- 5.Coordination in an Uncoordinated World -- 5.1.The Spanish Experience: An Example of Coordination in the Home Country? -- 5.1.1.Spanish Legal Entities in Brief
Note continued: 5.1.2.The "Income Attribution Regime" of the Spanish NRITL -- 5.1.3.The Spanish Characterization Test in Practice -- 5.2.The Danish Experience: Re-characterization of Its Own Entities -- 5.2.1.Danish Reaction to Hybrid Entities -- 5.2.2.Danish Reaction to Reverse Hybrids -- 5.3.From the EU ATAD Ito EU ATAD II: A Frustrated Example of Supranational Coordination -- 5.3.1.The EU ATAD I (Original Text): A Coordination at Source -- 5.3.2.The EU ATAD I (Final Text): When Political Pressure Comes First -- 5.3.3.The EU ATAD II: Confirming (but Not Exclusively) the OECD Standards -- 5.3.3.1.Article 9(2) EU ATAD II: The OECD Approach -- 5.3.3.2.Article 9a EU ATAD II: The Characterization of Entities Is Back on the Scene -- 6.Final Remarks -- ch. 4 Hybrid Entities and the Entitlement to Tax Treaty Benefits -- 1.Introduction -- 2.The General Application of Tax Treaties to Entities -- 3.The 1999 OECD Partnership Report -- 3.1.General Principle -- 3.2.Exception
Note continued: 3.3.Critics -- 3.3.1.Formal Critics -- 3.3.2.Substantial Critics -- 3.3.2.1.Unresolved Conflicts of Attribution -- 3.3.2.2.Preference for the State of Residence -- 3.3.2.3.The (Original Missed) Interplay with the Concept of Beneficial Owner -- 4.The US Model: The Legal Precedent for the OECD Proposal -- 4.1.General Interpretation of Article 1(6) US Model -- 4.1.1.The Reference to "Income, Profit or Gain" -- 4.1.2.Income, Profit and Gain Derived "by or Through" -- 4.1.3.The Reference to "Entities" (and Not Arrangements) -- 4.1.4."Wholly or Partial" Fiscal Transparency -- 4.2.Illustrations as Regards to the Application of Article 1(6) US Model -- 4.2.1.Application of Article 1(6) US Model in Strict Bilateral Cases -- 4.2.1.1.Example 1: Foreign Entity with U.S. Owners -- 4.2.1.2.Example 2: U.S. Corporation with U.S. Owners -- 4.2.1.3.Example 3: Foreign Partnership with U.S. Owners -- 4.2.1.4.Example 4: Domestic Partnership with U.S. Owners
Note continued: 4.2.2.Application of Article 1(6) US Model in Triangular Situations -- 4.2.2.1.Example 5: Foreign Intermediary Entity with U.S. Owners -- 4.2.2.2.Example 6: Foreign Entity Receiving U.S. Sourced Income -- 4.2.2.3.Example 7: U.S. Intermediary Partnership -- 4.3.The Interplay of Article 1(6) US Model with Other Tax Treaty and Domestic Provisions -- 4.3.1.The (Still Missed) Interplay with the Concept of Beneficial Owner -- 4.3.1.1.Alternative Approaches Within the U.S. Tax Treaty Practice -- 4.3.2.The Interplay with the "Saving Clause" (Article 1(4) US Model) -- 4.3.3.Article 1(6) US Model and the CTB Regulations -- 4.3.4.Article 1(6) US Model and I.R.C. Section 894(c) -- 5.The OECD Model's Proposal: A Residence State's Perspective -- 5.1.General Interpretation of Article 1(2) OECD Model -- 5.1.1.The Reference to "Income" (Only) -- 5.1.2.Income Derived "by or Through" -- 5.1.3.The Reference to "Entities or Arrangements"
Note continued: 5.1.4."Wholly and Partial" Fiscal Transparency -- 5.2.Illustrations as Regards to the Application of Article 1(2) OECD Model -- 5.2.1.Application of Article 1(2) OECD Model in Strict Bilateral Situations -- 5.2.1.1.Example 1 -- 5.2.1.2.Example 2 -- 5.2.1.3.Example 3 -- 5.2.1.4.Example 4 -- 5.2.2.Application of Article 1(2) OECD Model in Triangular Situations -- 5.2.2.1.Example 5 -- 5.2.2.2.Example 6 -- 5.2.2.3.Example 7 -- 5.3.Other Issues as Regards to the Application Article 1(2) OECD Model -- 5.3.1.The (Repeated Missed) Interplay with the Concept of Beneficial Owner -- 5.3.1.1.A "Deemed" Beneficial Owner: an Alternative Solution -- 5.3.1.2.Testing the Proposal for a "Deemed" Beneficial Owner -- 5.3.1.3.The Pragmatism of "Deemed" Rules: Criticism -- 5.3.2."Saving Clause" and Relief from Double Taxation -- 5.3.2.1.A "Reverse Saving Clause" as an Alternative Solution
Note continued: 5.3.3.Article 1(2) OECD Model and the Base Erosion of Developing Countries: A UN Model's Proposal -- 6.Transparent Entities and the MLI: Some Brief Remarks -- 6.1.Article 3(1) MIA: A Mirror of Article 1(2) OECD Model -- 6.2."Saving Clause" and Relief from Double Taxation -- 7.Final Remarks -- ch. 5 Hybrid Mismatch Arrangements and Linking Rules: Creating Artificial (Mis)Matches -- 1.Introduction -- 2.The Concept of Hybrid Mismatch Arrangements (HMA) -- 2.1.The "Hybrid Element" -- 2.2.The Existence of a "Payment" -- 2.3.A D/NI Outcome (Double Non-taxation) -- 2.3.1.Deduction and Inclusion as Ordinary Income -- 2.3.2.Is a D/NI Outcome a Presumption of Base Erosion: a Presumption of Abusive Practices or Both? -- 2.4.Illustrations of HMAs with Respect to Hybrid Entities and Reverse Hybrid Entities -- 2.4.1.Example 1: D/NI Using a Hybrid Entity -- 2.4.2.Example 2: D/NI Using a Reverse Hybrid -- 2.4.3.Example 3: Indirect D/NI: "Imported Mismatches"
Note continued: 3.Linking Rules and the New Era of BEPS -- 3.1.Primary Response -- 3.2.Defensive Rule -- 3.3."Limitations" Within the Scope of the Linking Rules -- 3.3.1.Control Groups and "Acting Together" Test -- 3.3.2.Structured Arrangements -- 3.4.Tax Policy Concerns -- 3.4.1.Circular Effect -- 3.4.2.Dependency upon Foreign Laws -- 3.4.3.Economic Double Taxation and Lack of Coherence -- 3.5.Legal Concerns -- 3.5.1.Compatibility with Tax Treaties -- 3.5.1.1.General Structure of Article 24 OECD Model: Nondiscrimination -- 3.5.1.2.Linking Rules and Article 24(4) OECD Model -- 3.5.1.3.Linking Rules and Article 24(5) OECD Model -- 3.5.2.Compatibility with EU Law -- 3.5.2.1.EU Secondary Law -- 3.5.2.2.EU Primary Law: Fundamental Freedoms -- 4.Interaction Between Linking Rules and Other Domestic Anti-avoidance and Anti-base Erosion Provisions -- 4.1.Linking Rules and Domestic Interest Limitation Rules -- 4.2.Linking Rules and CFC Rules -- 5.Final Remarks
Note continued: ch. 6 Hybrid Entities Without Double Non-taxation: An Alternative Approach -- 1.Introduction -- 2.Reactive Coordination Rule: A Domestic Alternative -- 2.1.General Description of the Proposal -- 2.1.1."Entity" Understood in a Broad Sense -- 2.1.2.Home Country: Where the Entity Is Formally Legally Organized -- 2.1.3.Home Country v. Source Country -- 2.2.Scope of the Rule -- 2.3.Tax Policy Justifications -- 2.3.1.Simplicity -- 2.3.2.Coherence -- 2.3.3.Administrability -- 2.4.Application of the Reactive Coordination Rule -- 2.4.1.Application to Cases Concerning Payments Made by Hybrid Entities -- 2.4.2.Application to Cases Concerning Payments Made to Reverse Hybrid Entities -- 2.4.3.Advantages -- 2.4.3.1.Noncontingent Application -- 2.4.3.2.Disparities over Outcomes -- 2.4.3.3.Complexity Is Reduced -- 2.4.4.Disadvantages -- 2.4.4.1.Legal Certainty -- 2.4.4.2.Some Undesirable Effects -- 2.5.Similarities and Differences with Other Examples of Coordination
Note continued: 2.5.1.The Spanish Example of Coordination and the Reactive Coordination Rule -- 2.5.2.The Danish Rule and the Reactive Coordination Rule -- 2.5.3.The EU ATAD I and II and the Reactive Coordination Rule -- 2.5.3.1.The Proposal on EU ATAD I and the Reactive Coordination Rule -- 2.5.3.2.Article 9a EU ATAD II and the Reactive Coordination Rule -- 3.Implications of the Reactive Coordination Rule Within Tax Treaties -- 3.1.Bilateral Cases Using Hybrid Entities and Reverse Hybrid Entities -- 3.1.1.Case A -- 3.1.2.Case B -- 3.1.3.Case C -- 3.1.4.Case D -- 3.2.Triangular Cases Using Hybrid Entities and Reverse Hybrid Entities -- 3.2.1.Case E -- 3.2.2.Case F -- 3.2.3.Case G -- 3.3.The "Switch-Off" and Article 1(2) OECD Model -- 4.Final Remarks -- ch. 7 Summary and Conclusions -- 1.Introduction -- 2.The Unnecessary International Concern on DNT -- 3.Hybrid Entities: Disparities as the True Core of the Issue
Note continued: 4.Hybrid Entities and the Entitlement to Tax Treaty Benefits -- 5.Avoiding the Artificial Link Between DNT and the Use of Hybrid Entities -- 6.The Alternative: The Reactive Coordination Rule.
International business enterprises
Tax administration and procedure
Double taxation.
Double taxation.
International business enterprises
Tax administration and procedure
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