BIEN PHAP CHONG TRANH THUE

INTERNATIONAL TAXATION CHAPTER ANTI-AVOIDANCE MEASURES CONTENT Thin capitalization Rules Controlled foreign corporation (CFC) rules Offshore investment funds Được biết, BEPS hành vi trốn thuế của người nộp thuế, nhiều doanh nghiệp đã lợi dụng khoảng trống những hạn chế chính sách thuế tại những nước nơi doanh nghiệp tiến hành hoạt động sản xuất kinh doanh để chuyển lợi nhuận sang những nước/vùng lãnh thổ có mức thuế suất thấp hoặc bằng không Các kế hoạch ngày trở nên phổ biến thiết lập thông qua hành vi chuyển giá, thương mại điện tử, vốn mỏng, hiệp định tránh đánh thuế hai lần, sở thường trú hay thiên đường thuế ( Hội thảo Triển khai chương trình hành đợng về chớng “Xói mòn sở tính thuế chuyển lợi nhuận (BEPS)” APEC, 2017) http:// www.baohaiquan.vn/Pages/Cac-nen-kinh-te-APEC-thong-nhat-hop-tac-chong-tron -thue-va-chong-chuyen-gia.aspx INTRODUCTION Some ways of avoiding tax through international transactions: • A taxpayer can shift his residence from one country to another country that levies lower or no taxes; • A taxpayer can divert domestic-source income to a controlled foreign entity, such as a trust or a corporation, established in a tax haven; • A taxpayer can establish a tax haven subsidiary to earn foreign-source income or to receive dividends or other distributions from subsidiaries in other foreign countries; • If advantageous treaties exist, a taxpayer can route dividends through subsidiaries established in foreign countries in order to reduce the withholding taxes on dividends INTRODUCTION Anti-avoidance rule to deal with certain types of international tax avoidance: • Use exchange controls to regulate foreign investments and transactions by residents; but, current trend is toward free capital market; • Employ a wide variety of tax mechanisms to combat international tax-avoidance + anti-avoidance rules and doctrines + special tax haven provisions; + transfer pricing rules; + controlled foreign corporation (CFC) legislation + offshore investment fund rules + anti-treaty shopping article + thin capitalization rules + taxation of gains on transfers of property abroad and on expatriation Special tax haven provision Some countries have specific provisions designed to deal with particular tax haven abuses EX: • Germany imposes a special tax on persons who move their domicile to a tax haven • Under French law, a French taxpayer cannot deduct interest and royalty payments or payments for services made to a tax haven entity unless the taxpayer establishes that the transactions are genuine  the onus of proof is placed on the taxpayer to justify such deductions Transfer pricing rules Most countries have intercompany or transfer pricing rules to prevent related taxpayers from carrying out transactions at artificially high or low prices in order to move income and expenses to various jurisdictions It is arguable whether these rules are property classified as international anti-avoidance rules or whether they are just part of a country’s basic tax system CFC rules Several countries have adopted CFC rules to prevent the diversion of passive and certain other income to, and the accumulation of such income in, a controlled corporation established in a tax haven Some examples of passive income are: • Any type of cash flowing property income • Rental income and incoming cash flow from property or any piece of  real estate • Interest income derived from a bank account or pension • Royalties paid for intellectual property such as music, books, manuscripts, computer software, or a patent; • Earnings from internet advertisements on websites; Dividend and interest income in the form of cash flow or capital gains from owning securities and commodities, such as stocks,  currencies, gold, silver, and bonds, is usually referred to as  portfolio income, which may or may not be considered a form of passive income In the United States, portfolio income is considered a different type of income than passive income; Attributable income The definition of "attributable CFC amount" can be divided into broad categories The types of income that come under the definition include interest, royalties and rents, being income that is highly mobile and not location-specific Attributable income  National CFC rules vary considerably As far as the common features of CFC legislation implemented in the OECD countries are concerned, they can be classified essentially under two different models:  - Transactional approach  - Entity or jurisdictional approach Attributable income  Under the transactional approach, the tax characterization of income attributed to resident shareholders depends on the type of income Usually, passive income is considered as "tainted"  The entity approach provides for the imputation of the total amount of income earned by the CFC in a given jurisdiction This "all-or-nothing" effect is seen as one of the weaknesses of the entity approach Nature and scope of exemptions Countries may provide a variety of exemptions that limit the scope of their CFC rules, depend on whether a country uses an entity or transactional approach Some of the exemptions: • Exemption for genuine business activities; • Distribution exemption; • De minimis exemption • Other exemptions Example – Indonesia CFC rules (2017) The main definition of a CFC is a non-listed foreign company that is at least owned 50% by an Indonesian taxpayer (company or individual) or by a group of Indonesian taxpayers A change made by the regulation is that the CFC rules now apply with respect to indirectly owned (non-listed) CFCs This, in turn, may affect the rules that apply for the foreign tax credits available for dividends paid by a CFC OFFSHORE INVESTMENT FUNDS CFC legislation applies to: (i) Foreign corporations that are controlled by resident shareholders (ii) Foreign corporations that are controlled by a small group of resident shareholders (iii) Resident shareholders that own a minimum percentage (usually 10%) of the shares of the foreign corporation () What happens if the foreign companies establish in tax havens without being subject to the CFC rules? OFFSHORE INVESTMENT FUNDS Think about tax consequences of three alternative offshore investments: (1) An investment in an offshore investment fund; (2) An investment in a domestic investment fund; (3) A direct foreign investment () The essential difference between the tax consequences for a resident investing in a domestic investment fund as compared to a foreign investment fund is that residence country tax is deferred with respect to income derived through a foreign fund until the resident receives distributions or disposes of its interest in the fund OFFSHORE INVESTMENT FUNDS  Benefit of an investment in an offshore investment fund compared to a direct foreign investment is that the income from the fund can be effectively converted into capital gains if the fund accumulates its income This also may occur with respect to investments in shares of resident corporations OFFSHORE INVESTMENT FUNDS Because of the favourable treatment afforded to offshore investment funds, the tax systems of many countries contain an incentive for resident individuals to invest in foreign investment funds as compared to resident investment funds whenever: (1) Foreign taxes on the foreign fund’s income are less than the domestic taxes on the equivalent amount of income of a resident investment fund, and (2) The foreign investment fund accumulates at least part of its income OFFSHORE INVESTMENT FUNDS 4 different methods of taxation are used by various countries to mitigrare of eliminate the tax benefits derived by their residents from investing in an offshore investment fund rather than a domestic fund: • Mark-to-market approach • Imputed income approach • Deemed distribution approach • Deferral charge approach Mark-to-market approach A Mark-to-market approach method is essentially an accrual-based capital gains tax under which any increase or decrease in the value of a resident taxpayer’s interest in a foreign fund is included in computing the taxpayer’s income for each year Ex: if the taxpayer’s interest in the offshore investment fund is worth 300 at the start of the year and 500 at the end of the year, the taxpayer, the taxpayer would be taxed for that year on the 200 of gain If the value of the interest had declined to 200, the taxpayer would be allowed an investment loss of 100 Imputed income approach  Under an imputed income or deemed rate of return approach, the resident taxpayer is considered to have earned income on the amount invested in the offshore fund at a specified rate, irrespective of the actual income earned by the fund  Ex: if the specified rate of return is 10%, an individual who invests 10,000 in the fund would be taxable on deem income of 1,000 If no distribution is received from the fund, the individual would be taxable in the subsequent year on a deemed gain of 1,100 – 10% of the deemed investment of 11,000 DEEMED DISTRIBUTION APPROACH  Under the deemed distribution approach, resident shareholders are subject to tax on their pro rata share of the income of the foreign fund, whether or not the income of the fund is distributed  This approach is similar to the method of taxation applied under CFC rules  Ex: if Fco, an offshore investment fund, earned 100,000 for the year and distributed only 50,000 to its shareholders, an investor owning 10% of the stock of Fco would be taxable on 10,000 – its share of the total income of the fund for the year Deferral charge approach Under the deferral charge approach, an investor in an offshore fund is taxable on its share of the income of the fund when that income is distributed or when a gain from the investment is realized through a sale of its interest in the fund At that time, however, the investor is also taxable on a deemed interest charge to eliminate the benefits of deferral enjoyed by the taxpayer ... (BEPS)” APEC, 2017) http:// www.baohaiquan.vn/Pages/Cac-nen-kinh-te-APEC-thong-nhat-hop-tac -chong- tron -thue- va -chong- chuyen-gia.aspx INTRODUCTION Some ways of avoiding tax through international transactions: