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INTERNATIONAL TAXATION Đặng Thị Bạch Vân (MA) bachvan@ueh.edu.vn INTERNATIONAL TAXATION CHAPTER INTERNATIONAL TAX COMPETITION CONTENT Introduction Identify (harmful) tax competition Countermeasures Recent developments Hybrid entities INTRODUCTION • • • • • • 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” 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 HARMFUL TAX COMPETITION 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 nontransparent fashion; or • It does not require nonresidents to engage in substantial activities in the tax haven in order to qualify for tax benefits HARMFUL PREFERENTIAL TAX REGIMES • • 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 REGIME • • • 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 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 COUNTERMEASURES OECD report suggests a lengthy list of the countermeasures that countries might take to deal with tax havens and lowtax regimes: • Unilateral countermeasures, including CFC rules, foreign investment fund rules, transparent tax rulings, and restrictions on participation exemptions; • Countermeasures involving tax treaties, including 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 RECENT DEVELOPMENTS 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 HYBRID ENTITIES 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) TYPES OF HYBRID ENTITIES • • • Limited liability companies (LLCs) Other silent partnerships The US check-the-box rules CASE STUDY International tax competition and coordination ...INTERNATIONAL TAXATION CHAPTER INTERNATIONAL TAX COMPETITION CONTENT Introduction Identify (harmful) tax competition Countermeasures Recent developments Hybrid... REGIMES • • 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... host country COUNTERMEASURES OECD report suggests a lengthy list of the countermeasures that countries might take to deal with tax havens and lowtax regimes: • Unilateral countermeasures, including