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Die hier vorliegende Bachelorarbeit behandelt das Thema des Abkommensmissbrauches bei internationalen Gestaltungen. Anlass dafür war ein aktuelles Urteil des Bundesfinanzgerichtes zu der Problematik des „Treaty Shopping“. Zunächst erfolgt eine Begriffsbestimmung und die Definition von „Treaty Shopping“ sowie die Abgrenzung zu ähnlichen Begriffen wie etwa dem „Rule Shopping“ oder auch dem „Directive Shopping“. Unter „Treaty Shopping“ wird das „Sich-Einkaufen“ in ein Abkommen einer nicht abkommensberechtigten Person verstanden. Dies mit der Absicht einen steuerlichen Vorteil zu erlangen. Da dieses „Sich-Einkaufen“ meist durch Errichtung einer Domizilgesellschaft erfolgt und daher mit Kosten verbunden ist, werden diese Kosten als Einkaufspreis angesehen. Daraus schließt sich der englische Begriff „Treaty Shopping“. Im nächsten Schritt werden die verschiedenen internationalen Bestimmungen erläutert, welche ausgearbeitet wurden, um diese missbräuchlichen Gestaltungen im internationalen Wettbewerb unterbieten zu können. Allen voran wird hier das BEPS-Programm der OECD erläutert und speziell auf die Bestimmungen, in denen der Missbrauch von Formen und Gestaltungen behandelt wird, eingegangen. Ebenfalls in diesem Kapitel wird die bisherige Judikatur in Österreich zu diesem Thema ausgeführt. Hier gab es zwei bedeutende Urteile durch den VwGH, die in der Literatur auch als „Erstes-„ bzw „Zweites Treaty Shopping-Erkenntnis“ bezeichnet werden. Die Aussagen in der Begründung dieser Urteile, waren wichtige Wegweiser für die weitere Bekämpfung von missbräuchlichen Gestaltungen. Auch die unter dem Namen „Dublin-Docks-Erkenntnisse“ zusammengefassten Urteile, behandeln dasselbe Thema und sind bedeutend für die Bekämpfung von Abkommensmissbrauch und die weitere rechtliche Beurteilung. Ein kurzer Exkurs ins deutsche EStG bildet den Abschluss des ersten Teils, da in Deutschland eine „Anti-Treaty-Shopping“-Bestimmung direkt im materiellen Recht verankert ist. Diese ist gemeinschaftsrechtlich sehr umstritten und daher bildet die Diskussion darüber und eine generelle Abwägung ob die bestehenden nationalen Bestimmungen ausreichen, den Abschluss des ersten Teils. Im zweiten Teil dieser Bachelorarbeit werden die bereits vorhandenen verfahrensrechtlichen Bestimmungen abgefasst. Die wirtschaftliche Betrachtungsweise (§ 21 BAO) bildet die Grundlage für die Beurteilung von steuerlichen Sachverhalten, auf welche auch die Missbrauchsbestimmung aufbaut. Die Missbrauchsbestimmung im § 22 BAO hat sich mit dem Jahressteuergesetz 2018 geändert. Daher wird sowohl auf die alte als auch die neue Rechtslage eingegangen. Die Diskussion ob diese nach der Außen- oder Innentheorie auszulegen ist, wurde in der Literatur sehr ausführlich geführt. Die verschiedenen Standpunkte zu dieser Thematik werden ausführlich behandelt und dargelegt. Den Abschluss bilden noch die Bestimmungen zum Scheingeschäft (§ 23 BAO) und die Zurechnung von Wirtschaftsgütern (§ 24 BAO), welche ebenfalls als Ausfluss der wirtschaftlichen Betrachtungsweise gesehen werden. This bachelor thesis deals with the issue of treaty abuse in international tax structuring. The reason for this was a recent ruling by the Federal Fiscal Court on the problem of treaty shopping. First, a definition of treaty shopping is given, as well as a distinction from similar terms such as rule shopping or directive shopping. Treaty shopping is understood to mean the buying in to a tax treaty of a person who is not entitled to this. This is done with the intention of obtaining a tax advantage. Since this shopping is usually done by setting up a domiciliary company and therefore involves costs, these costs are considered to be the purchase price. This gives rise to the English term treaty shopping. In the next step, the various international regulations are explained, which have been worked out in order to be able to undercut these abusive arrangements in international competition. First and foremost, the OECD's BEPS program will be explained and the provisions dealing specifically with the abuse of forms and arrangements will be discussed. This chapter also describes the most important case laws on this topic in Austria. There have been two significant rulings by the Administrative Court, which are also referred to in the literature as the "First" and "Second Treaty Shopping Ruling". The statements in the reasoning of these rulings were important signposts for the further fight against abusive arrangements. The rulings summarized under the name "Dublin Docks Rulings" also deal with the same topic and are important for the fight against treaty abuse and the further legal assessment. A short excursion into the German income tax law concludes the first part, since in Germany an anti-treaty shopping provision is directly anchored in substantive law. This is highly controversial under Community law and therefore the discussion about it and a general consideration of whether the existing provisions are sufficient forms the conclusion of the first part. In the second part of this bachelor thesis, the already existing procedural provisions are drafted. The economic approach (article 21 Austrian fiscal code) forms the basis for the assessment of tax matters, on which the abuse provision is also based. The abuse provision in article 22 Austrian fiscal code has changed with the Annual Tax Act 2018. Therefore, both the old and the new legal situation will be addressed. The discussion as to whether this should be interpreted according to the external or internal theory has been conducted at great length in the literature. The various points of view on this subject are dealt with and presented in detail. Finally, the provisions on fictitious transactions (article 23 Austrian fiscal code) and the attribution of economic assets (article 24 Austrian fiscal code), which are also considered to be an outgrowth of the economic theory, are discussed.

This book showcases a multidisciplinary set of work on the impact of regulatory innovation on the scale and nature of tax evasion, tax avoidance, and money laundering. We consider the international tax environment an ecosystem undergoing a period of rapid change as shocks such as the financial crisis, new business forms, scandals and novel regulatory instruments impact upon it. This ecosystem evolves as jurisdictions, taxpayers, and experts react. Our analysis focuses mainly on Europe and five new regulations: Automatic Exchange of Information, which requires that accounts held by foreigners are reported to authorities in the account holder’s country of residence; the OECD’s Base Erosion and Profit Shifting initiative and Country by Country Reporting, which attempt to reduce the opportunity spaces in which corporations can limit tax payments and utilize low or no tax jurisdictions; the Legal Entity Identifier which provides a 20-digit identification code for all individual, corporate or government entities conducting financial transactions; and the Fourth and Fifth Anti-Money Laundering Directives, that criminalize tax crimes and prescribe that the Ultimate Beneficial Owner of a company is registered. Working from accounting, economic, political science, and legal perspectives, the analysis in this book provides an assessment of the reforms and policy recommendations that will reinforce the international tax system. The collection also flags the dangers posed by emerging tax loopholes provided by new business models and in the form of freeports and golden passports. Our central message is that inequality can and has to be reduced substantially, and we can achieve this through an improved international tax system.

Der Kampf gegen Steuervermeidung und Gewinnverschiebung steht nun bereits seit vielen Jahren im Zentrum der internationalen steuerpolitischen Debatte. Im Auftrag der Finanzminister der G20 Staaten befasste sich die OECD ausführlich mit diesem Thema und veröffentlichte im Jahr 2015 ihren 2000 Seiten umfassenden BEPS Abschlussbericht. Darin wurden die international weitverbreitetsten Techniken zur Verlagerung von Profiten und zur Reduktion nationaler Bemessungsgrundlagen analysiert. Darüber hinaus wurden Maßnahmen entwickelt, die von den Mitgliedsstaaten ergriffen werden können, um Steuervermeidung zu bekämpfen. Da der Abschlussbericht der OECD selbst keinen rechtlich bindenden Charakter aufweist, ist nun auch die EU tätig geworden. Sie hat die Vorarbeiten der OECD aufgegriffen und zu einer Richtlinie zur Bekämpfung von Steuervermeidungspraktiken (ATAD) weiterentwickelt. Die Richtlinie verpflichtet die Mitgliedsstaaten folgende grundlegende Abwehrmaßnahmen in ihren nationalen Rechtssystemen zu implementieren: Eine allgemeine Anti-Missbrauchs Bestimmung, Regeln der Wegzugsbesteuerung, eine Zinsschranke, Regeln für beherrschte ausländische Unternehmen, sowie Regeln zur Behandlung hybrider Gestaltungen. Diese Masterthesis beschäftigt sich mit der Umsetzung der von der ATAD vorgegebenen Maßnahmen im nationalen österreichischen Steuerrecht. Nachdem die Bestimmungen der einzelnen Artikel der ATAD diskutiert wurden, werden die bereits gesetzten österreichischen Umsetzungsmaßnahmen im Detail analysiert. In Bezug auf die Zinsschranke, die bisher nicht in nationales Recht umgesetzt wurde, werden Empfehlungen für die zukünftige Einführung entwickelt. Nachdem die einzelnen Maßnahmen der ATAD vertieft behandelt wurden, soll im abschließenden Kapitel noch der Versuch einer steuerpolitischen Gesamtwürdigung der Richtlinie vorgenommen werden. Base Erosion and profit shifting (BEPS) has now been in the center of international tax policy debate for several years. Following the assignment, given by the G20 ́s treasury secretaries, the OECD published the over 2000-page BEPS final report in 2015. The report analyses the most widespread techniques used by international corporations in order to shift profits and reduce their national profit base. Furthermore, the report proposes several actions that can be taken by every single state in order to prevent such techniques of tax avoidance. Due to the fact, that the OECD ́s final report has no legally binding character, now also the EU took some action and used the OECD ́s preliminary work in order to issue the Anti Tax Avoidance Directive (ATAD). The directive compels the member states to introduce the following measures against tax avoidance within their national legal systems: A general anti-abuse rule, rules for exit-taxation, interest-limitation rules, a controlled-foreign- company rule as well as rules designated to hybrid mismatches. This master thesis will deal with the implementation of the Anti Tax Avoidance Directive within Austria’s legal system. After discussing each articles requirements, the transformation from directive into national law will be analyzed in detail. Concerning the interest-limitation-rules, which have not yet been implemented within Austria, recommendations for implementation will be developed. After each article was dealt with in detail, the final chapter will try to evaluate the directive ́s outcomes in an overall evaluation. vorgelegt von: Philipp Höchtl Wien, FH Campus Wien, Masterarb., 2019

Patentbox-Systeme erfahren eine zunehmende Popularität in vielen europäischen Ländern. In diesem Beitrag geben wir einen Überblick über die Ausgestaltung der Patentboxregime in ausgewählten europäischen Ländern sowie über die empirische Literatur zur Gewinnverschiebung durch multinationale Unternehmen. Ein Grossteil dieser Arbeiten berücksichtigt jedoch nicht den Einfluss von Patentboxregimen auf die Gewinnverlagerung von multinationalen Unternehmen, so dass wir im zweiten Teil dieses Artikels insbesondere auf die Ergebnisse der Studie von Koethenbuerger, Liberini und Stimmelmayr (2018) eingehen, welche die Gewinnverschiebungseffekte durch europäische Patentboxen explizit analysiert., KOF Analysen, 2018 (1)

Forschungsberichte des Fachbereichs Wirtschaftswissenschaften der Hochschule Düsseldorf, 47, 1-27, The “fair” taxation of digital business models is challenging. One of the key aspects – both policy makers and the public opinion consider as most pressuring – is the determination of intragroup transfer prices for intangibles used in digital business models. In this paper, we address the issue of a “perceived fair” taxation of the digital economy in the light of the arm’s length principle based on a survey with transfer pricing experts. The aim of the survey is not to estimate arm’s length profit allocations but rather to elicit fairness considerations in different transfer pricing related scenarios. In a digital economy framework where arm’s length profits are distributed extremely inequitably, subjects perceive this distribution of profits as most unfair compared to more balanced scenarios. Consequently, subjects propose a “fair” distribution of profits that substantially differs from the exogenously given arm’s length allocation. In scenarios with a more balanced arm’s length allocation of profits, we find that the perceived fairness for the expert groups increases while a control group of business students is almost not influenced by the arm’s length allocation of profits., Die „faire“ Besteuerung digitaler Geschäftsmodelle ist herausfordernd. Einer der Schlüsselaspekte ist dabei die Ermittlung konzerninterner fremdvergleichskonformer Verrechnungspreise für immaterielle Vermögenswerte, die verstärkt in digitalen Geschäftsmodellen genutzt werden. Dieser Beitrag beschäftigt sich mit der „wahrgenommenen“ Fairness bei der Besteuerung digitaler Geschäftsmodelle vor dem Hintergrund des Fremdvergleichsgrundsatz. Grundlage hierfür ist eine Umfrage unter Verrechnungspreis-Experten (Finanzbeamte und Steuerberater). Wir finden, dass wenn der Fremdvergleichsgrundsatz zu einer sehr ungleichen Verteilung des Steuersubstrats führt, die Teilnehmer diese Gewinnverteilung im Vergleich zu ausgewogeneren Szenarien als unfair erachten. Dementsprechend zeigen unsere Ergebnisse, dass zwar der Fremdvergleichsgrundsatz als Referenzpunkt für Fairness Überlegungen dient. In Bezug auf die individuell vorgeschlagene faire Gewinnverteilung können aber erhebliche Unterschiede zur fremdvergleichskonformen Gewinnverteilung bestehen.

Diese Arbeit beschäftigt sich mit der Thematik des exzessiven Zinsabzugs multinationaler Unternehmen, wie diese über die letzten Jahrzehnte mittels kreativer Methoden der Steuerplanung, ihre effektive Steuerbelastung im Konzern oder in der Unternehmensgruppe auf ein Minimum reduzieren. Aufgrund dieser, weiterhin voranschreitenden Maßnahmen, erstellte die OECD (Organisation für wirtschaftliche Zusammenarbeit und Entwicklung) einen 15 Punkte umfassenden Maßnahmenplan. Dieser wurde am 15. Oktober 2015 veröffentlicht und stellt insbesondere darauf ab, aggressive Methoden der Steuerplanung sowie gezielte Gewinnverlagerung in Niedrigsteuerländer bestmöglich zu beschränken und dahingehend implizit der Erosion der europäischen Steuerbasis entgegen zu wirken. Dahingehend widmet sich diese Arbeit der Entwicklung des BEPS-Projektes insbesondere dem Aktionspunkt 4 des Maßnahmenkatalogs sowie der einhergehenden Umsetzung in Form des Artikel 4 der ATAD (Anti-Tax-Avoidance-Directive) durch die Europäische Union. Folglich werden die in diesem Zusammenhang bestehenden und weiterentwickelten Zinsabzugsverbote in Österreich sowie in Deutschland näher beleuchtet. Abschließend werden die Restriktionen der beiden Staaten in Zusammenhang mit dem exzessiven Abzug von Zinsaufwendungen verglichen und mögliche Handlungsempfehlungen abgegeben. Multinational companies have achieved tax avoidance over the last decades through aggressive tax planning or through minimizing the group tax burden. Due to these circumstances the OECD created a BEPS-Action-Plan to avoid excessive tax deductions as well to prevent the ongoing base erosion and profit shifting. This thesis reflects the development of the BEPS project as well as their implementation in form of the ATAD (Anti Tax Avoidance Directive) through the EU. This master thesis aims to analyze the measures taken by Germany and Austria to restrict enormous interest deduction. First, a review of current literature is undertaken in order to identify the ongoing limitations of interest deduction in Austria as well as Germany. Furthermore, the focus is on article 4 of the ATAD (Anti-Tax-Avoidance-Directive) and its influence on the aforementioned states. The aim is to evaluate the impact of article 4 in comparison with the Austrian tax-law. The main outcome of this thesis is to scrutinize the national restrictions taken by both states to avoid outrageous tax deduction and ongoing profit shifting. In addition, due to this reflection several further recommendations will be discussed. vorgelegt von: Florian Kellner Wien, FH Campus Wien, Masterarb., 2018

This paper uses confidential firm-level panel data to provide new estimates on the extent of corporate profit shifting by German-based affiliates of multinational corporations. The estimated semi-elasticity of reported profits with regard to statutory foreign tax rates is 3.6, or 4.8 when allowing for a non-linear relationship. This is higher than most of the previous estimates of around 1. The case for a non-linear relationship is even stronger when average effective tax rates are used instead of statutory rates. In addition, the paper develops an alternative identification strategy suggesting that the first-time appearance of a tax-haven investor in the ownership chain reduces the reported profits of German-based affiliates by 61 percent if a majority of the affiliate is held by a single investor. The estimated effects are used to extrapolate the amount of shifted profits and associated revenue losses for all German-based foreign affiliates. The results suggest moderate but non-negligible revenue losses between 2.9 and 10.7 percent of corporate income tax revenues (or EUR 1.5-5.6 bn in 2015).

Die vorliegende Masterarbeit analysiert das bisher bestehende Konzept der Vertreterbetriebsstätte, einer Ergänzung zum Tatbestand der allgemeinen Betriebsstätte, wobei sowohl auf die innerstaatlichen Regelungen als auch auf jene des Abkommensrechts Bezug genommen wird. Es wird beurteilt, ob ein Kommissionär für seinen Kommittenten eine Vertreterbetriebsstätte nach derzeit geltender Rechtslage begründen kann und welche Konsequenzen sich aufgrund einer möglichen Neuformulierung des Abkommensrechts durch BEPS-Action 7 ergeben können. Auf Basis einer Literaturrecherche wird unter anderem analysiert, wie die österreichische Finanzverwaltung den Begriff des ständigen Vertreters iSd § 98 Abs. 1 Z 3 EStG auslegt und ob nach innerstaatlichem Recht der Kommissionär einen ständigen Vertreter darstellen kann, der in weiterer Folge zur beschränkten Steuerpflicht für den Kommittenten führt. Darüber hinaus werden auch internationale Judikate zur Problematik der Vertreterbetriebsstätte durch Bestellung eines Kommissionärs analysiert. Um ein besseres Verständnis für die Problematik eines Kommissionärs, der im eigenen Namen und damit als indirekter Stellvertreter auftritt, und der möglichen Begründung einer Vertreterbetriebsstätte zu schaffen, wird auf das Zusammenspiel von abhängigen und unabhängigen Vertretern iSd OECD-MA Bezug genommen. Die zentrale Fragestellung ist, wie sich eine mögliche Neuformulierung der Definition der Vertreterbetriebsstätte im Abkommensrecht auf den Begriff des ständigen Vertreters der Republik Österreich auswirken kann und ob ein Kommissionär zukünftig, sowohl in Civil als auch Common Law Staaten, zur Begründung einer Vertreterbetriebsstätte führen kann. Abschließend wird festgestellt, dass zukünftig auch in Civil Law Staaten ein Kommissionär eine Vertreterbetriebsstätte begründen kann, sofern BEPS-Action 7 in die bestehenden Doppelbesteuerungsabkommen übernommen wird. Bisher war die indirekte Stellvertretung, wie sie der Kommissionär verkörpert, auch schon in Common Law Staaten betriebsstätten-begründend, wodurch die Neufassung einen Gleichklang erzeugt. Für das österreichische Etragsteuerrecht bedeutet die Neufassung keinen unmittelbaren Handlungsbedarf, da die innerstaatliche Regelung vom Gegenstand der Neufassung nicht betroffen ist und die bisherige Ansicht der Finanzverwaltung in der Neufassung iSd BEPS-Action 7 Deckung findet. Eine engere Begriffsauslegung, die zu einer eventuellen doppelten Nichtbesteuerung führen würde, scheint somit nicht denkbar. This thesis analyses the current concept of the dependent agent as a permanent establishment based on both the domestic Income Tax Act and in Tax Treaty Law in addition to the permanent establishment according to Art. 5 para 1 and 2 OECD-MTC. It is discussed whether a commission agent can establish a permanent establishment for his principal. Furthermore, possible changes in tax treaties caused by BEPS-Action 7 are analysed. Firstly, the Austrian Tax Authority’s interpretation of the permanent establishment is shown by conducting a review of current literature. Based on the literature research, it is analysed whether a commission agent can be qualified as a constant representative, who ultimately triggers a limited tax liability for the principal. Secondly, international judgments are reviewed and the underlying differences in legal interpretations and hence different decisions are discussed. To clearly show the underlying problems in classifying a commission agent as a permanent establishment of the principal the connection between dependent and independent agents in terms of the OECD-MTC are elaborated. The fundamental question, whether a commission agent can establish a permanent establishment in civil and common law states in the future, is addressed by analysing the final version of the revised Art. 5 para 5 and 6 OECD-MTC modified by BEPS-Action 7. The main conclusion of this thesis is that based on future amendments to tax treaties the commission agent can establish a permanent establishment for his principal also in civil law states – and not only in common law states. This qualification results from the agent’s activities, which involve the foreign principal in domestic business activities. In this context it does not matter, whether the involvement results from direct or indirect representation. Ultimately, BEPS-Action 7 harmonizes the legal opinions of civil and common law states. In addition, BEPS-Action 7 does not call for an adaption of the Austrian Income Tax Act as the Austrian Tax Authority’s current legal opinion is confirmed. Finally, it can be concluded that the Austrian Tax Authority’s interpretation, whether a commission agent constitutes a permanent establishment for his principal, is not more restrictive than the corresponding interpretation according to BEP-Action 7. Therefore, the risk of double non-taxation is mitigated in the future, if the proposed measures of BEPS-Action 7 are implemented in tax treaties. Abweichender Titel laut Übersetzung der Verfasserin/des Verfassers Wien, FH Campus Wien, Masterarb., 2017

eingereicht von Andreas Steinhofer, BSc Universität Linz, Masterarbeit, 2017

eingereicht von: Fabian Ecker Universität Linz, Univ., Masterarbeit, 2015

Research results confirm the existence of various forms of international tax planning by multinational firms. Prominent examples for firms employing tax avoidance strategies are Amazon, Google and Starbucks. Increasing availability of administrative data for Europe has enabled researchers to study behavioural responses of European multinationals to taxation. The present paper summarizes what we can learn from these recent studies in general and about German multinationals in particular.

Die Steuerplanung internationaler Unternehmen, die durch geschickte Kombination von Regelungen ihre Steuerbelastungen gegen null senken, und die Steuerpolitik einiger Länder stehen in der öffentlichen Kritik. Johanna Hey, Universität zu Köln, verweist darauf, dass es bei der Bekämpfung sog. aggressiver Steuergestaltungen sowohl um die Verwirklichung von Steuergerechtigkeit, also um eine gerechte Beteiligung aller an der Finanzierung des Staates, als auch um die Verhinderung der Erosion der Steuerbasis, also um die Sicherung des jeweiligen nationalen Steueraufkommens, geht. Die Fragen internationaler Verteilungsgerechtigkeit und ihre Umsetzung in konkrete Regelungen seien schwierig zu beantworten, denn es gehe nicht nur um die Vermeidung von Niedrig- und Nichtbesteuerung, sondern auch um die richtige Verteilung des Aufkommens zwischen den Staaten. Auch sei das rechtliche Instrumentarium zur Bekämpfung von Steueroasen sehr begrenzt. Um das Problem lösen zu können, bedürfe es eines internationalen Konsenses, der gerade auch diejenigen Staaten einbinden müsse, die derzeit Steuerminimierung ermöglichen. Nach Ulrich Schreiber und Fabian Pönnighaus, Universität Mannheim, lauten die gängigen Antworten auf die Frage nach internationaler Steuergerechtigkeit, dass die Höhe der Steuer nicht davon abhängen sollte, wo das besteuerte Einkommen erwirtschaftet wurde, und dass die Steuerbasis auf diejenigen Staaten verteilt werden sollte, in denen der Steuerpflichtige wirtschaftlich tätig ist. Einen ersten Ansatzpunkt für eine international koordinierte Änderung bestehender Regeln sehen sie in der Stärkung der Besteuerungsrechte derjenigen Staaten, in denen multinationale Konzerne wirtschaftlich tätig sind, einen zweiten Ansatzpunkt in einer Stärkung des Besteuerungsrechts des Sitzstaates der Muttergesellschaft eines Konzerns für die weltweit erzielten Gewinne. Felix Bierbrauer, Universität zu Köln, diskutiert den Gesichtspunkt, inwieweit Anreize zur Steuervermeidung und -hinterziehu

This paper proposes a dynamic extension to Saez (2010) bunching formula that allows us to distinguish bunching based on real responses and income shifting. We provide direct evidence of income shifting and pronounced bunching in taxable income for the case of Danish self-employed. If income shifting was neglected in this case, we would conclude that taxable incomes were highly sensitive to changes in marginal tax rates. We show, however, that more than half of the observed bunching in taxable income for the self-employed is driven by intertemporal income shifting, implying a structural elasticity in the range of 0.14-0.20

Rent-sharing between firm owners and workers is a robust empirical finding. If workers bargain with firms, information on the actual surplus is essential. When the firm can use profit shifting to create private information on the surplus, it can thereby reduce its wage bill. We study how rent sharing and this wage incentive for profit shifting affect the ability of governments to tax multinational companies in a standard model of international tax competition. We find that if firms only have a tax incentive for profit shifting, rent-sharing decreases the competitive pressure on the large country and leads to higher equilibrium tax rates. When we allow for the wage channel, this result can change. If the wage incentive is sufficiently strong, rent-sharing increases the competitive pressure on the large country, implying a lower equilibrium tax rate.

Until 2009, the United Kingdom operated a system of worldwide taxation. Taxation of foreign income was deferred until repatriated as dividends, leaving UK-owned multinational firms the possibility of avoiding UK taxation by delaying dividend payments and keeping earnings abroad. In 2009, the UK switched to a system under which all foreign-earned income is exempted from taxation. This fundamental change had a number of straightforward implications for UK-owned multinational firms and particularly changed incentives to repatriate profits. This paper assesses the effects of the reform on the foreign affiliates of UK-owned multinational firms. We use data provided by Bureau van Dijk on 61,738 foreign affiliates located in one of 29 European countries to estimate the impact of the reform on the repatriation pattern and other outcomes of UK-owned affiliates. We use an identification approach that quasi-randomizes over the country of residence of the ultimate firm owners, allowing us to compare outcomes of treated UK-owned foreign affiliates to control non-UK-owned foreign affiliates. Our results suggest that the switch to tax exemption not only changed dividend repatriation behavior of firms but also the conditions under which foreign entities operate in general, for instance, with regard to investment behavior.

This paper analyzes measures that limit firms' profit shifting activities in a model that incorporates heterogeneous firm productivity and monopolistic competition. Such measures, e.g. thin capitalization rules, have become increasingly widespread as governments have reacted to growing profit shifting activities of multinational companies. However, besides limiting profit shifting, such rules entail costs. As the regulations can only focus on the means to shift profits, not on profit shifting itself, they impose costs on all firms, no matter whether these firms shift profits abroad or not. In the model, these costs force some firms to exit the market. Thus, as this makes the remaining firms more profitable, regulations to limit profit shifting may even increase the aggregate amount of profits shifted abroad. From a welfare point of view, it may even be optimal no to limit profit shifting at all.

This paper stresses the special role of multinational headquarters in corporate profit shifting strategies. Using a large panel of European firms, we show that multinational enterprises (MNEs) are reluctant to shift profits away from their headquarters even if these are located in high-tax countries. Thus, shifting activities in response to corporate tax rate differentials between parents and subsidiaries are found to be significantly larger if the parent observes a lower corporate tax rate than its subsidiary and profit is thus shifted towards the headquarters firm. This result is in line with recent empirical evidence suggesting that MNEs bias the location of profits and highly profitable assets in favor of the headquarters location (for agency cost reasons among others).

This article aims at analyzing the link between subsidiaries' capital structure and taxation in Europe. First we introduce a trade-off model, which studies a MNCs' financial strategy and shows how debt policy allows multinational groups to shift profits from low-tax to high-tax jurisdictions. By letting the MNC choose both leverage and the percentage of profit shifting, we depart from the relevant literature which has mainly focused on the latter. Using the AMADEUS dataset we show that: i) subsidiaries' leverage increases with the statutory tax rate, levied in the country where it operates; ii) this positive effect is lower, the higher the parent company tax rate is. Furthermore, an increase in the parent company's tax rate is estimated to raise its subsidiaries' leverage.

"Tax-motivated transfer pricing has attracted world attention owing to the existence of low-tax jurisdictions and the volume of the activities of multinational corporations (MNCs). MNCs have many instruments for shifting profits through transfer pricing, and tax havens provide ample opportunity for this. Tax havens pose the threat of capital flight and income shifting from high-tax countries. At present, there are two ways of tackling this problem: by applying the arm’s length principle to determine the tax payable by MNCs in a particular jurisdiction or by using a formula to allocate tax payable by MNCs between countries. Based on various studies conducted so far, this paper summarizes the advantages and disadvantages of these methods in solving the problem of profit-shifting by MNCs. The predicament is truly global in nature, and no single country or group of countries can hope to resolve it. It is high time a global institution was set up to calculate MNCs’ worldwide income and to provide tax authorities with timely information." [author's abstract]

This paper argues that profit-shifting activities of multi-jurisdictional enterprises (MJE) are maintained under a tax system of consolidation and formula apportionment (FA). A theoretical model discusses how an MJE can exploit its impact on the definition of the consolidated group strategically. The analysis shows that the MJE will run individual affiliates as separate un-consolidated firms for tax purposes if intra-group tax-rate differences, and thereby potential gains from profit-shifting, are large. We test this prediction using confidential firm-level tax-return data for the local business tax in Germany. The identification strategy exploits a quasi experiment derived from a major company tax reform in 2001 that reduced the costs associated with separating out individual affiliates. Our results show that, evaluated at the sample mean, an increase in the tax-rate variance among the MJE's affiliates by one standard deviation reduces the number of consolidated affiliates by 20%.

We provide indirect empirical evidence of profit shifting behavior by multinational enterprises (MNEs) employing a panel study for the years 1995 to 2005, while controlling for unobservable fixed firm effects. We use a large micro database of European MNEs which includes detailed accounting and ownership information. Our results show a strongly negative relationship between an affiliated company's statutory corporate tax rate difference to its foreign parent firm and the affiliate's gross profits. Quantitatively, a 10 percentage points decrease in the tax rate of the affiliate (relative to the parent) increases its pre-tax profitability by 7%, other things being equal. Various robustness checks support this profit shifting inference. Furthermore, we provide evidence that a higher parent's ownership share of its subsidiary leads to intensified shifting activities between these two affiliates.

Intangible assets are one major source of profit shifting opportunities due to a highly intransparent transfer pricing process. Our paper argues that multinational enterprises (MNEs) optimize their profit shifting strategy by locating shifting–relevant intangible property at affiliates with a low statutory corporate tax rate. Using panel data for European MNEs and controlling for unobserved time–constant heterogeneity between affiliates, we find that the lower a subsidiary’s tax rate relative to other affiliates of the multinational group the higher is its level of intangible asset investment. This effect is statistically and economically significant, even after controlling for subsidiary size and accounting for a dynamic intangible investment pattern.

By granting intracompany loans to their foreign affiliates, multinational firms may reduce their tax liability abroad. Many countries have legislated thin-capitalization rules (TCRs) that limit the allowable levels of intracompany loans or restrict interest deductibility if certain thresholds are crossed. This paper empirically analyzes the effect of the German TCR on corporate policy. We find that tightening the regulations in 2001 had some limiting effect on leverage. Foreign affiliates reacted by reducing intracompany loans and increasing equity, with no significant evidence of reduced real investment. A possible reason for the limited impact of the TCR was that multinational firms had the option to work around the regulation by using holding company structures. Indeed, holding companies have been used to shift huge amounts of intracompany loans onto the books of German affiliates. At the same time, however, only part of these observed reorganizations seem to have been a reaction to TCR.

This paper investigates whether the size of multinationals’ real investments in a high-tax country is affected by profit shifting activities. A simple theoretical analysis shows that tax rates abroad impact the cost of capital in the presence of profit shifting activities of multinational companies. As profit shifting opportunities constitute a competitive advantage, the respective size of investments should theoretically increase if profits can be shifted to a lower taxing country. An empirical analysis, based on a panel of German inbound investments, confirms a positive tax response of real investments with a decreasing tax rate at the foreign direct investor’s home country. Hence, the results suggest that the size of foreign investments in a high-tax country is positively affected by lower foreign taxation of shifted profits.

This paper is concerned with tax-planning strategies of multinational corporations. A theoretical analysis discusses the choice of the capital structure in a setting where intercompany loans can be used to shift profits to low-tax countries. Empirical evidence is provided using micro-level panel data of virtually all German multinationals made available by the Bundesbank. This comprehensive dataset allows us to exploit differences in taxing conditions of almost eighty countries during a period of nine years. The empirical results confirm a robust impact of tax-rate differences within the multinational group on the use of intercompany loans, supporting the profit-shifting hypothesis. However, the implied tax-revenue effects are rather small, suggesting that costs related to adjusting the capital structure for profit-shifting purposes are substantial.

The paper considers profit shifting behavior using data on German inbound and outbound FDI. It finds an empirical correlation between the home country tax rate of a parent and the net of tax profitability of its German affiliate that is consistent with profit shifting behavior. For profitable affiliates that are directly owned by a foreign investor the evidence suggests that a 10 percentage point increase in the parent's home country tax rate leads to roughly half a percentage point increase in the profitability of the German affiliate. On the outbound side of German FDI, the data provides some evidence that tax rate changes in the host country lead to a stronger change in after-tax profitability for affiliates that are wholly owned, which may reflect the larger flexibility of these firms in carrying out tax minimizing behavior without interference of minority owners.

This paper analyses the effects of introducing a common EU tax base with formula apportionment on the size of the EU wide tax base and on the distribution of the tax base between the EU member countries. We use a combined dataset of Deutsche Bundesbank's Foreign Direct Investment data (MiDi) and corporate balance sheet data (Ustan and Hoppenstedt) for the tax base estimations. The data is used to construct i) a separate accounting and ii) a formula apportionment tax base for the firms in the sample. Our results suggest that due to border crossing loss-offset, the EU wide corporate tax base represented by our data sample shrinks significantly. Smaller countries which are usually considered to attract book profits under the current system, i.e. Ireland and the Netherlands, tend to lose a larger part of their tax base than larger countries like Germany, Italy, France or Great Britain. However, these results should be evaluated in the light of the limitations of the data used in this study since our analysis is based on German FDI data only. Furthermore, the calculations do not take into account behavioural responses of companies caused by such a system change.

The rise in foreign direct investment and the increasing activity of multinational firms expose national corporate tax bases to cross-country profit shifting, but also lead to rising profitability of the corporate sector. We incorporate these two effects of economic integration into a simple political economy model where the median voter decides on a redistributive income tax rate. In this setting economic integration may raise or lower the equilibrium tax rate, depending on whether the higher excess burden of the tax or the larger redistributive gains from the perspective of the representative worker are the dominant effect. Our simple model holds several implications for future empirical work on the relationship between globalization and the effective rate of capital taxation.

Dual income tax systems have become increasingly popular; yet, relatively little is known about the consequences of implementing such tax systems. This paper uses a representative panel of taxpayers from the 1993 Finnish tax reform to measure how overall taxable income and the relative shares of capital income and labour income reacted to the reform. The Finnish tax reform appears to be particularly suitable for analysing the effect of separating labour and capital income tax bases. The reform radically reduced the marginal tax rates on capital income to some, but not all, taxpayers, while the taxation of labour income was not reformed at the same time. We find that the reform led to a small positive impact on overall taxable income, but part of the positive response was probably offset by income shifting among the self-employed.

This article studies the relationship between debt policies of multinational companies (MNCs) and governments' tax strategies. In the first part, it is shown that the ability to shift income from high- to low-tax countries affects MNCs' financial choices. In the second part we show how MNCs' financial decisions can affect the tax strategies of two governments competing to attract income.

Foreign direct investment is of increasing importance in the European Union. This paper estimates the effect of taxes on foreign direct investment (FDI) flows and on three sub-components of these flows for the countries of the en- larged European Union. The model in the spirit of gravity equations robustly explains FDI flows between the 25 member states. Sample selection needs to be addressed in the estimation. We show that the different subcomponents of FDI should and indeed do react differently to taxes. After controlling for unobserved country characteristics and common time effects, the top statutory corporate tax rate of both, source and host country, turn insignificant for total FDI and investment into equity. However, high source country taxes clearly increase the probability of firms to re-invest profits abroad and lower the percentage of debt financed FDI. This might reflect profit re-allocation to avoid taxes. Market size factors have the expected signs for total FDI. Non-productivity adjusted wages as determinants of FDI are less robust.

The use of information and communication technologies (ICT) within multinational groups leads to a rising number of intragroup cross-border transactions. At the same time, transactions and the organisational structures of affiliated groups become more and more specific and, thus, less comparable. The importance of human capital and of mobile factors of production, such as intangible assets, increases. The objective of this paper is to give an insight into the principal issues of profit allocation within multinational groups resulting from these economic changes. It is examined whether the traditional transaction methods based on the arm?s length principle can be upheld and to what extent the alternative method of formula apportionment is more suitable. The tax principles of inter-nation equity and feasibility are used to evaluate the different methods of profit allocation. We conclude that, in the light of the two demanded principles, formula apportionment is more appropriate than the arm?s length principle as regards the changed economic structures by use of ICT. As formula apportionment constitutes a suitable alternative especially in the European Union, the proposals made by the European Commission are considered to be a good starting point.