Search

This paper investigates the effect of tax harmonization on foreign direct investment (FDI) in the Southern African Development Community (SADC). Previous attempts aimed at addressing relatively unsatisfactory FDI flows into the region have been largely unsuccessful, compounded by the existence of varied tax rates, laws and tax policies amongst SADC countries. The study employs dynamic panel estimation techniques to test the underlying economic specifications. Specifically, the feasible generalized least squares and the difference GMM approaches are used to test the causal link between FDI and taxation. These approaches are complemented by the Extreme-Bound Analysis (EBA) approach to perform a robustness test and sensitivity analysis over the period 1990-2010. The EBA technique helps to identify robust measures of economic policy changes from the taxation and FDI model. The paper modifies relevant data, per Sudsawasd and Mongsawad (2011), for SADC countries, expanding the number of years from 1995-2006 to 1990-2010, with more relevant and available data. Findings of a first attempt to investigate the linkage between taxation (tax rates and policy) and FDI, using an eclectic panel data modeling approach are presented. A new value added tax harmonization variable is introduced (in addition to a corporate income tax harmonization variable) via a tax policy harmonization measure in the panel empirical investigation, complemented by a sensitivity analysis (using the EBA analysis technique) on the causal relationship between taxation and FDI inflows. The main finding from the study indicates a positive and significant relationship between tax harmonization and FDI. The causal relationship is more robust when errors in the regressors (for instance contemporaneous correlation, heteroskedasticity, cross-sectional dependence, country-specific challenges, endogeneity) are controlled for. From a policy perspective, the paper provides empirical evidence to support the argument for the effective use of taxation towards stimulating regional FDI inflows. Policy considerations towards improved tax harmonization emanating from the paper include the need for individual SADC governments to promote national tax policies aimed at supporting regional tax harmonization objectives towards enhanced FDI, through strengthening existing tax agreements and treaties (such as the SADC 2002 Memorandum of Understanding on Taxation and the 2006 SADC Finance and Investment Protocol). [ABSTRACT FROM AUTHOR]

This study examines the influence of taxation on foreign direct investment (FDI) using data from Southeast Asia. It employs the quantile regression approach with fixed effects that provides a comprehensive view of the tax sensitivity across the FDI distribution. Estimates confirm the significantly negative impact of the bilateral effective average tax rate and indicate the marked difference in the tax sensitivity levels at the two ends of the distribution. This stresses the importance of understanding the effect of taxation across the distribution rather than only at the mean. The economic significance of the tax is also relatively smaller than that of other fundamental factors such as labour quality and governance. [ABSTRACT FROM AUTHOR]

The U.S. tax law equates the tax rate on dividends and long‐term capital gains on stock owned by U.S. citizens and residents. However, the taxation of these two types of rewards in the hands of foreign portfolio investors remains dramatically different from each other, with the capital gain being fully exempt. Several reasons support this article's proposal to no longer exempt these gains. Extending finance theory and prior normative tax research, this article argues that foreigners' portfolio dividends and capital gains should be taxed in the same manner because they are economically equivalent and emanate from the same source. Three recent empirical developments also support repeal of the foreigner's exemption. First, there is now extensive use by U.S. corporations of stock repurchases—which are taxed to selling shareholders as capital gain—as a form of corporate payout that was in the past primarily accomplished through dividends. Second, foreign ownership of U.S. stocks has continued to increase, with an estimated one‐third of these stocks owned by foreigners. Third, the modern tax compliance environment—including aspects of the Foreign Account Tax Compliance Act that apply to foreigners—reduces past congressional and academic concerns about enforcing the taxation of foreigners' portfolio gains. [ABSTRACT FROM AUTHOR]

The preferential tax policies for foreign direct investment (FDI) in China were terminated by a tax reform in 2008. This article uses the provincial-level panel data for 1998‒2008 before the reform in order to study whether the tax incentive had been a significant determinant of foreign investment decisions. We find that market size and geographic location had significant impacts on the FDI inflow into China but the tax incentive policies were not a sufficient determinant of FDI inflow into China over the periods studied, which provides a rationale for the termination of the tax incentives in FDI at 2008 reform in China. [ABSTRACT FROM AUTHOR]

The article examines the taxation of investments made by U.S. citizens and corporations in foreign firms. The author discusses several arguments that have been raised in favor of preferential tax treatment on profits earned from foreign investments, including those based on fairness, economic benefits, and promotion of U.S. foreign policy objectives. The author concludes that if tax relief is to be granted, it should take the form of tax deferments, with taxes delayed on profits earned abroad as long as they are reinvested abroad.

The article comments on Sections 864(c)(8) and 1446(f) as added to the Internal Revenue Code of 1986 by Public Law 115-97 on December 22, 2017. Issues discussed are computation of gain or loss, interaction with income tax treaties, effect of the Foreign Investment in Real Property Tax Act (FIRPTA) publicly traded partnership exception, procedures for withholding and deposit of tax, certification procedures regarding foreign or domestic status of transferor, and tiered partnerships.

Abstract: Of a total of 2,976 double tax agreements (DTAs), some 60% are signed between a developing and a developed economy. As DTAs shift taxing rights from capital‐importing to capital‐exporting countries, the latter inherently benefit more from the agreements. In this paper, we argue that capital exporters use foreign aid to incite capital importers into signing DTAs. We demonstrate in a theoretical model that in a deal, one country does not trump the other, but that the deal must be mutually beneficial. In the case of an asymmetric DTA, this requires compensation from the capital‐exporting country to the capital‐importing country. Examining DTAs that are signed between donor and recipient countries between 1991 and 2012, and using a fixed effects Poisson model, we find that bilateral foreign aid commitments increase by 22% in the year of the signature of a DTA. Evaluated at the sample mean, this translates into around US$ six million additional aid commitments in a DTA signatory year. [ABSTRACT FROM AUTHOR]

Bilateral Investment Treaties, ("BITs"), are both a response to and likely at least partly responsible for the significant increase in international investments in the last fifty years. BITs provide potential private investors government assurances regarding a variety of factors relevant to their investments. Among these assurances, BITs regularly address the tax authority that the host government has with regard to the foreign investor, often protecting that foreign private, investor against changes to the host country's tax system. If an investor believes the host country has violated the terms of the BIT, that investor can bring a claim against the country in front of an independent arbitration panel, whose decision will be final and binding. Because the power to tax is at the heart, of what makes a sovereign authority a sovereign, restrictions on a sovereign's ability to tax foreign investors, which can be enforced by an external body, threaten that sovereign's very essence. As a result, tax provisions in BITs and the adjudication of those provisions by arbitration bodies must be carefully examined and potentially reconsidered, to protect the sovereign rights of governments to assess tax, to evolve their tax policies, and administer the laws of their countries in the best interests of their people. This Article explains the background and use of BITs, explores theories of sovereignty, and then demonstrates that the current use of BITs to restrict governments' ability to assess and collect tax within their borders threatens sovereign rights. The Article concludes by suggesting ways that the regulation of the taxation of international investments could be modified to protect sovereign rights. [ABSTRACT FROM AUTHOR]

The reflections of tax competition in Turkey and six Eurepean Union countries covering the years of 2000-2013 is analysed in this paper. In this context, whether the relationship between corporation income tax and foreign direct investment is analysed with panel data methods. As a result of analysis, the negative relationship between the corporation income tax and foreign direct investment is determined. [ABSTRACT FROM AUTHOR]

Foreign direct investment ("FDI") from emerging economies generally exhibits two distinct characteristics: (i) most of the investors thrive in poor regulatory environments, and (2) the visible hand of the state exerts a powerful influence. Due to these two features, emerging market FDI poses novel questions to tax law scholars and U.S. policymakers. For instance, will the investors import noncompliance practices? Or will they adapt to the complex and stringent regulatory regime of the host country? To answer these questions, this Article presents the first empirical study of Chinese multinational companies operating in the U.S. tax system. Despite wide gaps between the two countries in terms of tax administration and compliance, Chinese investors in the United States generally appear to have adapted to U.S. tax law. In terms of tax audits and disputes with the Internal Revenue Service ("IRS"), this study finds preliminary evidence that distinguishes between the investments of state-owned companies and those of privately owned companies. Overall, the findings contribute to several important policy and theoretical debates and have significant, practical implications. [ABSTRACT FROM AUTHOR]

The U.S. government has been focusing its attention on foreign investors who may be investing proceeds of illegal activity into U.S. entities without identifying the natural persons who are the beneficial owners of the equity interests in such entities. There is great concern that the U.S. has allowed itself to be used as a tax haven due to the lack of transparency in certain states' laws, which do not require the disclosure of entity ownership. This article looks at FinCEN's current anti-tax-avoidance measures, including the new account opening requirements, along with the requirements relating to cash purchases of high-end real estate with which title insurance companies and U.S. lenders must comply. Additionally, this article discusses the Treasury Department's expanded requirements for reporters of bank deposit interest to foreign tax authorities. [ABSTRACT FROM AUTHOR]

This article approaches tax avoidance as a crime of globalization. Tax avoidance is not just a problem originating in the corporation. Corporate tax avoidance is a practice that involves different corporations and different territories simultaneously and, as such, it has global consequences because these corporations do not pay their fair tax in the countries in which they operate. As it is seen here, the free-market creates opportunities for tax avoidance when nations and territories strive to attract international investment by changing their tax rules in favor of powerful corporations. Tax regulations have been re-written by tax authorities, financial controls have been removed, and secrecy has been guaranteed to provide a favorable atmosphere for investors. However, tax authorities only give total exemptions to foreign and non-domiciled corporations while taking taxes from their own citizens and national corporations. In all, the tax incentives offered are not the result of less state intervention in the economy but are instead the product of more state intervention in rewriting the rules of the economy in favor of the powerful. [ABSTRACT FROM AUTHOR]

Tax evasion means the avoidance of declaring and paying taxes. The purpose of the research is to identify ways and mechanisms of tax evasion through fictitious economic operations and how this kind o tax evasion can influence sustainable development. The principal methods are researching tax evasion cases investigated by the Romanian authorities responsible for combating this phenomenon, court trials on tax evasion and using the bibliographic references in the field. The data used are obtained through open sources of the authorities specialized in combating tax evasion for the cases made public, the media and also from specialised literature. The principal results are that this type of tax evasion is manifested through transactions with "ghost companies", with offshore companies and transactions between associated enterprises. The main causes of this problem are: high taxation, corruption, inefficient government and tax authorities, no fiscal education and very hard tax legislation. The consequences are that the state budget is affected, the companies that do business legally are affected and also the final consumers, so Romania will not have economic growth and the quality of life will not improve. The main conclusion is that in order to have sustainable development, tax evasion in general and this kind of tax evasion in particular must be eradicated. The measures that have to be taken are to prevent tax evasion and to tighten controls but without violating taxpayers rights and without making abuses. [ABSTRACT FROM AUTHOR]

Non-EU or third-country investment funds may be subjected to final withholding taxes on their dividend income earned in various Member States within the EU. Such dividend withholding taxes may be discriminatory in nature given that EU or Member State investment funds may not be subjected to them. This raises the question whether, and to what extent, third-country investment funds could access the fundamental freedoms (like the free movement of capital) - enshrined in TFEU - in order to gain some measure of tax relief from discriminatory dividend withholding taxes. Non-EU or third-country investment funds may be subjected to final withholding taxes on their dividend income earned in various Member States within the EU. Such dividend withholding taxes may be discriminatory in nature given that EU or Member State investment funds may not be subjected to them. This raises the question whether, and to what extent, third-country investment funds could access the fundamental freedoms (like the free movement of capital) - enshrined in TFEU - in order to gain some measure of tax relief from discriminatory dividend withholding taxes. In particular, the article examines how the ECJ considers compliance with UCITS (as well as other regulatory frameworks) in its determination of whether restrictive dividend withholding taxes are discriminatory. Regarding grounds of justification, the article considers ECJ case law that - within a third-country context - establishes that some forms of justification (like the need to guarantee fiscal supervision) could very well justify a discriminatory dividend withholding tax under certain circumstances. [ABSTRACT FROM AUTHOR]

Until 2009, the UK operated a system of worldwide taxation. Under this system, 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. We evaluate the effects of this reform on foreign affiliates of UK multinationals. Using an identification approach that quasi-randomises over the country of residence of the ultimate firm owners, we find that the reform significantly affected short-run repatriation behaviour. [ABSTRACT FROM AUTHOR]

Sovereign wealth funds (SWFs) are used for large-scale offshore investment of government funds. In accordance with the sovereign immunity doctrine, a SWF is generally immune from the jurisdiction of another sovereign State - including tax laws. There has been little research on the application of tax to SWFs. Yet it is an issue of vital importance to Australia and to its international competitiveness and security. In 2009, the Australian Government announced its intention to codify its practices in dealing with SWFs and an Options Paper was released in 2011. This article reviews the practices adopted by Australia and selected countries in relation to taxing SWFs. It considers best practice principles, which Australia should adopt in developing policy for taxing these foreign investment vehicles. Australia's current taxation regime and the model proposed in 2011, are discussed, and a model suggested for Australia. [ABSTRACT FROM AUTHOR]

The article discusses role of ownership nationality in retaining, enhancing or limiting the tax benefits to large U.S. multinationals. Topics discussed include competitiveness of U.S. business and tax holiday for repatriated profits; laws governing the taxation of companies' shareholders, and institutional structure of taxation for cross-border investment.

The doctrine of sovereign immunity as it is applied in taxation law allows for foreign governments to be exempt from income tax on their passive investments, as opposed to direct foreign investments ('FDI') in a number of jurisdictions. The US, for example, has legislated for the recognition of sovereign immunity in relation to withholding taxes on foreign investments by foreign governments and sovereign wealth funds ('SWFs'). However, Australia has not passed similar laws enshrining this exemption for SWFs or State Owned Enterprises ('SOEs'). The Australian Treasury and other interest groups have advocated the need to have similar laws enacted in Australia in order to compete for foreign investment and to formalise the law. Simply requiring SWFs and SOEs to apply for a private ruling from the Australian Taxation Office is not sufficient when other countries have enshrined this immunity in their domestic law. Private rulings only apply to the particular taxpayer and are only granted for a limited number of financial years. However, with the growth in foreign investment by China and in particular through SOEs predominantly in mining and agricultural land, it would appear that the Australian government is reluctant to formalise the taxation exemption for political reasons. The issue of Chinese investment in mining and agricultural land has been politicised by various sides of politics in Australia and appears to be of great public concern. The paper will examine the doctrine of sovereign immunity in relation to taxation and then discuss the current situation with foreign investment by China through SOEs and other government sovereign funds. The paper will then assess the merits of formally granting the sovereign immunity from taxation for SWFs and Chinese SOEs and the likely political repercussions in Australia. The main thrust of the paper is that the political considerations appear to have dominated this area of taxation law and that the lack of formal recognition of the immunity from taxation is threatening the future of foreign investment in Australia. [ABSTRACT FROM AUTHOR]

In the People's Republic of China, the largest developing country in the world, tax law reform has also contributed to the national economic shift. This article explains the finance planning of major private enterprises in the past and present from the perspective of tax arrangement using SOHO China Limited, a famous Chinese offshore company. The company and its peers incorporated offshore in tax havens as a disguised foreign investor for the foreign investor preferential tax treatment; its holding company also instituted a permanent establishment in Hong Kong for access to the capital market and securing the favorable tax rate under the treaty for the China Mainland subsidiaries. This article reveals the major interactions between the tax authority and the Chinese private sector since the time that private business was officially recognized as a part of the national economy 20 years ago. Also, this research discusses the possible impact on business and international investors if the China (Shanghai) Free Trade Pilot Zone provides a 15% tax rate of corporate income tax rather than the 25% found through the rest of Mainland China (1.5% lower than that of Hong Kong Special Administration Region). [ABSTRACT FROM AUTHOR]

A literary criticism on the book "Fixing US International Taxation," by Daniel Shaviro is presented. Topics include the depictions of the U.S. international tax reform, the sufficiency of Shaviro's policy framework in the interaction between the taxation of foreign direct investment (FDI) and domestic corporations, and the challenges on transfer pricing and income shifting.

This article examines the origin, evolution and current status of the Indian Bilateral Investment Treaty (BIT) programme. India launched its BITs programme in 1994 as part of its overall strategy of economic liberalization. To date, India has entered into more than 80 BITs. However, India’s BIT programme didn’t receive much attention until recently when numerous foreign investors brought BIT claims against India challenging various regulatory measures such as cancellation of telecom licences and imposition of retrospective taxes. This sudden gush of BIT claims has put the focus on India’s BIT programme. It has triggered concerns about Indian BITs not balancing investment protection with India’s regulatory power, thus compelling India to re-think its BIT programme. [ABSTRACT FROM AUTHOR]

The author presents his views on the arguments of Michael Graetz and Alvin Warren raised in response to the article "What is Tax Discrimination" published in 2012. Topics discussed include the comments of Graetz and Warren on the adoption of capital neutrality benchmarks into labor benchmarks, the tax nondiscrimination doctrine of the European Court of Justice and economic efficiency issues raised in constitutional courts. It mentions the U.S and European Union tax discrimination cases.

The meaning of taxes for the state and the state budget has never lost its importance despite many political and socio-economic changes that have occurred throughout history since the beginning of taxation. Taxes in a state play a very important role in its existence and operation, whereby the phenomenon itself is an important research topic. National tax systems and tax policies of countries covering a range of taxes and other revenues that fill the state budget are a necessary element of the process of existence, growth and progress of the state. Undoubtedly, scholars and practitioners are unanimous about the importance of sales tax or value added tax as an invaluable element of the process of the circular movement of income tax and charging the public treasury. Macedonia has a well-developed system and tax policy on VAT which includes primary and secondary legislation, relevant professional institutions and mechanism that facilitates its recovery, which reduces the possibility of tax evasion. Republic of Macedonia has had successful tax reforms in terms of value added tax on its way to European integration, and has implemented a model that is fully compatible with the pattern of VAT in the European Union. Macedonia has a policy of lower tax rate of VAT compared to rates in surrounding countries, making it a favorable country for foreign investments. In the remaining part of this work there is a more detailed elaboration on the basic features of VAT in the country as a suitable basis for further comparison with VAT in the surrounding countries and the European Union. [ABSTRACT FROM AUTHOR]

Sovereign wealth funds generally are controlled entities of foreign governments and, as such, potentially are eligible for an exemption from U.S. tax on their investment income. However, this exemption can cease to apply if the funds engage, directly or indirectly, in commercial activities. The Internal Revenue Service has proposed regulations intended to provide guidance on these issues. This article examines these rules as applied to sovereign wealth funds considering investing in private equity funds, and explains the manner in which the rules facilitate such investment and where further guidance is necessary. [ABSTRACT FROM AUTHOR]

The article discusses a study which explores the relationships between institutional arrangements and non-tariff trade barriers (NTBs) in the Japanese and Korean automobile industries. It notes the strength of trade barriers against foreign firms and products in Korea and Japan. It cites the significance of NTBs in limiting foreign trade and investment. Charts are also presented depicting the breakdown of passenger car sales in the Korean and Japanese market units. Furthermore, it indicates the role of the government in the automobile industry which is to facilitate the expansion of exports and limit the growth of import.

We reassess the driving forces behind the recent decline of corporate tax rates in Europe. Using data for up to 32 countries from 1983 to 2006, we analyze the roles of economic and financial openness as well as tax competition, while allowing for dynamic adjustment to shocks and period-specific and country-specific effects. While there is no evidence that countries that have become more open have reduced their tax rates more, our findings suggest that countries strongly compete over statutory tax rates. A simulation of tax rates in a scenario with no cross-sectional dependence in tax setting suggests that, in the absence of tax competition, the mean statutory tax rate of Western European countries in 2006 would have been about 12.5 percentage points above its actual level. We conclude that the recent downward trend in corporate taxes is mainly a result of tax competition. [ABSTRACT FROM AUTHOR]

This article analyses tax competition between a unionised and a non-unionised country for the location of an outside firm. We show that unionisation increases the incentive for the government to attract a foreign investor, in order to affect the behaviour of the domestic union. This results in the unionised country's government offering a tax discount (or a subsidy premium) to the outside firm in excess of what is needed to compensate the investor for the higher union wage. In equilibrium, therefore, the unionised country attracts the foreign investment, even if it has no other location advantages. [ABSTRACT FROM AUTHOR]

This article offers an overview of the tax system in France in 2011. It discusses the enforcement of taxes on foreign investments in the country. It expects the number of tax audits to increase during the year. In addition, the article indicates the effort of the government to address the issue of tax havens and its plan to reform the taxation of partnerships. The taxation services offer by several companies in the country, including Arsene Taxand, Ernst & Young and Simmons & Simmons, are described.

This article presents an overview of the tax system in Canada in 2011. It discusses some taxation developments that will have an impact on international investment in the country. It cites a number of technical amendments to the Income Tax Act. It also explores the imposition of a property tax on residents and non-residents. Moreover, the article describes the business tax services offer by several firms in the country, including Blake Cassels & Graydon, PricewaterhouseCoopers and Fraser Milner Casgrain.

The Australia-Germany double tax agreement (German DTA) has not been amended since its inception in 1972, despite many changes having occurred since then regarding Australia's tax laws and treaty practices. It is clear that the German DTA is in need of revision this article seeks to examine its ongoing effect and to highlight the differences faced by German investors in Australia, compared to investors from other developed countries. [ABSTRACT FROM AUTHOR]

This article presents a taxation guide to the leading tax firms and tax advisers in Austria in 2010. It highlights the Tax Reform Act that modified the rules of the Austrian group taxation regime. It also discusses the implementation of tax exemptions including to dividends received from a foreign subsidiary. The issuance of tax reclaims regulations for foreign investment vehicles such as investment companies, collective investment funds and trusts, is also indicated. In addition, the article presents a directory of tax firms and consultants operating in the country.

The article discusses the various defects of the U.S. international tax scheme that makes it worse than a conventional exemption system including defective income sourcing, generous cross crediting and generous transfer-pricing rules. In this regard, the multinational corporate community changed its lobbying efforts toward changes in the international tax system. It suggests reform efforts to focus on the comparison of strengths and weaknesses between the worldwide system and exemption system.

The author looks at the microeconomic motivation of governments to offer tax incentives for foreign direct investment. To achieve his objective, the author applies the classical models of oligopoly to subsidy competition. He discusses the ability of supranational coordination to either decrease or increase the supply of subsidies. He also observes an effect of the host country's corporate income tax rate on the provision of tax incentives.

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 subsidiary. 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. [ABSTRACT FROM AUTHOR]