Double non-taxation and the use of hybrid entities

Name: Double non-taxation and the use of hybrid entities
Brand: Wolters Kluwer
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Leopoldo Parada(Autor*in)

Wolters Kluwer (Verlag)

Erschienen am 11. Dezember 2023

512 Seiten

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Beschreibung

The topics of double non-taxation and hybrid entities have acquired particular importance in a context where transformations in the tax world have led to international commitments materialised in the OECD Base Erosion and Profit Shifting (BEPS) project. In what is the first systematic in-depth analysis of the OECD BEPS Action Plan 2 and hybrid entities, this timely book provides a critical review of the approach adopted by the OECD and proposes a deeply informed alternative method to deal with the problem of hybrid entity mismatches.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 emphasising the international tax context, also including the application of tax treaties. Among the seminal matters covered in this edition are the following:foundations of the concepts of double non-taxation and hybrid entities;extensive analysis based on the rules of characterisation 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;in-depth analysis of the implications of Article 1(2) OECD Model Tax Convention and Article 3(1) Multilateral Instrument (MLI), especially considering the position of developing (source) countries;detailed analysis of the OECD BEPS Action 2 and its recommendations (linking rules), including its implementation in the EU Anti-Tax Avoidance Directive (ATAD); andelaborated alternative method to deal with hybrid entity mismatches (reactive coordination rule), which is informed by the tax policy aims of simplicity, coherence, and administrability.Detailed comparisons between the author's proposal and other existing rules elucidate common points and deviations.If merely for its unparalleled clarification of the issues, this book will prove of immeasurable value to practitioners, tax authorities, policymakers and academics concerned with international tax law. Beyond that, as an authoritative guide that promises to reorient the discussion to what really matters in the debate regarding hybrid entity mismatches, this analysis elaborates solutions applicable to a generality of cases worldwide and, therefore, hugely promotes the urgent quest for alternative views.

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Inhalt

Intro
Half-Title Page
Title Page
Copyright Page
Table of Contents
List of Figures
List of Abbreviations
Preface to the Second Edition
Acknowledgements
Introduction
1 Object and Purpose
2 Scope
3 Methodology
4 Structure of the Work
Part I Double Non-taxation: Delimiting the Boundaries of a Stigmatised Concept
Chapter 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 Departure 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 Defence 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
3.3 Full Taxation: A Modern Version of the Single Tax Principle
4 Double Non-taxation and Tax Evasion/Tax Avoidance
4.1 Tax Evasion in a Nutshell
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
Chapter 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
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
Part II Hybrid Entities: A Domestic Decision with International Consequences
Chapter 3 The Hybrid Entities' Conundrum: A (Simple) Tax Characterisation Issue
1 Introduction
2 Key Concepts
2.1 Legal Entities and Business Entities
2.2 Domestic Entities and Foreign Entities
2.3 Taxable and Non-taxable Legal Entities
3 Hybrid Entities and Reverse Hybrids
3.1 Terminology
3.2 The Characterisation 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 US Elective System: The 'Stone Guest' in a Worldwide Waltz
4.1 Introductory Issues: Domestic/Foreign and Taxable/Non-taxable 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 US Tax Law
4.4.3 Use of Foreign Tax Credit
4.4.4 Reaction from US 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
5.1.2 The 'Income Attribution Regime' of the Spanish NRITL
5.1.3 The Spanish Characterisation Test in Practice
5.2 The Danish Experience: Re-characterisation of Its Own Entities
5.2.1 Danish Reaction to Hybrid Entities
5.2.2 Danish Reaction to Reverse Hybrids
5.3 The EU ATAD: 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: The OECD Approach
5.3.3.2 Article 9a EU ATAD: The Characterisation of Entities Is Back on the Scene
6 Final Remarks
Chapter 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
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 Residence State
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 Regarding 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 US Owners
4.2.1.2 Example 2: US Corporation with US Owners
4.2.1.3 Example 3: Foreign Partnership with US Owners
4.2.1.4 Example 4: Domestic Partnership with US Owners
4.2.2 Application of Article 1(6) US Model in Triangular Situations
4.2.2.1 Example 5: Foreign Intermediary Entity with US Owners
4.2.2.2 Example 6: Foreign Entity Receiving US-Sourced Income
4.2.2.3 Example 7: US 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 US Tax Treaty Practice
4.3.1.1.1 Poland/United States Tax Treaty
4.3.1.1.2 Canada/United States Tax Treaty
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'
5.1.4 'Wholly and Partial' Fiscal Transparency
5.2 Illustrations Regarding 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 with Regard 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 The OECD 'Saving Clause' and Relief from Double Taxation
5.3.2.1 The OECD Saving Clause in a Nutshell
5.3.2.2 The OECD Saving Clause and Hybrid Entities
5.3.2.3 The New OECD Commentaries
5.3.2.4 A 'Reverse Saving Clause' as an Alternative Solution
5.3.2.4.1 A 'Reverse Saving Clause' in Brief
5.3.2.4.2 An Optional 'Reverse Saving Clause'
5.3.3 Article 1(2) OECD Model and Developing Countries: Brief Comments
6 Transparent Entities and the MLI: Some Brief Remarks
6.1 Article 3(1) MLI: A Mirror of Article 1(2) OECD Model
6.2 'Saving Clause' and Relief from Double Taxation
7 Final Remarks
Part III Double Non-taxation and Hybrid Entities: The New Trend of Matching Tax Outcomes
Chapter 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'
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: Non-discrimination
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
3.5.2.1.1 Primary Response
3.5.2.1.2 Defensive Rule
3.5.2.2 EU Primary Law: Fundamental Freedoms
3.5.2.2.1 Primary Response
3.5.2.2.2 Defensive Rule
3.5.2.2.3 Primary Response/ Defensive Rule and the Proportionality Test
4 Interactions 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
Chapter 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 Organised
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 Non-contingent 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 Tax Sovereignty
2.4.4.3 Some Undesirable Effects
2.4.4.3.1 Potential Double Taxation
2.4.4.3.2 Tax Benefits Not Granted in Absence of the Rule
2.4.4.3.3 Disregarded Transactions for the Sole Application of the Rule
2.5 Similarities and Differences with Other Examples of Coordination
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 and the Reactive Coordination Rule
2.5.3.2 Article 9a EU ATAD 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
Chapter 7 Summary and Conclusions
1 Introduction
2 The Unnecessary International Concern on DNT
3 Hybrid Entities: Disparities as the True Core of the Issue
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
List of References
Index

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