[en] On July 16, 2016 the Economic and Financial Council of the European Union adopted the Anti-Tax-Avoidance Directive (ATAD). The proposed controlled-foreign-company (CFC) rule in the ATAD requires a minimum tax rate in the host country of a multinational's controlled-foreign subsidiary to avoid the reattribution of the subsidiary's income to the country of its parent company. The Directive allows member states to remain free to set the CFC threshold autonomously by laying down a minimum standard. Member states can thus either opt for a loose CFC rule by setting the minimum required control threshold (i.e., 50% of the country's own corporate income tax rate) or impose a tight CFC rule by applying a higher threshold. Against this background, the present paper analyses the effect of CFC rules on tax competition for foreign direct investments. It appears that, although CFC rules are effective in curbing offshore profit shifting, they can induce nonhavens to compete aggressively for mobile capital. In this context, CFC rules can exacerbate capital outflows from the large to the small country to a larger extent than in standard models of tax competition. Moreover, the paper highlights that governments choose between two extreme options when deciding on their CFC rule. Either they opt for the lowest or the highest possible control threshold.
Disciplines :
International economics
Author, co-author :
PAULUS, Nora ; University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Department of Finance (DF)
External co-authors :
no
Language :
English
Title :
The anti-tax-avoidance directive: An initiative to successfully curb profit shifting?
scite shows how a scientific paper has been cited by providing the context of the citation, a classification describing whether it supports, mentions, or contrasts the cited claim, and a label indicating in which section the citation was made.
Bibliography
Agrawal, D., & Wildasin, D. (2020). Technology and tax systems. Journal of Public Economics, 185, 104082.
Altshuler, R., & Grubert, H. (2005). The three parties in the race to the bottom: Host governments, home governments and multinational companies. Florida Tax Revenue, 7, 153.
Altshuler, R., & Hubbard, G. (2003). The effect of the tax reform act of 1986 on the location of assets in financial services firms. Journal of Public Economics, 87, 109–127.
Bucovetsky, S., & Smart, M. (2006). The efficiency consequences of local revenue equalization: Tax competition and tax distortions. Journal of Public Economic Theory, 8, 119–144.
Buslei, H., & Simmler, M. (2012). The impact of introducing an interest barrier—Evidence from the German corporation tax reform 2008 (DIW Discussion Paper No. 1215). Berlin.
Clifford, S. (2019). Taxing multinationals beyond borders: Financial and locational responses to CFC rules. Journal of Public Economics, 173, 44–71.
Collier, R., Kari, S., Ropponen, O., Simmler, M., & Todtenhaupt, M. (2018). Dissecting the EU's recent anti-tax avoidance measures: Merits and problems (EconPol Policy Report 08). European Network for Economic and Fiscal Policy Research.
Dharmapala, D. (2008). What problems and opportunities are created by tax havens? Oxford Review of Economic Policy, 24(4), 661–679.
Dharmapala, D. (2019). Profit shifting in a globalized world. AEA Papers and Proceedings, 109, 488–492.
Dreßler, D. (2012). Empirical evaluation of interest barrier effects (ZEW Discussion Paper No. 12-046).
Egger, P., & Wamser, G. (2015). The impact of controlled foreign company legislation on real investments abroad. A multi-dimensional regression discontinuity design. Journal of Public Economics, 129, 77–91.
G20 Leader's Declaration at Los Cabos, Mexico. (2012). https://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/131069.pdf
Han, Y., Pieretti, P., & Zou, B. (2017). On the desirability of tax coordination when countries compete in taxes and infrastructure. Economic Inquiry, 55(2), 682–694.
Haufler, A., & Runkel, M. (2012). Firms' financial choices and thin-capitalization rules under corporate tax competition. European Economic Review, 56, 1087–1103.
Haufler, A., Mardan, M., & Schindler, D. (2018). Double tax discrimination to attract FDI and fight profit shifting: The role of CFC rules. Journal of International Economics, 114, 25–43.
Hong, Q., & Smart, M. (2010). In praise of tax havens: International tax planning and foreign direct investment. European Economic Review, 54(1), 82–95.
Johannesen, N. (2010). Imperfect tax competition for profits, asymmetric equilibrium and beneficial tax havens. Journal of International Economics, 81, 253–264.
Kanbur, R., & Keen, M. (1993). Jeux sans frontières: Tax competition and tax coordination when countries differ in size. American Economic Review, 83(4), 877–893.
Keen, M. (2001). Preferential regimes can make tax competition less harmful. National Tax Journal, 54, 757–762.
Mutti, J., & Grubert, H. (2009). The effect of tax royalties and the migration of intangible assets abroad. In M. Reinsdorf, & M. J. Slaughter (Eds.), International trade in services and intangibles in the era of globalization (pp. 111–137). University of Chicago Press.
OECD. (1996). OECD controlled-foreign-company legislation. In Studies in taxation of foreign source income. OECD Publishing.
Pieretti, P., & Pulina, G. (2020). Does eliminating international profit shifting increase tax revenue in high-tax countries? Economic Modelling, 93, 717–727.
Pieretti, P., & Zanaj, S. (2011). On tax competition, public goods provision and jurisdictions' size. Journal of International Economics, 84(1), 124–130.
Ruf, M., & Weichenrieder, A. J. (2012). The taxation of passive foreign investments: Lessons from German experience. Canadian Journal of Economics, 45, 1504–1528.
Trandel, G. (1994). Interstate commodity tax differentials and the distribution of residents. Journal of Public Economics, 53, 435–457.
Similar publications
Sorry the service is unavailable at the moment. Please try again later.