scholarly journals Inter-Company Investments Between Affiliates Of Multinational Enterprises: Applying The Substance-Over-Form Doctrine To Distinguish Equity From Debt

2011 ◽  
Vol 2 (10) ◽  
Author(s):  
David W. LaRue ◽  
Steven C. Thompson
Keyword(s):  
Tax Evasion ◽  
Multinational Enterprises ◽  
Ethical Issues ◽  
Tax Avoidance ◽  
Financial Accounting ◽  
Taxable Income ◽  
Wide Range ◽  
Tax Haven ◽  
Withholding Taxes ◽  
The U.S

The classification of a financial instrument as “debt” or as “equity” is crucial in applying a wide range of income tax provisions.  “Interest” expenses incurred on “debt,” for example, are deductible in computing a firm’s taxable income, whereas “dividends” paid on the firm’s outstanding “equity” are not.  “Interest” paid by a U.S. corporation to a foreign creditor is generally not subject to U.S. withholding taxes, whereas “dividends” paid on stock held by a foreign shareholder are typically subject to U.S. withholding taxes that range from 5% to 30% of the gross amount of the dividend paid.  And the list goes on . . . .  Not surprisingly, these disparities in tax treatment have inspired a plethora of schemes, many of them successful, designed to disguise equity investments as “debt.”  The urge to do so is perhaps nowhere more intense than in situations where the “debt” of a U.S. corporation is held by a foreign sister corporation located in a tax haven country.  Interest paid or accrued on debt would be deductible in computing the U.S. corporation’s U.S. taxable income, and would thereby permanently reduce the debtor’s U.S. tax liability.  The interest income earned by the foreign creditor would be exempt from both U.S. withholding taxes and income taxes in the foreign tax haven country.  This interdisciplinary case was developed from the facts and circumstances before the U.S. Tax Court in litigation that resulted from the government’s assertion that $975 million in “loans” made by a wholly owned Dutch subsidiary of Laidlaw Transit, Ltd. to several of Laidlaw’s U.S. subsidiaries were in substance “equity.”   As in most debt-versus-equity cases, the stakes were high:  Laidlaw’s U.S. subsidiaries had deducted over $133 million of intercompany “payments” made to their Dutch sister corporation as “interest expense” and the IRS was suing to recover $52 million in back taxes (plus interest and penalties).  This case integrates three disciplines – tax accounting, financial accounting, and finance -- in an easy-to-comprehend, yet rich setting appropriate for general management, finance, and accounting audiences.  It invites students to thoroughly explore the substance-over-form doctrine as it applies to the debt-versus-equity issue, together with many of the tax, financial, accounting, and economic ramifications that flow from an instrument’s classification.  It also provides students with an opportunity to identify the ethical issues that attend the formulation and implementation of many tax minimization strategies and to identify factors that separate legal “tax avoidance” from criminal “tax evasion.”

Brewing Up Controversy: A Case Exploring the Ethics of Corporate Tax Planning

2015 ◽  
Vol 30 (4) ◽  
pp. 311-327 ◽  
Author(s):  
Megan F. Hess ◽  
Raquel Meyer Alexander
Keyword(s):  
Real World ◽  
Ethical Issues ◽  
Tax Avoidance ◽  
Tax Planning ◽  
Learning Assessment ◽  
Class Discussion ◽  
Corporate Tax ◽  
Tax Havens ◽  
Multinational Organizations ◽  
The U.S

ABSTRACT This instructional case explores the ethical issues surrounding the corporate tax-planning and tax-avoidance strategies of multinational organizations. Drawing on the real-world experiences of SABMiller, one of the world's largest beverage companies, this case provides a launching point for students to consider the ethics of corporate tax planning. The ethics of multinational tax practices, especially the use of tax havens, has recently become the focus of media and legislative debate in both the U.S. and the U.K., and many well-respected companies, such as General Electric, Apple Inc., and Starbucks are now feeling the pressure to reform. In a post-case learning assessment, students demonstrated significant improvement in their understanding and indicated that they enjoyed discussing this controversial issue. The “Implementation Guidance” section and Teaching Notes offer guidance for in-class discussion of the ethical and tax issues in this case.

Ending the Tax Haven Scandals

2009 ◽  
Vol 9 (3) ◽  
pp. 1850175 ◽  
Author(s):  
Robert T. Kudrle
Keyword(s):  
Tax Evasion ◽  
Income Tax ◽  
Tax Avoidance ◽  
Personal Income Tax ◽  
Corporate Tax ◽  
Formula Apportionment ◽  
Automatic Information ◽  
Tax Haven ◽  
The World ◽  
Taking Action

States around the world appear more determined than ever to end tax haven abuse. The new U.S. administration, for example, is taking action against both major tax haven problems: corporation income tax avoidance and personal income tax evasion. Some progress may be made. This essay argues, however, that only radically new policy will likely suffice either to shore up corporate tax revenues or to sharply diminish evasion. Global formula apportionment is needed if the corporate income tax is to be preserved, and only a combination of automatic information sharing among governments and source withholding can stamp out evasion. As in most areas of international economic policy, U.S. leadership is essential.

scholarly journals Tax Avoidance and tax evasion through tax haven entities

2014 ◽  
Vol 30 (1) ◽  
pp. 137-177
Author(s):  
Yoon Oh
Keyword(s):  
Tax Evasion ◽  
Tax Avoidance ◽  
Tax Haven

scholarly journals Editorial

2017 ◽  
pp. 7-8
Author(s):  
Halina Waniak-Michalak
Keyword(s):  
Business Ethics ◽  
Multinational Enterprises ◽  
Ethical Issues ◽  
Management Accounting ◽  
Tax Avoidance ◽  
Fair Value ◽  
International Standards ◽  
Performance Measurement System ◽  
Editorial Team ◽  
Business World

Editorial Issue 93 (149) of „Zeszyty Teoretyczne Rachunkowości” (ZTR) was entitled „Histor-ical and theoretical determinants of contemporary accounting”. It is the sixth fully-English issue of this journal which the editorial team decided to publish. We believe that this volume will contribute both to the presentation of the results of the scientific work of researchers from different countries and to a better understanding of the backgrounds of contemporary accounting – its theoretical and historical contexts. The main purpose of this issue was to present the link between the development of con-temporary accounting and its theoretical and historical bases. The articles concern different topics of accounting and different aspects of historical and theoretical deter-minants, current and near future regulations, and accounting practices in three coun-tries. The articles cover the following topics: accounting regulations and practices, international standards or changes in national accounting, tax regulations important for companies or budgetary units, disclosure on corporate social responsibility, integrated reporting, the development of cost and management accounting concepts and methods. We accepted thirteen papers from three countries. All of them went positively through two independent and blind reviews, one of which was conducted by a foreign reviewer. The accepted papers of the volume present the results of research conducted by scientists in the area of accounting research and practice in Europe, both historical and contemporary. Different research methods were used, such as: content analysis, statistical analysis, literature analysis, and interviews. Four papers concern the education of accountants and the business ethics of profes-sionals. Natalja Gurvitsh, Jaan Alver, and Lehte Alver try to indicate to what extent business ethics is important in today’s business world. In further articles from Ewelina Zarzycka and from Kaidi Kallaste and Jaan Alver, the following questions appear: What is crucial for the profession of accounting? Do job advertisement requirements concern ethical attitudes? Does CPD guarantee that an accountant will behave in an ethical way while providing a service? Michał Mijal and Adam Chmielewski invent-ed a game to teach accounting with respect to the ethical issues which have become even more important as a result of recent economic crises that have led to the deterio-ration of public trust in accountants. Przemysław Kabalski, Joanna Cewińska, Ewa ISSN 1641-4381 print / ISSN 2391-677X online Copyright © 2017 Stowarzyszenie Księgowych w Polsce Prawa wydawnicze zastrzeżone http://www.ztr.skwp.pl DOI: 10.5604/01.3001.0010.3186 8 Editorial Kusideł, and Lena Grzesiak consider how the different personalities of accountants may influence their choices and behavior in business life or in learning. Małgorzata Macuda and Justyna Fijałkowska try to answer the question if companies that behave ethically and contribute to sustainable development, measure and disclose a value of socially responsible business activities. Two papers, one from Poland, from Alicja Brodzka, and the second from Ukraine, from Tetiana Paientko and Kateryna Proskura, concern tax avoidance problems and tax control. The first paper describes the motives of implementing the international country-by-country initiative in order to increase the transparency of the biggest multinational enterprises. The second paper presents the problem of forecasting tax flows from the point of view of government bodies. Management accounting is a topic of two papers from Poland. Anna Szychta and Justyna Dobroszek conducted research to verify if Polish academics perceive differ-ences between the terms management accounting and controlling. Piotr Waśniewski presents a framework of performance measurement system for small enterprises. Alfreda Sapkauskiene and Sergej Orlovskij search for an answer to the question whether we can use fair value estimates for financial decision making, and if we can rely on the values presented in financial reports when we consider the human „factor” in fair value estimations. The aim of the paper from Tomasz Zimnicki is to evaluate the usefulness of seg-ment reports for decision makers. He assessed the change of segmental reporting standards from IAS14R to IFRS8 in the context of feature relevance. IFRS were also the topic of the last paper, written by Magdalena Janowicz. She concludes that a sepa-rate standard is necessary for business combinations under common control, because regulations in national GAAPs don’t guarantee that all requirements of information quality are fulfilled. The editorial team takes the opportunity to thank all the supporters of the English issue of ZTR. We appreciate very much the involvement of the reviewers, the com-mitment of the authors of the papers, as well as the help of other academics and friends engaged in the preparation of the issue. We also encourage you to visit our website www.ztr.skwp.pl which presents the latest information on our projects as well as all the procedures needed to submit a paper to the journal.

scholarly journals Low-Tax Jurisdictions in International Tax Planning

2021 ◽  
Vol 9 (3) ◽  
pp. 137-162
Author(s):  
Natalia Andrianova
Keyword(s):  
Tax Evasion ◽  
Multinational Enterprises ◽  
Tax Avoidance ◽  
Tax Planning ◽  
Global Trends ◽  
National Legislation ◽  
Global Trend ◽  
International Tax ◽  
Definition Of ◽  
Financial Transactions

Until recently low-tax jurisdictions have played an important role in the formulation of tax planning schemes by multinational enterprises. However with the onset of global trends towards deoffshorization, existing methods of tax optimization have seen significant changes. As there is currently no one single approach when creating the definition of, or defining a “low-tax jurisdiction”, in this article the definition and the main features of lowtax jurisdictions are proposed and the main stages in the formation and development of low-tax jurisdictions are detailed. On the basis of research carried out on the national legislation of low-tax jurisdictions, the main company types which meet the special legal formulae that can be incorporated into low-tax jurisdictions have been analyzed. In order to highlight similar characteristics and to simplify the analysis of the national legislation of low-tax jurisdictions so that general recommendations covering the nature of measures which can be used to counter illegal tax avoidance, tax evasion, money laundering and other illegal financial machinations, different classifications of low-tax jurisdictions have been analyzed. The unfair and perhaps even illegal use of low-tax jurisdictions often leads to violations of core tax principles which may have an impact on the overall size of budget revenues available to high-tax countries. Therefore, deoffshorization measures are being proposed at the international level. Currently the main global trend has been to increase the transparency of tax information and of financial transactions which are carried out by international exchanges. This is supported by the strengthening and expansion of cooperation between tax authorities which serves to counter the abuse of provisions in international tax treaties on the avoidance of double taxation.

scholarly journals Where Has The Currency Gone? And Why? The Underground Economy And Personal Income Tax Evasion In The U.S., 1970-2008

2014 ◽  
Vol 6 (1) ◽  
pp. 36-52
Author(s):  
Richard J. Cebula
Keyword(s):  
Interest Rate ◽  
Tax Evasion ◽  
Income Tax ◽  
Tax Avoidance ◽  
Underground Economy ◽  
Personal Income ◽  
Personal Income Tax ◽  
Tax Returns ◽  
Federal Income Tax ◽  
The U.S

Unaccounted for currency in the U.S. is argued to reflect the presence of widespread income tax evasion. This empirical study seeks to identify determinants of the underground economy in the U.S. in the form of federal personal income tax evasion over the period 1970-2008. In this study, we use the most recent data available on personal income tax evasion, data that are derived from the General Currency Ratio Model and measured in the form of the ratio of unreported AGI (adjusted gross income) to reported AGI. Other studies of federal income tax evasion for the U.S. are dated and do not use data this current. It is found that personal income tax evasion was an increasing function of the maximum marginal federal personal income tax rate, the percentage of federal personal income tax returns characterized by itemized deductions, and unpopular military engagements, in this case, the War in Iraq, and a decreasing function of the Tax Reform Act of 1986 (during its first two years of being implemented), the ratio of the tax free interest rate yield on high grade municipals to the interest rate yield on ten year Treasury notes (as a measure of the incentive effect of a better return to tax avoidance, which is legal), and higher audit rates of filed federal income tax returns (as a measure of risk from tax evasion) by IRS personnel.

Book-Tax Conformity and Earnings Management: Insights from European One- and Two-Book Systems

2014 ◽  
Vol 36 (2) ◽  
pp. 55-89 ◽  
Author(s):  
Christoph Watrin ◽  
Nadine Ebert ◽  
Martin Thomsen
Keyword(s):  
Earnings Management ◽  
Financial Statements ◽  
Financial Accounting ◽  
Policy Debate ◽  
Ongoing Debate ◽  
European Firm ◽  
Taxable Income ◽  
European Data ◽  
Financial Income ◽  
The U.S

ABSTRACT: There is an ongoing debate in the U.S. about the effect of book-tax conformity on earnings management in consolidated statements. Although both one- and two-book systems are present in Europe, European data have not been used to contribute to this debate. In this study, we examine the influence of one- and two-book systems on earnings management using consolidated statements and single financial statements of European firm-years from 2004 to 2011. A one-book system is defined as a situation in which financial accounting income and taxable income are highly conformed, whereas a two-book system is characterized by differences between consolidated financial income and taxable income. We find that firms in one-book systems show significantly more (downward) earnings management in their consolidated statements than do firms in two-book systems. With these findings, we contribute to the U.S. policy debate on book-tax conformity and earnings management.

scholarly journals The tendency to tax avoidance and tax evasion in the light of Kohlberg’s theory of moral development – ethical issues in accounting practice

2016 ◽  
Vol 2016 (86(142)) ◽  
pp. 35-52
Author(s):  
Sabina Kołodziej ◽  
Ewa Maruszewska
Keyword(s):  
Moral Development ◽  
Tax Evasion ◽  
Ethical Issues ◽  
Tax Avoidance ◽  
Accounting Education ◽  
Ethical Awareness ◽  
Legal Norms ◽  
Legal Standards ◽  
Accounting Practice ◽  
Accounting Professionals

Modern accounting professionals are in charge of tools that, apart from enabling them to keep businessaccounts, may also be used to distort the picture of the financial situation of an entity, as well as to manipulatetax settlements. Therefore, accounting professionals not only should possess the necessaryknowledge, but also should apply ethical standards in their work. These two components guarantee thecorrectness of tax settlements and the faithful representation of economic reality in the accounting system.The aim of this article is to present the results of analysis of the frequency of making accounting choices aimed at reducing the tax burden through breaking ethical or legal norms. In addition, the rela-tionship between the tendency to make decisions leading to tax avoidance or tax evasion and the reasons behind it (according to Kohlberg’s theory of moral development) have been analysed. The results indicate higher frequency of decisions aimed at lowering tax liabilities due to the failure to follow ethical stand-ards than due to breaking ethical and legal standards at the same time. It was also pointed out that the tendency to make unethical (and illegal) decisions was associated with low levels of moral reasoning, which confirms the importance of the postulate to supplement accounting education with accountability and ethical awareness issues.

scholarly journals Tax Strategies Employed by Overseas American Individuals and SMEs

2019 ◽  
pp. 690-699
Author(s):  
Dr. Alfred Howard Miller
Keyword(s):  
Multinational Corporations ◽  
Tax Evasion ◽  
Small Businesses ◽  
Small Firms ◽  
Large Scale ◽  
Small And Medium Enterprises ◽  
Tax Avoidance ◽  
Human Machine Interaction ◽  
Wide Range ◽  
Business Entities

A study of the tax behavior of overseas Americans, both individuals and small firms is proposed. The researcher aims to discover and model behavior, through text analysis of data collected from a wide range of sources using interviews, surveys, blog and forum postings, published reports as well as personal communications, to demonstrate and inform using the pattern matching method initially proposed by Trochim (1989). Text mining and modeling techniques, using unsupervised machine learning facilitate large-scale analysis, and have been widely deployed in a range of language-based studies, driven by human-machine interaction. Major multinational corporations are excluded, and the study focuses on individuals and the smaller-scale juristic persons such as small and medium enterprises (SME). Behavioral approaches to taxation will motivate a better understanding of the phenomenon tax avoidance and tax evasion, once quantitative modeled. Overseas Americans are taxable, no matter where they reside globally, on the basis of having American citizenship. Non-citizens with a USA connection may also be subject to US taxes. The range of US taxable entities operating overseas include corporations, individuals, estates and trusts, and many of the small businesses filing as flow-through entities under the individual code, namely S-corporations, sole proprietorships, and partnerships, will be included in the study. There are an estimated 9 million taxable overseas Americans corporations and business entities. The Congressional Research Service (Gravelle, 2015), reported that as many as 100 billion U.S. dollars may go uncollected, due to tax evasion and a similar tax shortfall figure of 100 billion dollars is due to tax avoidance. Avoidance tends to be attributed to U.S. origin, multinational corporations and evasion by the smaller entities. The tax collection is exacerbated by changes to the 2018 tax code, which encourages compliance through tax cuts to a fixed 21% rate for the corporate sector, and reduced taxes for individual , opening up new avenues for aggressive tax avoidance strategies. A gap in the literature is the uncertainty regarding changing of the U.S. tax code in 2018 and how it will affect overseas American tax entities.

Pengaruh Konvergensi International Financial Reporting Standards (Ifrs) Terhadap Penghindaran Pajak(Tax Avoidance)

2018 ◽  
Vol 26 (2) ◽  
pp. 158-169
Author(s):  
Umi Wahidah ◽  
Sri Ayem
Keyword(s):  
Financial Reporting ◽  
Tax Evasion ◽  
Stock Exchange ◽  
Control Variable ◽  
Tax Avoidance ◽  
Sampling Technique ◽  
International Financial Reporting Standards ◽  
Reporting Standards ◽  
Control Variables ◽  
Financial Reporting Standards

This research aimed to examine the effect of the convergence of International Financial Reporting Standards (IFRS) on tax avoidance on companies listed in Indonesia Stock Exchange. Tax avoidance that used in this research was Cash Efective Tax Rate (CETR). This research is also use the control variable to get other different influence that different such as CSR, size, and earning management (EM. This research used populations sector of transport service companies that listed in Indonesia Stock Exchange. The data of this research taken from secondary data that was from the Indonesia Stock Exchange in the form of Indonesian Capital Market Directory (ICMD) and the annual report of the company 2011-2015. The method of collecting sample was purposive sampling technique, the population that to be sampling in this research was populations that has the criteria of a particular sample. Companies that has the criteria of the research sample as many as 78 companies. The method of analysis used in this research is multiple regression analysis. Based on regression testing shows that the convergence of International Financial Reporting Standards (IFRS) has a positiveand significant impact on tax evasion. This shows that IFRS convergence actually improves tax evasion practices. The control variables of firm size and earnings management also significantly influence the application of IFRS in improving tax avoidance practices, while CSR control variables have no role in convergence IFRS in improving tax evasion practice.

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