Lecture 1 (week 1)
Countries compete with each other to atract companies with the lowest tax rates (race to the
botom).
Corporate income taxes corporaton pays taxes.
No need to know how to calculate NPV, important: tme alue of money.
Subsidiaries separate legal enttes in other countries as part of the parent company. De eloping
countries don’t ha e ertcal loss compensaton in taxes (compensate with profts of next years) and
they want horizontal loss compensaton (through the enttes of the company).
Legal enttes squares parent s subsidiaries.
Also possible head ofce with permanent establishment (part of the company)
Corporaton (legal person);o
- Legal enttes that is separate and distrinct from its owners
o NL: besloten ennootschap & naamloze ennootschap
o UK: public company & limited company
o Germany: Aktengesellschaf, gesellschaf mit beschrankter hafing
o Belgium: same as dutch, or;o société anomime & société à responsabilité limitée
- Enjoys most rights and responsibilites an indi idual possesses;o
o Enter contracts
o Loan and borrow money
o Sue and be sued
o Hire employees
o Own assets
o Pay taxes
Permanent establishment;o
- A fxed place of business through which the business of an enterprise is wholly or partly
carries on
o A place of management
o A branch
o An ofce
o A factory
o A workshop
o A mine, an oil or gas well, a quarry or any other place of extracton of natural sources
Shell searches for oil, which might be nobody’s territory, but who gets the tax payments? If it is a
resident tax payer in the Netherlands with permanent establishment pay taxes on global profts in
the Netherlands. If it is a subsidiary, it’s part of the country where it is based in (f.i. Indonesia).
,Associaton;o
- Two or more indi iduals or legal persons (partners) based on a partnership agreement
o General partnership;o
E ery partner is liable to the extent of his/her/its entre estate
NL: Maatschap, ennootschap onder frma
UK/US General partnership – Transparant/ Transparant or Opaque (Check
the box rules)
Germany: Ofene Handelsgesellschaf - Transparant
Belgium: Vennootschap onder frma (Société en Nom Collect e) – Opaque
o Limited partnership;o
General and limited partners
Limited partners are liable up to their agreed capital share and do not
exercise management and representatonal functons
NL: Besloten Commanditaire ennootschap – Transparent;o Open
Commanditaire ennootschap - Opaque
UK/US: Limited partnership - Transparent
Germany: Kommanditgesellschaf - Transparent
Belgium: Société en Commandite Simple – Transparent
o UK limited liability partnership/US limited liability company;o
Only limited partners
Limited partners exercise management and representatonal functons
Structure of corporate income tax;o
- Taxable subject (what/whom shell)
- Taxable object (proft)
- Tax rate (25%)
- Facilites
Underlying principles generally similar;o
- Neutrality
o Business decisions should be mot ated by economic rather than tax consideratons.
o Taxpayers in similar situatons carrying out similar transactons should be subject to
similar le els of taxaton (legal principle of equity).
o Taxaton should seek to be neutral and equitable between con entonal and
electronic forms of commerce.
- Efciency
o Compliance costs for taxpayers and administrat e costs for the tax authorites
should be minimized as far as possible.
- Certainty and simplicity
o The tax rules should be clear and simple to understand so that taxpayers can
antcipate the tax consequences in ad ance of a transacton, including knowing
when, where and how the tax is to be accounted.
o Digital products are not tangible and are made all o er the world in collaboraton,
hard to measure and pay taxes for.
- Efect eness and fairness
o Taxaton should produce the right amount of tax at the right tme.
o The potental for tax e asion and a oidance should be minimised while keeping
counter-actng measures proportonate to the risks in ol ed.
- Flexibility
, o The systems for taxaton should be fexible and dynamic to ensure that they keep
pace with technological and commercial de elopments.
Taxable subject CIT NL;o
- Companies with a capital consistng of share: NV/BV
- Co-operat es:
o Members = partcipants in a co-op
o At least two members are required to form the co-op. The co-op conducts its
act ites for its members
- Mutual insurance and credit companies
- Foundatons and other legal persons incorporated under ci il law, when they administer an
enterprise
- Funds for common account, and
- Most publicly-controlled industrial and commercial undertakings
o Sole proprietorships, freelancers and partnerships do not fall under the corporate
income tax. Their proft is taxed with personal income tax.
Taxable subject CIT UK, Japan and US;o
- UK broad rule: company = any body-corporate or unincorporated associaton but not a
partnership, a local authority or a local authority associaton
- Japan: “Ordinary companies” ->partnerships are liable to corporate tax
- U.S.: corporaton includes associaton, joint stock companies and insurance companies:
o Prior to check-the-box rules U.S. Supreme Court 1935 resemblance test
o Now check the box rules:
If the entty is listed on a stock exchange it is a corporaton for CIT purposes
If it is not and it is eligible it may elect how it should be treated for tax
purposes ->
U.S. does not tax limited liability companies unless they elect for CIT
treatment
Taxable subject for foreign enttes;o
- Resemblance test U.S. pro ided inspiraton to other countries for qualifcaton of foreign
enttes, a.o. the Netherlands:
o Contnuity of entty’s life
o Centralizaton of management
o Entty’s owners are only liable to the entty’s debts to the extent of their capital
contributon
o Free transferability of the owners’ interests in the entty
- Some countries (e.g. Canada) use “two-step approach”:
o Determine entty’s characteristcs in accordance with the entty’s jurisdicton law of
corporatons (e.g. NL)
o Compare these with categories of Canadian business enttes in order to assess which
Canadian legal enttes they resemble most
- Non-resident taxpayers
o Associatons and other legal persons
o Open limited partnerships: act e partners and limited or sleeping partners, shares
can be sold without consent of other partners
o Funds for common account
That are not resident in the Netherlands
, o Legal bodies resident in Aruba, Curacao or Sint Maarten ha ing a permanent
establishment (= branch fulflling specifc conditons) or a permanent representat e
on the BES-islands (to pre ent tax-planning)
Defniton corporate residency
- The Netherlands:
o Art 2(4) CIT’69: incorporaton under NL law or facts
o Art. 4 AWR (General Administrat e Act): circumstances
- France and Germany:
o Legal seat (siège) in France/Germany or
o Place of efect e management/management
- United Kingdom:
o Incorporaton under U.K. law or
o Central management and control in UK
- United States:
o Any corporaton incorporated under U.S
o Federal or state law
E en companies like Apple ha e stateless income
Place of (efect e) management
- The Netherlands: board meetngs/in case of “harlekin management” (marionet, shareholder
is pulling all the ropes) place where shareholder takes the material decisions that are
formalised by the director(s)
- Germany: the place where the persons who ha e fnal authority make the decisions
concerning the management of the business
- Italy: place from where the company’s directors manage the company and in which
managerial decisions are made (usually place of board meetngs)
- Japan: ”real seat” is place where the principal ofce is located = place where the ofce is
registered according to the company’s documents of incorporaton or where the main
purpose of the company is located.
Two types;o
- Incorporaton is in the Netherlands and place of efect e management is in Ireland.
- Incorporaton in the Netherlands and the shareholders pulling ropes in Ireland (Netherlands
will say efect e place of management is in NL, Ireland it is in Ireland. Sol ing tax
treates).
Group treatment;o
- Consolidaton: Australia, Denmark, France, Italy, Japan, Luxembourg, Mexico, the
Netherlands (fscale eenheid-fscal unity), New-Sealand, Portugal, Spain and - at federal le el
– the United States
o Profts and losses within the group are mutually ofset
o Intercompany gains and losses are eliminated
- Group contributon: Finland, Norway, Sweden
o Proft-making member of group transfers part of its proft to loss-making member of
group under conditons
- Group relief: New-Sealand, Singapore, United Kingdom:
o Loss-making member of group transfers its loss to proft-making member of group
- Organschaf: Germany and Austria:
Countries compete with each other to atract companies with the lowest tax rates (race to the
botom).
Corporate income taxes corporaton pays taxes.
No need to know how to calculate NPV, important: tme alue of money.
Subsidiaries separate legal enttes in other countries as part of the parent company. De eloping
countries don’t ha e ertcal loss compensaton in taxes (compensate with profts of next years) and
they want horizontal loss compensaton (through the enttes of the company).
Legal enttes squares parent s subsidiaries.
Also possible head ofce with permanent establishment (part of the company)
Corporaton (legal person);o
- Legal enttes that is separate and distrinct from its owners
o NL: besloten ennootschap & naamloze ennootschap
o UK: public company & limited company
o Germany: Aktengesellschaf, gesellschaf mit beschrankter hafing
o Belgium: same as dutch, or;o société anomime & société à responsabilité limitée
- Enjoys most rights and responsibilites an indi idual possesses;o
o Enter contracts
o Loan and borrow money
o Sue and be sued
o Hire employees
o Own assets
o Pay taxes
Permanent establishment;o
- A fxed place of business through which the business of an enterprise is wholly or partly
carries on
o A place of management
o A branch
o An ofce
o A factory
o A workshop
o A mine, an oil or gas well, a quarry or any other place of extracton of natural sources
Shell searches for oil, which might be nobody’s territory, but who gets the tax payments? If it is a
resident tax payer in the Netherlands with permanent establishment pay taxes on global profts in
the Netherlands. If it is a subsidiary, it’s part of the country where it is based in (f.i. Indonesia).
,Associaton;o
- Two or more indi iduals or legal persons (partners) based on a partnership agreement
o General partnership;o
E ery partner is liable to the extent of his/her/its entre estate
NL: Maatschap, ennootschap onder frma
UK/US General partnership – Transparant/ Transparant or Opaque (Check
the box rules)
Germany: Ofene Handelsgesellschaf - Transparant
Belgium: Vennootschap onder frma (Société en Nom Collect e) – Opaque
o Limited partnership;o
General and limited partners
Limited partners are liable up to their agreed capital share and do not
exercise management and representatonal functons
NL: Besloten Commanditaire ennootschap – Transparent;o Open
Commanditaire ennootschap - Opaque
UK/US: Limited partnership - Transparent
Germany: Kommanditgesellschaf - Transparent
Belgium: Société en Commandite Simple – Transparent
o UK limited liability partnership/US limited liability company;o
Only limited partners
Limited partners exercise management and representatonal functons
Structure of corporate income tax;o
- Taxable subject (what/whom shell)
- Taxable object (proft)
- Tax rate (25%)
- Facilites
Underlying principles generally similar;o
- Neutrality
o Business decisions should be mot ated by economic rather than tax consideratons.
o Taxpayers in similar situatons carrying out similar transactons should be subject to
similar le els of taxaton (legal principle of equity).
o Taxaton should seek to be neutral and equitable between con entonal and
electronic forms of commerce.
- Efciency
o Compliance costs for taxpayers and administrat e costs for the tax authorites
should be minimized as far as possible.
- Certainty and simplicity
o The tax rules should be clear and simple to understand so that taxpayers can
antcipate the tax consequences in ad ance of a transacton, including knowing
when, where and how the tax is to be accounted.
o Digital products are not tangible and are made all o er the world in collaboraton,
hard to measure and pay taxes for.
- Efect eness and fairness
o Taxaton should produce the right amount of tax at the right tme.
o The potental for tax e asion and a oidance should be minimised while keeping
counter-actng measures proportonate to the risks in ol ed.
- Flexibility
, o The systems for taxaton should be fexible and dynamic to ensure that they keep
pace with technological and commercial de elopments.
Taxable subject CIT NL;o
- Companies with a capital consistng of share: NV/BV
- Co-operat es:
o Members = partcipants in a co-op
o At least two members are required to form the co-op. The co-op conducts its
act ites for its members
- Mutual insurance and credit companies
- Foundatons and other legal persons incorporated under ci il law, when they administer an
enterprise
- Funds for common account, and
- Most publicly-controlled industrial and commercial undertakings
o Sole proprietorships, freelancers and partnerships do not fall under the corporate
income tax. Their proft is taxed with personal income tax.
Taxable subject CIT UK, Japan and US;o
- UK broad rule: company = any body-corporate or unincorporated associaton but not a
partnership, a local authority or a local authority associaton
- Japan: “Ordinary companies” ->partnerships are liable to corporate tax
- U.S.: corporaton includes associaton, joint stock companies and insurance companies:
o Prior to check-the-box rules U.S. Supreme Court 1935 resemblance test
o Now check the box rules:
If the entty is listed on a stock exchange it is a corporaton for CIT purposes
If it is not and it is eligible it may elect how it should be treated for tax
purposes ->
U.S. does not tax limited liability companies unless they elect for CIT
treatment
Taxable subject for foreign enttes;o
- Resemblance test U.S. pro ided inspiraton to other countries for qualifcaton of foreign
enttes, a.o. the Netherlands:
o Contnuity of entty’s life
o Centralizaton of management
o Entty’s owners are only liable to the entty’s debts to the extent of their capital
contributon
o Free transferability of the owners’ interests in the entty
- Some countries (e.g. Canada) use “two-step approach”:
o Determine entty’s characteristcs in accordance with the entty’s jurisdicton law of
corporatons (e.g. NL)
o Compare these with categories of Canadian business enttes in order to assess which
Canadian legal enttes they resemble most
- Non-resident taxpayers
o Associatons and other legal persons
o Open limited partnerships: act e partners and limited or sleeping partners, shares
can be sold without consent of other partners
o Funds for common account
That are not resident in the Netherlands
, o Legal bodies resident in Aruba, Curacao or Sint Maarten ha ing a permanent
establishment (= branch fulflling specifc conditons) or a permanent representat e
on the BES-islands (to pre ent tax-planning)
Defniton corporate residency
- The Netherlands:
o Art 2(4) CIT’69: incorporaton under NL law or facts
o Art. 4 AWR (General Administrat e Act): circumstances
- France and Germany:
o Legal seat (siège) in France/Germany or
o Place of efect e management/management
- United Kingdom:
o Incorporaton under U.K. law or
o Central management and control in UK
- United States:
o Any corporaton incorporated under U.S
o Federal or state law
E en companies like Apple ha e stateless income
Place of (efect e) management
- The Netherlands: board meetngs/in case of “harlekin management” (marionet, shareholder
is pulling all the ropes) place where shareholder takes the material decisions that are
formalised by the director(s)
- Germany: the place where the persons who ha e fnal authority make the decisions
concerning the management of the business
- Italy: place from where the company’s directors manage the company and in which
managerial decisions are made (usually place of board meetngs)
- Japan: ”real seat” is place where the principal ofce is located = place where the ofce is
registered according to the company’s documents of incorporaton or where the main
purpose of the company is located.
Two types;o
- Incorporaton is in the Netherlands and place of efect e management is in Ireland.
- Incorporaton in the Netherlands and the shareholders pulling ropes in Ireland (Netherlands
will say efect e place of management is in NL, Ireland it is in Ireland. Sol ing tax
treates).
Group treatment;o
- Consolidaton: Australia, Denmark, France, Italy, Japan, Luxembourg, Mexico, the
Netherlands (fscale eenheid-fscal unity), New-Sealand, Portugal, Spain and - at federal le el
– the United States
o Profts and losses within the group are mutually ofset
o Intercompany gains and losses are eliminated
- Group contributon: Finland, Norway, Sweden
o Proft-making member of group transfers part of its proft to loss-making member of
group under conditons
- Group relief: New-Sealand, Singapore, United Kingdom:
o Loss-making member of group transfers its loss to proft-making member of group
- Organschaf: Germany and Austria:
