Fiscal goals of regulating the activities of the institute of controlled foreign companies in the digital economy

Egor V Dudukalov,Lidia Vasyutkina,Galymzhan O Spabekov,Andrei V Sevbitov,Liudmila V Kashirskaya,Olga Yurievna Voronkova

doi:10.9770/jesi.2020.8.2(59)

Abstract

At the OECD level, within the framework of taxation, relevant documents that directly concern the procedure for enhancing interaction and cooperation among its member states are being developed. The most important ones include the development of recommendations in the field of taxation of controlled foreign companies, including the study of current aspects in the event of a conflict between the provisions on controlled foreign companies and the concluded double taxation treaties. Meanwhile, in the study of the formation of the institute of controlled companies with regard to the manner of their formation and use of modern forms and methods of administrative control and tax liability, it is important to study actions in the sphere of international tax law. However, the emerging problems in this sphere are relevant, since, at the level of national legislation of each state, there are both objective and subjective factors that directly affect the formation of law enforcement practice on controlled foreign companies, with regard to a lack of scientific information in the context of national law. Therefore, in terms of improvement of the tax legislation of countries with developing economies that are reforming the institution of controlled foreign companies and supplementing them with new provisions which cover the basic aspects of the formation of taxation of controlled foreign companies in the digital economy, it is important to mention the urgent measures aimed at improving them, including ways of implementation and modernization of the rules and procedure for determining the profits of controlled foreign companies in terms of clarifying the list of passive taxes, as well as the composition of costs of such companies.

Highlights

The development of the global digital economy creates new challenges in the field of taxation and accounting, especially in relation to the regulation of the activities of the institute of controlled foreign companies
This indicates significant problems that arise in terms of the qualification of income received under controlled foreign companies (CFCs) within national jurisdiction, with regard to the current recommendations of the OECD, as well as subject to double taxation treaties
Based on the special report of the OECD adopted in 2015 in the form of "Designing Effective Controlled Foreign Company Rules", the most difficult aspect is the need to develop uniform unified rules for CFCs while maintaining freedom in relation to EU member states and the ability to develop their own regulations with regard to national specifics

Summary

Introduction

When recognizing for tax reasons in a particular jurisdiction, it is important to understand the established list of active and passive income, since other things being equal, a clear border between them may be insignificant (in the opinion of Brown & Petersen (2009) In this case, within a specific legal tax jurisdiction, taxpayers can manipulate the recognition of specific types of income (Comi et al, 2019), for example, when including in the tax base of a CFC the amount of profit received for ordinary activities or "conditional dividends" (Gryzunova & Ekimova 2018). This indicates significant problems that arise in terms of the qualification of income received under CFC within national jurisdiction, with regard to the current recommendations of the OECD, as well as subject to double taxation treaties

Results

Discussion

Conclusion