Cross-border Transactions Research Articles

Improving the Aquisition Profit of Cross Border Transactions by Adjusting the Tax Due Diligence Process – a Theoretical Model Based on a German Target

M&A-transactions are often used by the top management for increasing their shareholder value for realizing identified synergy potentials of the target, like economies of scale and scopes. From a tax perspective they are interesting for the acquirer to reduce the group cash tax paid and the effective tax rate as well by using loss carry forwards of the target or utilizing the tax rate differences between the group entities. Simultaneously potential risk factors have to be captured early in the planning process to save the acquisition profit over all phases of an (m&a) transaction. In that context an important instrument is the so-called due diligence. Actually empirical studies show that nearly 30 percent of all (m&a) transactions are not successful (Deloitte, 2012, p.27). Furthermore, the empirical results indicate that due diligence analyses could not be shaped efficiently as well. For improving and structuring the due diligence process, a holistic standard has not been established until now. The main goal of this article is to develop a risk oriented, mathematically based approach for the tax due diligence, which helps to improve the issues for planning, assessing and monitoring the anticipated acquisition profit of a transaction under consideration of specific tax conditions related to the target. The proposed model can systematically capture tax risks within the framework of tax due diligence. That makes standardization of the tax due diligence process possible, which in turn makes adoption into a(n) (inter)national standard for conducting due diligence activities.

Determinants of capital adequacy ratio: an empirical study on Egyptian banks

Capital adequacy rules are safety valve for regulators and banks’ clients/shareholders to reduce expected risks faced by commercial banks especially for cross border transactions as these rules are applied compulsory by all banks internationally. Applying these rules will achieve rational management and governance. This paper examines explanatory victors that influence capital adequacy ratio (CAR) in the Egyptian commercial banks. The study covers 36 banks during the period from 2003-2013. We examined the relationship between CAR as dependent variable and the following independent variables: earning assets ratio, profitability, and liquidity, Loan loss provision as measure of credit risk, net interest margin growth, size, loans assets ratio and deposits assets ratio. Furthermore, we investigate determinants of CAR before and after the 2007-2008 international financial crises. Results vary according to the period understudy. For the whole period 2003 to 2013 results show that liquidity, size and management quality are the most significant variables. Before the period 2008 results show that asset quality, size and profitability are the most significant variables. After the period 2009 results show that asset quality, size, liquidity, management quality and credit risk are the most significant variable that explain the variance of Egyptian banks’ CAR.

Submission to the Consultation on the GST Treatment of Cross-Border Transactions

On 7 October 2015, the Treasury commenced a consultation period with respect to an exposure draft bill which would result in imported digital products being subject to Australia's consumption tax, the goods and services tax (the 'GST').This submission to that consultation was made on 21 October 2015. It argues that as the States and Territories are stakeholders in the on-going reform of the GST, this consultation is an opportune time to consider not only the difficulties arising in the regulation of digital products under the GST, but also under other areas of the law, including State and Territory law. One example is the treatment of digital products under the State and Territory sale of goods Acts in Australia, and under the Australian Consumer Law.This submission argues that digital products should be subject to the GST not (as under the exposure draft bill) because they are other-than-goods, but because they are goods, and recommends that reform to Australia's GST legislation be approached on this basis instead. It also argues that the State and Territory sale of goods Acts should be amended to include digital products within their statutory definitions of goods, and that the Australian Consumer Law should be amended so as to include the overall category of digital products (rather than only software) within its statutory definition of goods.It is submitted that that these broader amendments would address the GST status of digital products as well as other long-standing difficulties in the regulation of digital products in Australia, and would secure a coherent approach to their regulation across these different areas of the law.

An Urgent Suggestion to Pour Old Wine into New Bottles: Comment on “A New Jurisprudential Framework for Jurisdiction”

Dan Svantesson is quickly establishing himself as a leading voice in the field or jurisdiction. Coming to this field from Internet and data protection law, he is surely well placed to criticize the current legal framework of international jurisdiction in light of technological evolution, which has made territoriality lose its salience as the cornerstone of jurisdiction. I myself have recently been characterized as one of the border guards of territoriality, on the basis of my earlier monograph on Jurisdiction in International Law. Accordingly, the informed reader might believe that I will severely criticize as iconoclastic such a proposal as Svantesson’s namely, doing away with territoriality as the very linchpin of jurisdiction. As it happens, however, I largely concur with Svantesson’s ideas, at least to the extent they apply to cross-border transactions via the Internet. In this contribution, I argue that the reality of a de-territorialized Internet necessitates jurisdictional rethinking, but that this rethinking in fact heavily relies on previous scholarship, predating the Internet era. The advent of the current era, however, has lent particular urgency to those earlier proposals.

Anti-Money Laundering Regulation of China’s Mobile Payment and Settlement Industry

In recent years, with the continuous advance of payment equipment and technologies like China’s internet Finance, Big Data and Mobile Network, the anonymity, rapidity and cross-border transaction of mobile payment business have also brought many money laundering risks. Therefore, it is necessary to strengthen cooperation with the supervision organization of international payment and anti-money laundering business, and meanwhile to constantly improve the supervision mechanism of China’s payment and anti-money laundering business.

Taxpayers’ Lack of Standing in International Tax Dispute Resolutions: An Analysis Based on the Hybrid Norms of International Taxation

This paper examines whether a taxpayer should have “standing” in international dispute resolutions. To answer this question the primary task is to identify the nature of international taxation. In other words, this paper discusses how to classify the field of international taxation. Is it part of public international law, private international law (i.e., conflict of laws), national (domestic) law, or is it a hybrid field that requires specific attention? Making this distinction is vital for resolving disputes when a taxpayer is taxed twice for cross-border transactions in cases where the double tax convention is unclear and both contracting states claim full or partial tax on accrued income.

Rinminbi Internationalization

The RMB has been on the road to internationalization since the launch of the pilot program of RMB settlement in cross-border transactions in July 2009. China has established the basis legal framework to facilitate the international use of RMB and RMB internationalization has made significant progress. However, the degree of internationalization of the RMB is still low. In order to promote further internationalization of the RMB, China's economic system must be more open and free. And China must make RMB convertible under capital accounts, build a legal architecture that can protect the interests of the parties to RMB-denominated transactions while also strengthening financial supervision, and expand the international framework for the international use of RMB.

Cross-Border Low Value Payments and Regional Integration: Enablers and Disablers

his paper discusses the enablers and disablers of cross-border low value payments and regional integration. The current landscape for cross-border payments is dominated by correspondent banking relationships. Relying on one or more correspondent banks to send payments abroad is slow and expensive, and both sending and receiving banks often have little to no visibility of payments as they are being processed, and they often do not know what fees will be deducted until a payment arrives. As the speed of payments increases in domestic environments, banks, corporates, and consumers have come to expect faster and more efficient payments across borders as well, and the current reality of correspondent banking is increasingly falling short of customer needs and expectations.As regions integrate economically and promote open trade among member states, maintaining fragmented national payment systems can become a hindrance to larger goals of economic development and cooperation. Any form of regional integration will necessarily reflect local realities, including the level of domestic payment system development, technological and economic progress, the level of payment sophistication, political and business cooperation, and the level of integration desired by key stakeholders in the region. Pursuing regional payments integration means dealing with issues such as establishing centralized management, finding a common settlement currency, setting a targeted scope, implementing common data standards, and harmonizing IT infrastructures. Navigating these local realities and vested interests to develop a cross-border scheme or infrastructure that benefits local stakeholders is a complex task. Coupling local knowledge of domestic markets with lessons learned from other regions can be a key factor in ensuring success in regional payments integration.This paper will focus on key questions such as how “success” is defined for regional payment schemes and infrastructures, what enables and disables successful implementation, what the key features of schemes to foster cross-border transactions are, and the role that central banks and other stakeholders play in regional payments integration. It is meant to inform and guide participants who wish to pursue regional payments integration by offering lessons from other geographies and examining measures of success in a variety of regional payment models.

VAT on Intercompany Supplies: Why Skandia Is a Big Deal

In the recently issued decision in the Skandia case, the European Court of Justice ruled on the VAT treatment of services rendered within a VAT group. Following this ruling, potentially all intercompany cross-border transactions of a multinational financial institution could be in scope of VAT. The author presents and analyses a case study to illustrate the possible effects for European VAT groups.

Digitization, Copyright, and the Welfare Effects of Music Trade

Since the launch of the iTunes Music Store in the US in 2003 and in much of Europe in the following years, music trade has shifted rapidly from physical to digital products, raising the availability of products in dierent countries. Despite substantial growth in availability, the available choice sets of digital music have not fully converged across countries. The territorial fragmentation of the EU copyright management regime and related cross-border transaction costs are often perceived as an obstacle to greater availability. However, other factors such as commercial strategies by music producers may also aect availability. EU policy makers are now contemplating various possibilities to reduce these cross-border trade costs and improve convergence in music availability across countries. This raises the question of how much benet these policy measures would create for consumers and producers in Europe and around the world. This study calculates the economic benets for consumers and producers from further trade opening or trade cost reductions in digital music. We address this question using comprehensive Nielsen data on digital track sales in the US, Canada, 13 EU Member States, and 2 other European countries (Norway and Switzerland) from 2006 to 2011. We estimate a structural model of music demand which allows us to obtain the consumer surplus for consumers in each destination country as well as the revenue for producers in each origin country. Our model allows us to simulate several scenarios. We rst compare the baseline current situation (the \status quo) with full autarky whereby only local music is available in each country - a big step backwards compared to the status quo. We then compare the status quo with a fully open EU Digital Single Market whereby all European music is available in all EU countries. Finally, we simulate worldwide openness in which all music is available in all countries. We estimate both consumer surplus benets and producer revenue eects for these scenarios. Not surprisingly, the current status quo music trade benets consumers everywhere compared to the autarky scenario. Relative to autarky, status quo trade raises aggregate consumer surplus in the 17 countries by about e300 million (a 11.3% increase). Trade also raises producer revenue by e85 million (a 2.8% increase). European consumers benet more from music trade than North Americans. However, it has large benets for American producers but on balance small benets to European producers. American producers have a larger market share in Europe that European producers have in the US. Moving from the current status quo to an EU Digital Single Market for music would increase consumer surplus from digital music consumption by 1.8 per cent (e19 million) and music producers'revenue by 1.1 per cent (e10 million). Benets vary considerably across Member States. Under worldwide frictionless trade consumers in 15 European countries gain e31 million (a 3% increase) while North American consumers gain e6.5 million (a 0.35% increase). Most of the gains from fully frictionless trade - about two thirds - are accomplished by a European single market. Annual gains from worldwide frictionless trade for producers, compared to autarky, reach 1.9% in Europe and 0.38% in the US. Clearly, the additional gains from moving beyond a European Digital Single Market to a worldwide open market would be small for European producers and consumers. Digital music production and consumption is only a small part of all media markets covered by copyright. We note that the gures presented here represent only a fraction of the potential benets from further trade opening in other digital media.

The international Challenges and Finnish Corporate Taxation

Abstract One of the main trends in Finnish corporate taxation during the last ten years has been the lowering of the corporate tax rate. The decision to lower the corporate tax rate to 20% from the beginning of 2014 also changed the approach in reforming the corporate taxation as it was decided to stay on the grounds of a broad tax base and not to make loopholes in it with targeted exceptions. The Finnish corporate taxation contains also some provisions that act as incentives for investment and the establishment of companies. However, the focus has been lately on the rules with purpose to protect the national tax base. Therefore, article handles both the specific anti avoidance rules and the application of the general anti avoidance rule on the cross-border transactions. Some particular challenges and the exchange of information are also taken into account before the conclusion with some ideas and aspects on future reforms.

When Does ‘the Context Otherwise Require’ in Article 3 of the OECD Model Convention?

This article focuses on the interpretation of tax treaties and, particularly, the expression 'unless the context otherwise requires' comprised in Article 3 of the OECD Model Convention. In the hopes of providing certainty in double tax cross-border transactions, the chapters of this article explore the applicable provisions, relevant case law and subsequent legal consequences facing these kinds of international tax issues.

Substituted Compliance: An Alternative to National Treatment for Cross-Border Transactions and International Financial Entities

The recent trend toward globalization of financial markets has resulted in a growing need for effective U.S. policies with respect to foreign banking organizations that conduct business with U.S. persons or within U.S. territory. These foreign financial entities typically fall within the jurisdiction of both the U.S. and their home countries. Due to concerns that excessively risky activities of foreign entities could adversely affect U.S. markets, the Dodd-Frank Act defaults toward the National Treatment Model, mandating that all foreign entities within U.S. jurisdiction comply with U.S. regulations in addition to their home country regulations. However, the Dodd-Frank approach creates problems due to variations in financial regulations among jurisdictions — U.S. regulations are often redundant or in conflict with the entities’ host country rules. This article therefore recommends that U.S. agencies develop a policy that would: permit efficient transactions with jurisdictions that previously had conflicting regulations; reduce costs associated with complying with duplicative regulations; and minimize the risk of contagion to U.S. markets.This article will evaluate several potential regulatory frameworks for international entities — specifically harmonization, minilateralism, mutual recognition, and outcome-based substituted compliance — in the areas of entity registration; prudential standards, such as capital adequacy and liquidity; and transaction requirements, such as margin. Substituted compliance is a policy in which international financial institutions with operations in the U.S. could be deemed in compliance with U.S. law and regulations by complying with their host countries’ regulations, provided that the regulations in the host country are declared to be equivalent to their U.S. counterparts. If correctly implemented, substituted compliance could be the most effective framework for achieving the desired policy objectives in the areas of entity registration and over-the-counter derivative transactions. However, despite the benefits of substituted compliance, this article recognizes the lack of viability of substituted compliance with respect to prudential requirements until U.S. regulators have increased confidence in foreign regulators’ abilities to control contagion. This article suggests potential reforms that could provide such confidence.

Dispute management in Islamic financial institutions: a case study of near sukuk defaults

Purpose – The purpose of this paper is to examine the vital importance of dispute management in cases of both near and outright sukuk defaults. With the case studies, this study examines the vital importance of dispute management in cases of both near and outright sukuk defaults. With a number of case studies, the study shows how debt restructuring can play a significant role as a dispute management procedure recognized in Islamic law. Design/methodology/approach – The study uses the case study methodology to determine the impact of debt restructuring in instances of near and outright sukuk default and the process taken to reach a win-win settlement among the parties. Due to some sensitive financial information, the study has fully anonymized the sukuk companies examined. Findings – The paper finds that for a more sustainable and stable and resilient Islamic finance industry, the role of law through dispute management cannot be ruled out, as appropriate dispute management mechanism facilitates the underlying contracts. Research limitations/implications – This study limits its focus to near and outright sukuk defaults and the need to come up with Shari’ah-based mechanisms for dispute management when things seem to have fallen apart. Practical implications – The study proposes an integrated regulatory-cum-remedial framework which may serve as sustainable mechanism for handling circumstances involving near and outright sukuk defaults with a view to protecting the rights of all the stakeholders. Originality/value – Though few studies have been conducted on sukuk defaults in cross-border transactions, there has not been much focus on dispute management of cases involving such defaults. This study seeks to fill such an important gap, which has the potential of streamlining dispute management practices in the sukuk industry.

The International Monetary System: Time for a Change?

The 2008 global financial crisis undermined the market confidence of the US financial market, challenging the current IMS which heavily relies on the USD. In light of this, this paper suggests that some changes in the IMS are possible by promoting the use of the RMB at the regional level. An Asian currency settlement of regional cross border transactions of goods and service will foster the use of the RMB and further, possibly reshaping the global currency landscape to a tri-polar currency cluster system. Although it will take some time for the non-USD currencies to even partly replace the US dollar dominated assets, this paper suggests that such a tri-polar system can address current shortcomings without disrupting the current order.

M&A and innovation: The role of integration and cultural differences—A central European targets perspective

Cultural differences are an important issue for cross-border M&A. Empirical evidence for the impact of cultural differences on M&A performance is mixed. A major reason for these inconclusive results relies on integration. One main motive for cross-border transactions is the acquisition of innovative capabilities. In a study of innovation-driven M&A in the German-speaking part of Europe, we find different effects of human and task integration on the innovation outcome after the transaction. While human integration (i.e., the creation of a shared identity and satisfaction among the employees from both organizations) is rather destructive, task integration (i.e., the transfer and sharing of resources and capabilities) is beneficial for innovation output. Furthermore, the integration-innovation performance relationship is moderated by national cultural differences. While national cultural differences have a downward curvilinear slope moderating the effect of human integration to innovation, we find a clear inverted U-shaped slope moderating the effect for task integration. Both effects indicate that cultural similarity is more beneficial in the case of innovation-driven M&A with targets in Central Europe.

Cross-Border Mergers Between Companies: Remaining Practical Problems After the 10th Council Directive of the European Union

Although the arguments about the benefits of the adoption of a rule on cross-border mergers in general and of the provisions of the Cross-Border Mergers Directive in particular have been numerous, on the other side there is criticism with regard to the way the provisions of the Cross-Border Mergers Directive regulates several areas of the related merger transaction. Inconsistency and ambiguity arise in relation to several aspects of the provisions of the directive for reasons that may be related to the references made to the national legislation of the Member States and the absence of a satisfactory degree of harmonization between them.Unclear provisions relate to the scope of the Cross-Border Mergers Directive and to the categories of legal entities it applies to. The inclusion in the applicability of the directive of the limited liability companies and their definition related to both the limited liability status and the presence of a share capital is not clear as to the applicability of this directive to the limited liability entities without share capital. Furthermore, the inclusion of the securities together with the shares in the exchange ratio and in the consideration value with regard to the transfer of assets and liabilities from the dissolving company to the resulting one, rises uncertainty as to the classification of securities that may be involved in such exchange and consideration value. Moreover the conflict of laws between Member State represent a clear obstacle as to the cross-border merger transaction as a tool for company mobility. The incompatibility of the theories the Member States have embraced in order to apply their lex societatis and to allow the incorporation of the commercial legal entities, represents a problem for the company mobility and freedom of establishment achieved by means of the cross-border mergers.

Testing the fire-sale FDI hypothesis for the European financial crisis

Using a panel of corporate transactions in 27 EU countries from 1999 to 2012, we investigate the impact of the financial crisis on the market for corporate assets. In particular, we test the ‘fire-sale FDI’ hypothesis by analyzing the number of cross-border transactions, the price of corporate assets and the impact of credit and macroeconomic conditions. According to the fire-sale FDI hypothesis, countries affected by a crisis attract foreign buyers selling assets at a discount. We find a dampening effect of the crisis on cross-border transactions in all EU countries. Although countries with higher sovereign default risk and lower economic demand attracted more foreign buyers in the crisis, lower domestic credit is associated with less cross-border transactions. Corporate assets in crisis countries are cheaper, particularly if domestic credit is low; however, these findings are not limited to the crisis period. This pattern is strikingly different from the East Asian and Latin American financial crises. Overall, we find little evidence for ‘fire-sale FDI’ suggesting an integrated European market without significant frictions.

Institutional competition of optional codes in European contract law

The Common European Sales Law (CESL) is the European Commission’s most recent policy initiative for European contract law. It aims to address the problem that differences between the national contract laws of the Member States may constitute an obstacle for the European Internal Market. This paper develops a model of the institutional competition in European contract law and uses it to addresses the question as to whether an optional European contract code and the CESL are economically desirable for European contract law. To do so I examine the transaction costs involved in the process of choosing an applicable law that European businesses face when they conduct cross-border transactions in the European Internal Market. I then describe how these transaction costs shape the competitive environment, i.e. what I refer to as the “European market for contract laws” in which the contracting parties choose a law to govern their cross-border contracts. Having identified this environment and the competitive forces operating within it, I propose a model, the “Cycle of European Contract Law”. I use this model to analyze the competitive processes that take place in the European market for contract laws. Based on my results I make recommendations for the optimal implementation of an optional European contract code and the CESL in European contract law.

Online Cross-Border Consumer Transactions: A Proposal for Developing Fair Standard Form Contract Terms

Online consumer sales are growing at a substantial rate. An estimated 45% of online purchases by consumers in Australia are from overseas sellers, including US sellers. The question whether these transactions are governed by the Australian Consumer Law (ACL) is examined. The conclusion drawn is that cross-border transactions are usually governed by the ACL – at least in theory. In practice a consumer will invariably confront a bewildering array of procedural complexities and face prohibitive costs. US law and standard form terms are generally less favourable to consumers than Australian and European laws. There also appears to be an increasingly pro-seller bias developing in US standard form terms. The article considers why this is so. Why, for instance, are market forces not operating to provide incentives for the development of party balanced terms? The article then considers ways in which the interests of consumers can be better protected and enhanced regarding cross-border online transactions. It is proposed that a series of standard form 'Fair Terms' which could be made freely available on the Internet for parties to voluntarily incorporate into their contracts should be developed. This proposal follows the lead provided by developments for international commercial transactions. The article concludes by suggesting starting points for the development of fair terms provisions.