Exit Tax Research Articles

UN Tax Pillars to Address Capital Concentration (through Inheritance Levies) and Wealth Flight (through Exit Taxes) – Implications for the European Union

The article investigates the rising concentration of capital ownership, drawing evidence from the United States, Germany and other European states, and its impact on widening wealth inequality. It warns of modern economies morphing into an “inheritocracy”, where corporate equity and financial assets concentrate across generations. The analysis sheds light on the limitations of income tax systems in addressing wealth inequality in the context of high capital mobility. To tackle these challenges and building on the OECD’s experience with a global minimum tax for large corporations, the article advocates for a UN-led multilateral approach supporting Global Minimum Inheritance Taxes and a Global Minimum Exit Tax to prevent a race to the bottom in taxing high-net-worth individuals and deter wealth flight. By coordinating these taxes at a supranational level, the article supports a fairer tax burden distribution and emphasizes the revenue potential of inheritance levies. Additionally, drawing from the US Expatriation Tax, it explores the legal feasibility of the European Union harmonizing an EU-wide exit tax to mitigate capital flight. Ultimately, these measures have the potential to enhance progressivity across tax systems.

Poland: Tax labyrinths and legal landscapes—the odyssey of family foundations in Poland

Abstract The Polish Family Foundation Law, introduced in May 2023, was designed to facilitate the preservation and management of family wealth. Its success has exceeded expectations with over 1,500 foundations established in its first year. This article examines the law’s impact, its reception, and the practicalities of establishing a Polish foundation. It also explores the implications for existing foreign foundations, analyzing the challenges posed by the exit tax regulations, Controlled Foreign Corporation rules and withholding tax developments. The article further discusses potential legal adjustments needed to align the law with European Union principles and the opportunities for foreign foundations related to it.

Exit tax adoption to protect Indonesia’s tax base

The mobility of individuals, assets, and businesses across international borders is common. This dynamic shift in residency and business structure can lead to significant capital gains, posing tax revenue challenges for nations like Indonesia. The departure of High Net Worth Individuals (HNWI) has brought this issue to the forefront. To address revenue loss due to tax avoidance of that mobility, many countries have adopted exit taxes or exit charges. These measures impose income tax when individuals or businesses change tax residency or transfer assets across borders. This paper conducts a qualitative analysis to explore the adoption of exit taxes in Indonesia, offering policy recommendations to integrate exit taxes into Indonesia's existing tax framework. This paper discusses the idea of exit charge adoption in Indonesia through a qualitative analysis by reference to a comparative study of tax law in various jurisdictions. The study shows that the exit charge adoption is feasible to undertake, considering the existing legal system, Indonesia’s tax regulation, and the simplicity aspect of the taxation system, which Indonesia aims to enhance.

Tax It before Exit: Exit Taxation and Greenfield Investments

Tax It before Exit: Exit Taxation and Greenfield Investments

UN Tax Pillars to Address Capital Concentration (through Inheritance Levies) and Wealth Flight (through Exit Taxes) - Implications for the EU

UN Tax Pillars to Address Capital Concentration (through Inheritance Levies) and Wealth Flight (through Exit Taxes) - Implications for the EU

Exit Taxation and the DTT Between Poland and Brazil

The article addresses the issue of double taxation elimination in cases involving the application of an exit tax under the DTT between Poland and Brazil, which was signed in 2022. The author explains the key characteristics of the Polish exit tax and then elaborates on an appropriate allocation rule in the context of exit taxation. The article also discusses Article 24 of the Polish-Brazil DTT, which deals with double taxation. Finally, the author presents the specific solutions adopted in other countries’ double taxation treaties to eliminate double taxation in cases where an exit tax is imposed.

Critical Review Of The Atad Implementation: The Implementation of the ATAD in Finland

In this article, the authors provide an assessment of the Finnish implementation of the European Union (EU) Anti–Tax Avoidance Directives (ATAD I and II) in consideration of the EU primary law and secondary law requirements. It is focused on examining the conformity between the Finnish implementation rules and the fundamental freedoms arising out of the Treaty on the Functioning of the European Union (TFEU). Although Finland already had an extensive anti-avoidance framework in place before implementing the ATAD I and ATAD II, Finland had to make some adjustments in almost all areas covered by the Directives. What is perhaps most interesting is that the Finnish general anti-abuse rule (GAAR) in section 28 of the Act on Assessment Procedure has retained the exact same textual form that it had decades previously. The essential question is as follows: Has the actual content of the general clause changed based on ATAD Article 6 and, if affirmative, in what way? Anti-Tax Avoidance Directive (ATAD), Base Erosion and Profit Shifting (BEPS), tax avoidance, anti-avoidance, controlled foreign company (CFC), exit taxation, general anti-abuse rule or general anti-avoidance rule (GAAR), hybrid mismatches, interest limitation rule, EU law, implementation

Cessation of South African residency: A critical analysis of juridical double taxation on United Kingdom immovable property held by natural persons

When a natural person ceases to be resident, there is a deemed disposal of worldwide assets, and a capital gain must be calculated. Taxation levied because of a change in residence is referred to as an exit tax. In this context, juridical double taxation could arise if the assets are taxed in both the previous and the new state of residence. South Africa has a convention for the avoidance of double taxation and the prevention of fiscal evasion with the United Kingdom (SA‒UK DTA). Article 21 of the SA‒UK DTA contains the Elimination of Double Taxation provisions. South Africa provides relief from juridical double taxation in terms of section 6quat of the Income Tax Act. However, these measures may not always provide relief for exit taxes. A qualitative research approach was followed, in the form of a literature review. Secondary data were collected and analysed to determine if Article 21 and/or section 6quat provide for the elimination of this juridical double taxation. Where neither Article 21 nor section 6quat provide relief, the research aimed to establish whether any other procedure could provide relief. The findings suggest that Article 21 does not provide for the elimination of this juridical double taxation. Furthermore, section 6quat would only in certain instances provide relief. Should neither Article 21 nor section 6quat provide relief, the mutual agreement procedure (MAP) could be considered for resolving this juridical double taxation. However, while the MAP is satisfactory in theory, it has a number of practical limitations.

THE SPECIFICS OF IMPLEMENTING THE EXIT TAX IN UKRAINE UNDER MARTIAL LAW

This study attempts to identify effective pathways to boost business activity, in particular through implementing the exit tax policy. It is observed that with Russia’s launching a full-scale invasion to Ukraine, almost all economic processes slowed down, most of businesses in the areas of hostilities were forced to either suspend their activities or close. However, the government is investing much efforts to support entrepreneurs through the adoption of a number of laws that will help businessmen gradually return to their normal functioning, in the field of taxation, too. It is argued that in modern realia of martial law, the issue of introducing exit tax is gaining more relevance, since in the future it will contribute to multiplying long-term economic benefits for the national economy. It is emphasized that the exit tax which is also called a corporate tax might enhance further strategic areas of more efficient use of company profits offering better opportunities for reinvesting and thus providing national producers with a strong impetus to develop and improve their performance in post-war economic recovery of Ukraine. From this perspective, a beneficial effect from implementing exit tax is that it will initiate de-offshore mechanisms and prevent such anti-tax avoidance planning strategies when business entities wilfully overstate their expenses in order to optimize the tax burden. The research findings demonstrate that before February 24, 2022, issues of implementing exit tax in Ukraine had been the most controversial debate topic. The last attempt to introduce an exit tax assumed different timing of the adoption of project No. 3665, according to which the exit tax was supposed to come into effect on January 1, 2022 (provided that Draft Law No. 3665 would be adopted by July 15, 2021) and from January 1, 2023 (if Draft Law No. 3665 was adopted after July 15, 2021). The paper resumes that by Resolution No. 2035-IX of the Verkhovna Rada of Ukraine dated February 15, 2022, among the issues prepared for consideration at the plenary sessions, the following issues were also discussed: the Draft Law on Amendments to the Tax Code of Ukraine No. 1185 with regard to implementing an exit tax and the policies to combat the tax base erosion and profit shifting abroad and the Draft Law on Amendments to the Tax Code of Ukraine No. 3665 and No. 3665-1 and some other legislative acts of Ukraine as to implementing exit tax to replace the corporate income tax. The study also discusses the implications of the forecasts by the Ministry of Economy of Ukraine for 2022–2025, in particular, it is noted that if the exit tax is implemented in 2022, then starting from the second year, i.e. in 2023, Ukraine’s GDP will additionally increase by almost 1.1% with a further growth in 2025 to 3% due to synergy effects. Currently, the above draft laws No. 3665 and No. 3665-1 are being processed in the Parliament’s Committee.

New German Transfer Pricing Regulations on Business Restructurings, Documentation Deadlines and Rules for Tax Audits: Overview and Practical Implications

Two highly relevant pieces of transfer pricing legislation have been passed in Germany in 2022: The revised Ordinance on Relocation of Functions is expected to increase the number of fact patterns that can qualify as a relocation of functions and it contains stricter rules for exit tax valuation approaches. The revised General Tax Code aims at expediting tax audit processes in Germany by intensifying the system of cooperation most notably via introducing new and adjusted deadlines for tax auditors but also for taxpayers. These are expected to lead to additional pressure on taxpayers and will likely require better transfer pricing documentation processes as well as a higher level of anticipation of potential tax audit questions.

Testing the Prospects of National Exit Taxation in Nigeria: its Boons and Banes

Testing the Prospects of National Exit Taxation in Nigeria: its Boons and Banes

Reforming the Exit Tax

Reforming the Exit Tax

Tax Treaties and the Mobility of Workers

After an introduction about the mobility of workers under the Covid crisis and its tax implications (section 1), the article begins by providing at section 2 a general overview of Art. 15 § 1 which attributes taxing power to the country where the activities are carried out as well as to the country of residence of the worker, creating a potential situation of double taxation. The article goes on at section 3 to provide an overview of the very relevant exception provided by Art. 15 § 2 which spells out the requirements under which the mobile worker is taxable only in the country of residence thereby preventing double taxation and simplifying tax compliance for the mobile worker. The article at section 4 develops a discussion of the so called ‘hiringout of labor’ which is pursued through aggressive tax structures that abuse the benefit of exclusive taxation provided by Art. 15 § 2. The paper after a digression about the wider concept of tax migration and exit taxes (section 5), concludes briefly discussing the impacts that the recent Covid crisis might have had on the system of tax treaty rules about the mobility of workers (section 6). Mobility of workers, migration, tax treaties, hiring-out of labor, aggressive tax strategies, exit taxes, Covid crisis, country of residence, double taxation, country of source

Exit Tax in Poland

Rules on exit taxation have been in force in Poland since the beginning of 2019. In this article, the authors analyse the wording of these rules and their compatibility with EU law. Rulings and initial controversies that have arisen in this area are outlined in order to show major risks inherent in the structure of exit taxation.

Critical Review Of The Atad Implementation: Addressing Base Erosion and Profit Shifting: The Implementation of the ATAD in Germany

Germany has been an active supporter of the Base Erosion and Profit Shifting (BEPS) Project from its initiation and has also whole-heartedly supported the implementation of core BEPS recommendations in Europe through the anti-tax avoidance directive (ATAD). However, the subsequent domestic implementation process took longer than expected. It was only in June 2021 that the last remaining pieces of the ATAD were transposed into German tax law. This article explains Germany’s perspective on the ATAD more generally and describes which parts of domestic tax law have been amended in order to ensure conformity with the directive. ATAD implementation in Germany, CFC, interest deduction limitation, GAAR, exit taxation, hybrid mismatches

Selected Issues Regarding the New Italian Exit Tax Rules

In this note, the authors analyse the extent to which the new Italian exit tax regime applies in the event of a qualified transfer of a branch of business characterized as the Italian permanent establishment of the foreign tax resident transferor, in relation to assets (and liabilities) that were not transferred but, at the same time, do not qualify (no longer qualify) as an Italian permanent establishment of the transferor.

Critical Review Of The ATAD Implementation: The Implementation of the ATAD in Greece

This article examines the implementation of the anti-tax avoidance directive (ATAD) in Greece. It reviews the additions to and the amendments that had to be made in Greek law resulting from the implementation of the ATAD. It does so in an analytical and critical manner by exploring all of the ATAD provisions, examining the way that they were implemented into Greek law, and how they differentiate from the previous rules (if they existed at all). It examines the compatibility of the said provisions, as they have been transposed in Greece, with EU law and their compatibility with the Greek Constitution, especially in relation to the interest limitation rule, the exit tax, and the general anti-abuse rule (GAAR) ATAD, anti-avoidance, CFC, exit taxation, GAAR, hybrid mismatches, implementation, interest limitation rule.

Fair Value and Corporate Taxation: Out through the Door, Back through the Window?

Abstract The progressive harmonization of corporate financial information, based on the International Financial Reporting Standards, has moved fair value accounting (FVA) to the forefront of a debate that straddles accounting and corporate tax. Given the subjectivism that FVA may exhibit, especially when mark to market is not available and mark to model is used as in level 3 FVA, tax legislators have strongly restricted its impact on the corporate tax base. This paper argues that while the Portuguese corporate tax legislators explicitly followed this worldwide trend of restricting the tax impact of fair value to certain circumstances when market prices are observable (level 1 FVA), the corporate tax code has, nonetheless, several important avenues through which FVA influences taxable income determination. The main purpose of this paper is to present and discuss some important ways through which FVA may influence taxable income determination in Portugal, such as goodwill, impairment charges, transfer pricing, capital gains and exit taxation. Thus, the question emerges: is FVA returning through the window to impact the corporate tax base? Considering the global trends in public finance, and the need for present and future tax revenues, we believe this is an important topic to be addressed.

Critical Review Of The Atad Implementation: The Implementation of the ATAD in Italy

The objective of the present contribution is to pinpoint the specificities of the Anti-Tax Avoidance Directive (ATAD) implementation rules in Italy, with a particular regard to the exercise of the different options provided by the Directive. That implementation has mainly taken the form of amendments to existing provisions (re Controlled foreign company (CFC), exit tax, interest deduction) with only a completely new set of rules (hybrid mismatch arrangements). For the general anti-abuse rule, the choice made has been to regard that rule as substantially overlapping with the Italian general anti-abuse rule (GAAR) and, therefore, not requiring any specific implementation. The result of this approach has been that taxpayers, tax authorities, and courts have been sledging comfortably into the new regimes without any significant discontinuity with the past, except for the hybrid mismatch regulation. In addition, the way in which Italy implemented the ATAD has proved rather conservative and appears largely compliant with the Directive. That notwithstanding, the most relevant departures from the ATAD are highlighted and discussed with a view to establish their compatibility with the EU legal order. Finally, the contribution examines the possible consequences stemming from the technique adopted to implement the Directive general anti-abuse rule and scrutinises the areas where tax litigations could more easily occur in the future. ATAD, CFC, hybrid mismatch arrangements, interest limitation rule, exit tax, CJEU, GAAR, abuse of tax law, EU law, Italy

Implementation of the EU Anti-Tax Avoidance Directive (2016/1164) in Portugal

In this article, the author discusses implementation of the EU Anti-Tax Avoidance Directive (2016/1164), as amended (ATAD) in Portugal. The article covers all of the ATAD’s rules, i.e. interest limitation, exit taxation, general anti-abuse, controlled foreign companies and hybrid mismatch rules. The author presents some features of the rules existing at the time of implementation and comments on the main changes that took place as a result of implementation of the ATAD.