Exit Tax Research Articles

Behavioral Biases and Political Actors: Three Examples from US International Taxation

The literature on behavioral public finance has tended to focus on the biases of taxpayers. However, politicians and government agents are human as well and can be expected to show the same biases that we are all subject to. This chapter will examine three examples of availability heuristic arguably influencing political actors and the unintended consequences of their reactions. The examples are all from US international tax rules: the foreign investment in real property tax act (FIRPTA) (1980), the exit tax on US citizens who expatriate (2008) and the enforcement of withholding tax on dividend equivalents (2010).

Ireland’s Recent Finance Act

In this note, the author outlines the details of the Finance Act 2018, which contains provisions on an amended exit tax, controlled foreign corporations, the start-up relief regime, amortization of intellectual property, transfer pricing and relief for investment in corporate trades.

Exit Tax in the Slovak Republic

Due to mandatory implementation of the EU Anti-Tax Avoidance Directive (2016/1164) (hereinafter ATAD), the Slovak Republic was required to implement, with effect from 1 January 2018, an entirely new concept of taxation, i.e. exit tax.

Tax and brain drain: Justification, policy options and prospect for large developing economies

International migration has continued to escalate over the last three decades, creating a risk of brain drain in developing countries. This paper reviews the extent to which the use of tax instruments to address brain drain can be justified in developing economies with large populations. Furthermore, it explores and assesses tax policy options that may be undertaken to prevent the emigration of high-skilled individual, namely the Bhagwati tax proposal, exit tax, revenue sharing and tax incentives. Five things can be concluded from the assessment of several policy choices. First, there is no stand-alone tax policy that can optimally address brain drain, in the sense of reducing the number of high-skilled individuals who emigrate. Second, most policies put more focus on the element of fairness to compensate for the “loss” caused by the home country. Third, almost every available policy requires better coordination at the international level. Fourth, all policy options require closer collaboration with immigration agencies. Finally, each policy has the potential to produce unintended consequences.

A study on the improvement of exit tax under the Income Tax Act

A study on the improvement of exit tax under the Income Tax Act

Freedom of movement of businesses: the outcome of exit taxes

Freedom of movement of businesses: the outcome of exit taxes

The End of the “Luxembourg Effect”: An Analysis of the Protection of Fundamental Freedoms Regarding Exit Taxes and Implementation of Anti-BEPS Measures by the European Union

This article suggests that the ATAD exit tax provisions represent a change in perspective of the European Union from one of promoting integration of the internal market to the greatest extent possible to fighting tax avoidance even in conflict with the internal market. Furthermore, considering that the European Union has broad alternative means available to achieve harmonization, the article concludes that such provisions are clearly disproportionate and should be rejected by the ECJ.

Is exit tax a good idea for the taxman?

PurposeThe purpose of this paper is to study whether it is a rational choice for a tax authority to impose an exit tax on capitalists.Design/methodology/approachThe tax authority chooses a lump-sum exit tax to maximize a weighted objective of expected tax revenue and expected tax horizon. The tax revene consists of capital income taxes and exit taxes. Capitalists are motivated by sustainable capital accumulation and hence maximize the terminal capital stock.FindingsThe author finds that the objective function of the tax authority is strictly increasing in the exit tax, which holds for extensions with sales tax, labor income tax or proportional exit tax, and hence equilibrium exit tax is equal to an exogenous upper bound.Originality/valueTo the author’s knowledge, no existing literature investigates this issue theoretically, and hence the current paper represents the first attempt. The author hopes this theoretical analysis can trigger related empirical studies.

Exit Taxation and Restructuring Operations: A Comparison of EU and Italian Tax Law

This article discusses the tax treatment of a transfer of tax residence from both an Italian and EU law perspective. In particular, the author discusses the potential for tax arbitrage due to gaps in the rules in respect of restructurings.

Trusts and the Fundamental Freedoms – The Exit Tax Regime in Trustees of the P Panayi (Case C-646/15)

In Trustees of the P Panayi Accumulation & Maintenance Settlements (Case C-646/15), the ECJ was confronted with the issue of whether or not a trust can claim the protection of the fundamental freedoms in the internal market. The underlying problem related to the compatibility of the UK exit tax regime with the fundamental freedoms. The ECJ confirmed its position that exit taxes are allowed in the internal market, but their immediate collection is disproportionate. The case, however, raises a number of issues regarding the scope of the freedom of establishment and the relationship between this case and previous ECJ case law, which this article addresses.

Dutch Cross-Border Rollover Relief Regarding Real Estate, from an EU Law Perspective

In this article the authors discuss the implications of the ECJ’s judgment in Commission v. Germany and the exit taxation provisions of the Anti-Tax Avoidance Directive for the Dutch rules for cross-border rollover relief.

Human Rights Law and the Taxation Consequences for Renouncing Citizenship

A very few states in the world, including the US, impose a strange obligation on persons who renounce their nationality by expatriating themselves to pay a special tax. While one might think that a person who gives us his nationality would no longer have any tax obligations to his former state of nationality, this expatriation tax, or “exit tax”, imposes a special tax event and potentially continuing tax obligations for years to follow. It might even chill the practice of renunciation as a tax avoidance scheme. However, international human rights law provides that every person has a right to leave any country, including his own, and to renounce and change his nationality. This paper will examine whether the US exit tax regime violates the international human right of expatriation.

The Provisions of the EU Anti-Tax Avoidance Directive Regarding Controlled Foreign Company Rules: A Critical Review Based on the Experience with the German CFC Legislation

The EU Anti-Tax Avoidance (ATA) Directive of 12 July 2016 introduced common minimum standards for fighting tax avoidance practices by the Member States of the EU. Besides interest limitation rules, rules on exit taxation, general anti-abuse rules as well as measures against hybrid mismatches, the ATA Directive provides minimum standards for the treatment of Controlled foreign corporations (CFCs). It is evident that the respective provisions follow, at least partly, the handwriting of the German CFC Rules, which are the oldest within the European Union (EU) and rank among the oldest in the world. In this context, the following article critically reviews the provisions of the ATA Directive regarding CFC Rules, taking into account the experience with the German CFC legislation.

Exit Taxation: From an Internal Market Barrier to a Tax Avoidance Prevention Tool

Article 5 of the Anti-Tax Avoidance Directive (ATAD) seems at first glance to be a codification of the exit taxation case law developed by the Court of Justice of the European Union, mainly in the landmark judgments in the cases National Grid Indus (C-371/10, 29 November 2011) and DMC (C-164/12, 23 January 2014). And yet this provision constitutes a major development within EU tax law, which is illustrated by the fact that the deadline for transposition falls one year later than the one applicable to the other provisions of the ATAD. The main reason is without doubt the shift from case law regarding the question whether and under which conditions Member States may impose exit taxes on unrealized capital gains, to a directive prescribing that the Member States have to subject such unrealized capital gains to exit taxation (although it is not determined how the capital gains should be taxed and how the applicable tax rate should be determined). Additionally, the exit taxation provision includes a ‘step-up’ for tax purposes in order to avoid double taxation of the unrealized capital gains on the assets that are transferred across the border. This contribution analyses the structure of the exit taxation provision of the ATAD in the light of the existing case law in this domain.

Minimum Global Effective Corporate Tax Rate as General Anti-Avoidance Rule

This article handles the timely and urgent challenge of international corporate avoidance that fills the headlines of leading newspapers, monopolizes political debates between presidential candidates and influences the life of every American who is losing more than 100 Billion U.S. dollars in revenues annually, while demanding fair taxation of citizens and multinationals. I call upon Congress to enact a new Internal Revenue Code provision that requires a minimum global effective corporate rate. According to my proposal, if the global effective corporate rate (of any U.S. multinational and its controlled foreign corporations) falls below 15%, the U.S. Corporation will be required to close the gap and pay the Internal Revenue Service up to the 15% minimum on its global profits as an interim liability. Additionally, I propose the enactment of an exit tax to limit corporate inversions and, finally, advocate for the strengthening of international norms through bilateral treaty modifications and international cooperation. I argue that this innovative proposal offers a comprehensive, distinct and justified reform package that will successfully and efficiently address the challenge of international corporate avoidance. This article makes three significant contributions: First, it offers a holistic approach to international reform that looks at the whole picture of corporate avoidance instead of offering rules that address each strategy of avoidance individually – as is common in the current discourse; Second, my argument references and utilizes the extensive literature available that addresses the issue of combating avoidance in domestic transactions as a foundation from which to find solutions for avoidance in cross border transactions. Therefore, my proposal works within the current framework, rather than starting anew or ignoring the experience gained from dealing with domestic avoidance when addressing the issue of international avoidance, but also brings innovative and substantial change that is politically feasible as proven by President Barack Obama's proposal of minimum taxation which has some similarities to my proposal. Third, my proposal calls for the U.S. to take on an international leadership role in the area of international reform and emphasizes the significance of connecting the U.S. debate with the current trend of international reform as reflected in the OECD Base Erosion and Profit Shifting (BEPS) final reports (published Oct. 5th 2015).When facing the challenge of curtailing international corporate avoidance, our fundamental social contract is at stake. Our responsibility, as citizens, to preserve and protect our democracy, society and economy is calling us to fight for this cause. It is the responsibility of the United States as a world leader and economic power, to enhance and advocate for effective and efficient reform of the international regime, so that the global community will be better equipped to face the challenges of a 21st century economy. This is our new fiscal revolution.

The Impact of the ATAD on Domestic Systems: A Comparative Survey

This article provides an analysis of the Anti-Tax Avoidance Directive (2016/1164) of 12 July 2016. Following a discussion of the Directive’s main features (the interest limitation, exit taxation, general anti-avoidance, CFC and hybrid mismatch rules), a survey is provided of the impact of the Directive on the tax systems of various Member States. It concludes with a comparative analysis and reflections on the manner in which the Directive will be transposed by the Member States.

Recent Tax Developments

This article outlines a number of recent Austrian tax developments, including an amendment of the interim tax regime for private foundations, new rules concerning exit taxation and the new Transfer Pricing Documentation Law.

The Proposal for an EU Anti-avoidance Directive: Some Preliminary Thoughts

On 28 January 2016, the European Commission made public a package of measures aimed to tackle tax avoidance and abusive practices in the European internal market. The package includes a detailed proposal for a new European Union (EU) Anti-avoidance Directive addressing six main issues: deductibility of interest; exit taxation; switch-over clause; General Anti-avoidance Rule (GAAR); Controlled Foreign Corporation (CFC) rules; and hybrid mismatches. This article provides a critical analysis of the Proposal for a Directive taking into consideration some of the implications of its implementation at stake. The final aim of this work is to contribute some elements that can improve the future debate on these matters.

Minimum Global Effective Corporate Tax Rate: The American Citizenship and Leadership Responsibility

This article handles the timely and urgent challenge of international corporate avoidance that fills the headlines of leading newspapers, monopolizes political debates between presidential candidates and influences the life of every American who is losing more than 100 Billion U.S. dollars in revenues annually, while demanding fair taxation of citizens and multinationals. I call upon Congress to enact a new Internal Revenue Code provision that requires a minimum global effective corporate rate. According to my proposal, if the global effective corporate rate (of any U.S. multinational and its controlled foreign corporations) falls below 15%, the U.S. Corporation will be required to close the gap and pay the Internal Revenue Service up to the 15% minimum on its global profits as an interim liability. Additionally, I propose the enactment of an exit tax to limit corporate inversions and, finally, advocate for the strengthening of international norms through bilateral treaty modifications and international cooperation. I argue that this innovative proposal offers a comprehensive, distinct and justified reform package that will successfully and efficiently address the challenge of international corporate avoidance. This article makes three significant contributions: First, it offers a holistic approach to international reform that looks at the whole picture of corporate avoidance instead of offering rules that address each strategy of avoidance individually – as is common in the current discourse; Second, my argument references and utilizes the extensive literature available that addresses the issue of combating avoidance in domestic transactions as a foundation from which to find solutions for avoidance in cross border transactions. Therefore, my proposal works within the current framework, rather than starting anew or ignoring the experience gained from dealing with domestic avoidance when addressing the issue of international avoidance, but also brings innovative and substantial change that is politically feasible as proven by President Barack Obama's proposal of minimum taxation which has some similarities to my proposal. Third, my proposal calls for the U.S. to take on an international leadership role in the area of international reform and emphasizes the significance of connecting the U.S. debate with the current trend of international reform as reflected in the OECD Base Erosion and Profit Shifting (BEPS) final reports (published Oct. 5th 2015).When facing the challenge of curtailing international corporate avoidance, our fundamental social contract is at stake. Our responsibility, as citizens, to preserve and protect our democracy, society and economy is calling us to fight for this cause. It is the responsibility of the United States as a world leader and economic power, to enhance and advocate for effective and efficient reform of the international regime, so that the global community will be better equipped to face the challenges of a 21st century economy. This is our new fiscal revolution.

The Compatibility of Exit Tax Legislation Applicable to Corporate Taxpayers in France, Germany, Italy, The Netherlands, Portugal, Spain and The United Kingdom with the EU Freedom of Establishment - Part 3

This three-part article discusses the compatibility of exit tax legislation applicable to corporate taxpayers in France, Germany, Italy, the Netherlands, Portugal, Spain and the United Kingdom with the EU freedom of establishment, especially in the light of the ECJ’s landmark National Grid decision. In part 1, which was published in Intertax volume 44, issue 1, the authors scrutinized whether a company transferring its tax residence or effecting an outbound cross-border conversion has access to Articles 49 and 54 TFEU under the laws of the Member State. It also addressed whether these laws restrict Article 49, and, if so, whether the restriction can be justified and is appropriate to ensure the attainment of its objective. Part 2, which was published in the previous Intertax issue, provided a general overview of the proportionality test in connection with exit tax legislation under Articles 49 and 54 TFEU, and subsequently discussed whether the exit tax legislation in France, Germany, Italy and the Netherlands is proportional. Finally, this part 3 reviews whether the exit tax legislation in Portugal, Spain and the United Kingdom is proportional, addresses which other transactions the ECJ’s exit tax principles apply to, and provides conclusions and recommendations.