Global Tax Research Articles

The Effect of Transfer Pricing, Tunneling Incentive, Thin Capitalization, and Capital Intensity against Tax Avoidance

This study aims to investigate the influence of transfer pricing, tunneling incentives, thin capitalization, and capital intensity on tax avoidance practices in mining companies listed on the Indonesia Stock Exchange (IDX) during the period of 2018-2022. The context of this study lies in the complexity of global taxation and increasing concerns over tax avoidance practices that have prompted the need for a deeper understanding of the factors influencing corporate behavior in this regard. The research method employed involves the use of statistical regression to measure the relationship between these variables. The analysis results show that tunneling incentives have a significantly negative effect on tax avoidance practices, while thin capitalization and capital intensity significantly influence tax avoidance practices positively. Meanwhile, transfer pricing does not have a significant effect on tax avoidance practices. These findings suggest that tax avoidance practices tend to be carried out by companies employing thin capital structures and having significant business activities to invest their assets in fixed assets. In this context, the study provides valuable insights for regulators and practitioners in designing policies aimed at reducing tax avoidance practices. By understanding the factors influencing the company's decision in this regard, more effective prevention and control measures can be implemented. In conclusion, this study emphasizes the importance of paying attention to the interaction between transfer pricing, tunneling incentives, thin capitalization, and capital intensity in the context of corporate tax avoidance to develop a holistic and effective policy approach.

Policy Note: Strengthening Tax Systems in Developing Countries: The Dutch Contribution

The Netherlands has long faced criticism for its role in facilitating tax avoidance through its network of double taxation treaties (DTTs), particularly regarding developing countries, e.g., recently in a report of the Tax Justice Network (TJN). A review of the general Dutch tax policy shows that the country has taken several steps to reform its DTTs, undertaken domestic reforms to address tax avoidance issues, and has been offering tax-related capacity development (CD) programmes to developing nations. The authors ascertain from the results of an analysis of the parliamentary debate in terms of the contents of DTTs with developing countries and changes in domestic law as well as interviews with several stakeholders in the Netherlands and in developing countries show that the Netherlands is still likely to play a prominent role in global tax avoidance. This applies despite the significant changes in policy and substantive and procedural law. Not all loopholes have been closed, and adopting anti-abuse clauses in DTTs with developing countries – a central part of the Dutch response – has been somewhat disappointing. Moreover, the process of providing tax-related CD is not optimal, and tensions remain regarding the goals that the Netherlands attempts to pursue in tandem, potentially leading to policy incoherence. Moreover, unilateral action is unlikely to result in a reduction of global tax avoidance as financial flows – and therewith tax avoidance – are likely to shift to other countries. The global minimum tax (GMT) and other parts of the two-pillar proposal are more likely to offer a breakthrough for certain types of tax avoidance.Hence, a continued international dialogue on tax matters is needed to address all types of tax avoidance. In the parliamentary discussion on this topic, the Dutch Secretary of State for Finance reconfirmed the policy to assist developing countries in strengthening their tax systems in respect of the GMT through being in favour of a broader scope of Amount B, providing technical assistance in the implementation process of Pillars 1 and 2, and through the OECD’s Tax Inspectors Without Borders (TIWB) project. The objective of this article is to add to the policy discussion on how to strengthen the tax systems of developing countries. Tax avoidance, double taxation treaties (DTTs), international tax policy, Tax avoidance, double taxation treaties (DTTs), international tax policy, capacity development (CD), anti-abuse clauses, policy coherence, developing countries, BEPS, Addis Tax Initiative (ATI), Foreign Direct Investment (FDI).

Article: Digital Services Tax: Analytical View of Challenges and Successes in Kenya and the United Kingdom

The rapid expansion of digital services is dramatically reshaping the panorama of global taxation. This transformation is notably impacting multinational enterprises (MNEs) that operate in countries where they lack a physical presence. In this study, the authors focus the attention on the implications of digital services offered by these non-resident MNEs operating in the Republic of Kenya and the United Kingdom and representing developing and developed economies, respectively. The article delves into how the burgeoning digital economy challenges international tax laws by scrutinizing the implementation of the digital service tax (24DST) and highlighting the weaknesses of the two-pillar plan in comprehensively addressing the digitalization of the economy. It also broadens the comprehension of the unique obstacles and potential opportunities inherent in the digital economy from an international taxation perspective. The significance of this research lies in its potential to inform tax policy in an increasingly digitalized global economy. Policymakers can develop strategies that are more effective in ensuring fair taxation practices by understanding the nuanced interactions between digital services and international tax regulations. Additionally, MNEs can use this research to better navigate the complex tax implications of their digital services in various economic contexts and thereby foster sustainable and ethical business practices. Digital economy, digital service tax (DST), Kenya, multinational enterprises (MNEs), organisation for economic co-operation and development (OECD), pillar one and pillar two, taxation, tax base, unilateral tax measure, United Kingdom (UK).

Global corporate tax competition leads to unintended yet non-negligible climate impacts

Global corporate tax competition leads to unintended yet non-negligible climate impacts

Global corporate tax competition challenges climate change mitigation

Global corporate tax competition challenges climate change mitigation

The Influence of Transparency on Municipal Taxation: An Empirical Analysis

Local government officials are accountable to citizens, who increasingly demand more transparency given the amount of taxes they pay. This paper analyses the relationship between municipal tax revenues and transparency in Spain. Based on a sample of 141 Spanish municipalities with more than 15,000 inhabitants and applying least squares regression and instrumental variable analysis based on two-stage least squares regression, we find that the most transparent municipalities collected more global taxes. Furthermore, more municipal financing through transfers from other levels of government leads to lower taxes on construction and capital gains generated by real estate transfers.

Taxes and social instability: How large corporations and wealthy taxpayers hide taxable money?

<p><span lang="EN-US" style="font-size: 12pt; font-family: verdana, geneva, sans-serif; color: black;">Non-compliance with tax obligations, particularly by wealthy taxpayers and large corporations, continues to represent a source of social injustice that fuels social instability, especially in developing countries. Understanding the strategies of tax evasion and avoidance is of critical importance. This article highlights five main strategies used by large corporations and wealthy taxpayers to avoid taxes, including tax havens, the underground economy, aggressive tax optimization, alternative financial markets, and crypto currencies. We also propose several actions to tackle global tax non-compliance, including prevention, peer reporting, active monitoring of compliance indicators and inter- national cooperation. These actions can be combined to achieve optimal results in reducing tax evasion and avoidance.</span></p>

Research on Global Tax Governance under the Background of Digital Economy

<p style="text-align: justify;"><span lang="EN-US" style="font-size: 14pt; font-family: 'times new roman', times, serif;">Under the background of digital economy, global tax governance has become one of the important topics in today's world development and change. In recent years, new challenges, such as tax base erosion and profit transfer, and the imbalance of cross-border tax source division, have become prominent, forcing the reform of international tax rules and the reshaping of international tax order. Based on this, the article first deeply digs into the scale and cross-border characteristics of the spatial-temporal aggregation of the digital economy, and comprehensively evaluates its impact on the global tax governance pattern. After that, the article combs out the realistic picture and challenges of the current digital tax reform from the aspects of theoretical basis, basic principles and governance mechanism. Finally, based on China's basic national conditions, the article puts forward some institutional ideas and policy suggestions, with a view to improving China's participation, voice and influence in global tax governance, and also enabling governments, enterprises and residents of various countries to enjoy the fruits of world economic development fairly and promote the construction of Community of Shared Future for Mankind.</span></p>

International investment agreements and the global minimum tax: of treaty troubles and investment incentives

Abstract Statutory and effective tax rates have witnessed a marked decline over the past decades, prompting international tax policymakers to grapple with the challenge of tax competition. The latest tool in this struggle is the global minimum tax (GMT). This paper examines the intersection between the GMT and International Investment Agreements (IIAs). It first briefly explains the operation of the GMT and reviews how IIAs address domestic tax measures. It goes on to argue that multinational enterprises (MNEs) affected by the GMT are unlikely to file large numbers of investor-State dispute settlement cases to challenge its implementation. Instead, MNEs will leverage IIAs in seeking to replace corporate income tax incentives captured by the minimum tax with alternative economic benefits. Given how income-tax-based investment incentives are administered in practice, many MNEs could plausibly argue that the withdrawal or undermining of these incentives through top-up taxes violates IIA protection standards. The paper concludes by outlining the potential motivations and options for MNEs seeking to replace tax incentives and the implications for the ongoing global effort to address tax challenges. Ultimately, the GMT’s design means that the race to the bottom is likely to shift elsewhere.

Implementation of the Global Minimum Tax in Italy and EU Directive Proposals: Does This Approach Effectively Pave the Way for the Establishment of a More Sustainable Tax System?

This contribution describes the implementation of a global minimum tax in Italy and provides an initial assessment of its anticipated impact, both financially and in respect of the sustainable evolution of the tax system in economic, social and environmental terms, considering the latest directive proposals, i.e. the directives on Business in Europe: Framework for Income Taxation, transfer pricing and Head Office Tax system for micro, small and medium-sized enterprises.

Implementation of the Global Minimum Tax in Italy and EU Directive Proposals: Does this Approach Effectively Pave the Way for the Establishment of a More Sustainable Tax System?

This contribution describes the implementation of a global minimum tax in Italy and provides an initial assessment of its anticipated impact, both financially and in respect of the sustainable evolution of the tax system in economic, social and environmental terms, considering the latest directive proposals, i.e. the directives on Business in Europe: Framework for Income Taxation, transfer pricing and Head Office Tax system for micro, small and medium-sized enterprises.

Empirical Research: Influence of domestic constituencies in the implementation of international tax standards and legitimacy of global tax governance

The intensification of global governance activities in the area of international taxation has raised the question of the democratic legitimacy of the process since decisions in multilateral institutions are typically made by members of the executive alone and predominantly those from developed countries. There are opportunities to influence discussions at the global level for non-state actors, but the capacity to do so is unequally distributed. Yet, the results of global standard-setting processes need to be implemented domestically which affords opportunities for a wider range of constituencies to influence the outcome, among them elected parliamentarians, businesses, and local civil society. On the one hand, this two-stage process mitigates the lack of inclusiveness in global governance; on the other hand, it may jeopardize the effectiveness of global standards in achieving harmonization. In practice, opportunities for stakeholders to influence the implementation process and the interest to actually do so vary across countries. The purpose of this article is to chart this variation and discuss what it means for the global governance process. This is sourced from interviews on the implementation of the BEPS project’s standards with different tax policy stakeholders in Australia, Colombia, India, Mexico, the Netherlands, Nigeria, Senegal and Spain. With this data it is identified which non-governmental constituencies exist in each country, what are their interest vis-à-vis different elements of the BEPS Project, and what means they have at their disposal to influence the implementation process. The findings indicate variation across countries regarding the direction in which governmental and non-governmental stakeholders try to influence the outcomes as well as regarding their opportunities to effectively influence implementation processes. This entails that the level of implication of stakeholders will be context-dependent and so will be the answer to the question on whether the participation in the implementation process can ‘compensate’ for a lack of participation in standard setting processes. Global tax governance, democratic legitimacy, international taxation, domestic implementation, stakeholder inclusiveness, expert interviews

Article: Power and Expertise in Global Tax Governance

It is a rather broadly held misconception that the project on Base Erosion and Profit Shifting (BEPS) began in September 2013 when the G20 Leaders’ endorsed the OECD’s Action Plan on BEPS.1 The general acceptance of this narrative is understandable and perhaps largely trivial. However, it does tell us something important about our tendency to focus on the foreground of issues – on the immediate and obvious. When public focus is narrowed down to notable events, such as the G20 Leaders’ summits, the background work of tax experts fades out of focus. Often, the work of the expert is not even associated with the idea of public power and authority; it is reduced to something concerned with mere technicalities. Yet, it is the expert who outlines the agenda and prepares the discussion drafts and executive summaries that inform the (political) actor in the foreground of the issues that, based on objective expert knowledge, should somehow be addressed in one way or another. The more complex the issue, the less that the actor in the foreground has the technical ability to assess the merits of the experts’ proposition. Sometimes, owing to our desire to be confident in our ability to grasp difficult concepts, we may ultimately support the expert who makes the claim of superior knowledge over an issue we do not fully comprehend precisely as a result of our lack of understanding so as to deny or conceal this deficiency. Occasionally, such false confidence of the foreground actor in their ability to assess the propositions of the expert may result in a feedback loop in which the ideas of the expert appear to legitimize the power of the foreground actor, and this power subsequently appears to legitimize the expert’s ideas. This article will discuss the role of experts and the everyday power they use in the realm of global tax governance. To date, such a discussion has largely escaped the agenda of legal academic discussion.3 Yet, the importance of the discussion on expert power in tax is paramount; unawareness over this constituent element of the current paradigm results in an inability to address what is known as the legitimacy deficit of global tax governance. This will continue to reproduce global power imbalance in favour of the privileged and at the expense of the disenfranchized. The development of international tax norms into a regime of global tax governance will serve as a framework for this discussion thereby rendering the role of experts working under the auspices of the League of Nations and, subsequently, the OECD at the center of the focus. Global tax governance, technocracy, politics of taxation, experts, framing, BEPS, structural bias, legitimacy

Global corporate tax policy space

This study investigates the economic growth implications of ongoing and prospective rises in corporate tax rates following G20 countries’ minimum corporation tax agreement. We use a panel data estimation approach to examine economic growth rates and associated macro-economic variables of 42 nations from 1990 to 2017. To elicit more comprehensive insights, we make a distinction between advanced countries (ACs) and emerging market economies (EMEs) and different levels of growth using a quantile estimation approach. The results reveal that corporate tax rate rises depress growth, with a relatively sizeable impact for EMEs, whereas it is not statistically significant for ACs. At high quantiles of growth rates, the impact of the corporate tax policy on growth increases. These findings suggest a dual effect for EMEs with relatively high growth rates and symmetric growth effects of corporate tax changes, necessitating innovative policy prescriptions to address the negative growth impact of prospective higher corporate tax rates.

Study on the Impact and Response of the Implementation of Property Tax and Estate Tax on the Worldwide Asset Allocation of Chinese High Net Worth Individuals in the Context of Global Tax Reform

This paper examines the impact of property tax and estate tax implementations on high-net-worth individuals in China, offering insights into effective asset allocation and tax planning strategies to achieve legal tax optimization. It explores global asset diversification, the establishment of offshore trusts, family offices, strategic immigration planning, and philanthropy as mechanisms to mitigate tax liabilities while ensuring wealth preservation and compliance with evolving tax regulations. This analysis aims to provide a comprehensive framework for navigating the complexities of wealth management in the face of significant fiscal policy changes.

Relationship between Tax Incentives and Corporate Tax Avoidance Strategies in Kenya

Purpose: The aim of the study was to assess the relationship between tax incentives and corporate tax avoidance strategies in Kenya.
 Methodology: This study adopted a desk methodology. A desk study research design is commonly known as secondary data collection. This is basically collecting data from existing resources preferably because of its low cost advantage as compared to a field research. Our current study looked into already published studies and reports as the data was easily accessed through online journals and libraries.
 Findings: The relationship between Tax Incentives and Corporate Tax Avoidance Strategies in Kenya has been a subject of research. Findings indicate that while tax incentives are intended to promote economic growth and investment, they can also create opportunities for corporate tax avoidance. Companies in Kenya have sometimes leveraged these incentives to reduce their tax liabilities through legal but aggressive tax planning strategies, potentially leading to reduced government revenue.
 Implications to Theory, Practice and Policy: Agency theory, resource dependence theory and political economy theory may be use to anchor future studies on assessing relationship between tax incentives and corporate tax avoidance strategies in Kenya. For practitioners, understanding how tax incentives and avoidance strategies vary across industries is essential. Policymakers should actively engage in global collaboration to address tax avoidance by multinational corporations. International tax policy reforms and coordinated efforts are needed to create a fair and transparent global tax environment that discourages aggressive tax avoidance.

Article: Climate Clubs: An International Tax Law Perspective

Global carbon pricing has often been portrayed as an interesting idea that will never be implemented due to political hurdles. Yet, this description is being challenged: growing political support for climate clubs suggests that a global carbon price might become reality in the future. This article investigates the conditions for the adoption and implementation of a climate club based on a global carbon price by comparing it to the international corporate tax club created by Pillar Two, which was also described as politically impossible a few years ago. This comparison highlights that establishing a climate club will require addressing design issues and institutional obstacles that might be even more complex than those that characterized the negotiations of the global anti-base erosion (GloBE) rules. Climate club, carbon border adjustment measures, global carbon price, global carbon tax, GloBE rules, inclusive forum on carbon mitigation approaches, inclusive framework, international corporate tax club, Pillar Two

Auditors’ and Tax Specialists’ Interprofessional Collaboration during Audit Engagements: Implications for Audit Production and Audit Quality

ABSTRACT Tax specialists are often part of interprofessional teams that conduct financial statement audits, yet little is documented about their role and collaboration with auditors during these engagements or their contributions to audit quality. Our interviews with 33 highly experienced audit and tax professionals reveal variation in tax specialists’ roles during audits. Further, we find that auditors and tax specialists perceive a greater need for interdependence of expertise, particularly across different types of tax experts, due to increased tax specialization and global tax complexity. However, our interviewees acknowledge that power dynamics and differing attitudes toward shared goals and partnership affect the collaboration process. Interviewees also report instances where ineffective collaboration impacted audit quality. Collectively, we document how auditor and tax specialists’ collaboration (or lack of) influences both audit production and quality, providing insight for practice, regulators, and research regarding tax specialists’ audit involvement and extending the interprofessional collaboration literature to accounting. JEL Classifications: L84; M40; M42.

Getting action for global economic justice: the micro-foundations of transnational activism

Abstract Generating momentum for activist campaigns on complicated economic issues is difficult, especially in a transnational context. So, how did activists get action on tax justice and create a movement that has changed global tax policy? Drawing on 20 years of para-ethnographic fieldwork with the Tax Justice Network, we suggest that activists initially engaged in ‘identity switching’ tactics to access professional or policy arenas from a footing in one identity, to then switch identities to activate policy shifts. A first-generation leveraged multiple professional identities to access forums, build credibility and introduce a tax lexicon to activists and policymakers. These tactics were not, however, replicable, leading a second generation to concentrate on ‘identity fixing’, including professionalization and a tightening of organizational strategy over access and activation points. Here we theorize identity switching and fixing as underappreciated micro-foundations of transnational activism and demonstrate their importance for global economic justice.

Analysis of International Disputes over Digital Services Tax and Exploration of China’s Approach

With the continuous emergence of emerging information technologies, the digital economy is developing rapidly around the world. The global operations of multinational digital enterprises no longer rely on physical presence. The effectiveness of permanent establishment rules based on the traditional real economy settings has been questioned by market countries, which actively participate in Market countries where digital business value is created do not receive corresponding taxation rights. Multinational digital companies take advantage of loopholes in digital platforms and current tax rules to actively carry out tax planning, resulting in digital companies’ global tax burden being much lower than that of traditional companies. Tax sources cannot be fairly and reasonably distributed in the places where value is created and profits are taxed, which harms the tax interests of market countries. Against the background of slow progress in the OECD global unified solution, as a temporary unilateral measure to address the challenges of the digital economy, some countries have taken the lead in imposing digital service taxes on specific digital businesses of digital enterprises. On the basis of discussing the relevant concepts and theories of digital service tax, this article discusses the relevant concepts and theories of digital service tax, and analyzes the international development of digital service tax and the positions of various countries around the world. Further analyze the impact of digital service tax collection from three aspects: national fiscal revenue, tax trade disputes and international tax order coordination, and analyze the impact of digital service tax on digital enterprises. Then the perspective is focused on my country, sorting out and summarizing my country's relevant digital economy tax policies, and analyzing the impact of digital service tax on my country in the near term and long term based on the development of my country's digital economy. Finally, based on the previous comparative analysis and impact analysis, my country's tax system for promoting the development of the digital economy has gradually improved and actively participated in the reshaping of international tax rules, and my country's response strategies under the digital service tax have been proposed. The different levels of digital economic development between China and countries that have levied digital service taxes will inevitably lead to disharmony in the international tax order. The study found that the fiscal revenue brought by digital service tax is limited and has a certain degree of distortion effect. It is necessary to actively participate in international cooperation and make China's voice heard before reaching a consensus on international tax rules. In the long term, we should focus on the connection between the two-pillar plan and the domestic tax system, strengthen tax information exchange, improve the domestic digital tax rule system, and promote the healthy and sustainable development of my country's digital economy.