Multinational Enterprise Groups Research Articles

EU Minimum Taxation Directive (2022/2523) (Pillar Two) Implemented in Romania

The law implementing the EU Minimum Taxation Directive (2022/2523), which is aimed at ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the European Union, was promulgated in Romania by a Presidential Decree of 29 December 2023, published in the Official Gazette of Romania on 5 January 2024. This article provides an overview of the main features of the Directive as implemented into Romanian law.

Pillar Two Implementation – Bill Submitted to Parliament

This note summarizes the Bill of Law Implementing Council Directive (EU) 2022/2523 on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the European Union, which was presented by the Luxembourg government on 4 August 2023, and amended on 13 November 2023. The authors examine the main features of the Bill and its amendments and focus on some key points.

Italian Tax Authorities Issue Public Ruling on Imported Hybrid Mismatches

In this note, the authors comment on Italian Ruling No. 288/E, which clarifies the circumstances in which a hybrid mismatch should be deemed to exist as a result of the imported hybrid mismatch rule being triggered in a situation involving an Italian company that is part of a multinational enterprise group.

Intra-Group Transactions from VAT Point of View – The Pricing

Intra-group transactions performed by members of multinational enterprise groups can have in several particular implications in the field of taxation. In this article, the author analyses the impact of the potential VAT consequences of pricing in intra-group transactions, which covers the VAT treatment of transfer pricing adjustments and the application of open market value.

Holding company location: a Polish tax perspective

This paper aims to present the size and structure of passive income payments, such as dividends, interest, royalty payments, and fees for intangible services, made by companies domiciled in Poland belonging to a multinational enterprises (MNE) group. The authors formulate a hypothesis that tax jurisdictions offering extensive legal and tax incentives for holding structures, in particular concerning the tax treatment of dividends and other withholding tax payments, are the preferred location of holding companies. A review of the literature and legal sources precedes empirical research. The empirical analysis shows that passive income flows, including dividends, interest, royalties, and fees for intangible services, which constitute the dominant type of payments to holding companies, are directed from Poland primarily to countries with tax and regulatory solutions that are friendly to holding companies, including in particular the so-called intra-EU tax havens, namely Luxembourg, Cyprus, the Netherlands, Malta and Ireland. Real trade with these countries is neither significant nor proportional to the scale of passive income.

Reconstruction of International Tax Rules to Meet the Challenges of Digital Economy

The current cross-border income tax collection rules of “positive income is levied in the source country and passive income is levied in the resident country” seriously violate the benefit principle in practice. The corporate income tax system is the institutional root of the failure of the above rules. The digital economy with data as the key production factor, invisibility and liquidity, relying on user participation and natural monopoly intensifies the negative impact of the corporate income tax system on the current rules. Starting from the principle of benefit and combined with the theory of value creation, this paper advocates the reconstruction of the cross-border income tax collection rule system, which takes the whole multinational enterprise group as the tax subject, takes the formula distribution as the method, takes the progressive tax rate as the improvement direction, and adopts “positive income is levied in the resident country and passive income is levied in the source country”.

Involvement of Component Auditors in Multinational Group Audits: Determinants, Audit Quality, and Audit Fees

ABSTRACTWe study what determines the involvement of component auditors in multinational enterprise (MNE) group audits and the association with audit quality and audit fees. Using unique Australian disclosures of group audit fees paid to the principal and component auditors, we first document that MNE complexity, MNE internationalization, and auditor characteristics are associated with component auditor involvement, and extent and type of component auditor involvement. Next, we find that involvement of component auditors benefits audit quality as long as the principal auditor conducts a substantial amount of work. Once the involvement of component auditors exceeds a certain level, audit quality decreases. We also document that audit fees are higher in the presence of a component auditor and increase with the extent of involvement, irrespective of component auditor type. Our results contribute to the emerging literature on group audits and provide empirical evidence on regulatory concerns about group audit quality.

Conflict and Response to the Jurisdiction in Maritime Cross-border Insolvency Cases

Economic globalization has led to the continuous increase of multinational companies and enterprise groups in the field of shipping, an international and fully open international shipping market has initially formed, and the foreign-related business of shipping companies has also increased. But since the financial crisis, the shipping industry has been in a downturn, and bankruptcy cases of shipping companies continue to occur. In 2012, the world's second largest independent tanker operator, Overseas Ship Holding Group Inc (OSG), filed for bankruptcy protection; in 2013, STX Dalian went bankrupt; in 2014, the world's largest marine fuel oil supplier (OW Bunker) declared bankruptcy; in 2017, Hanjin Shipping, the world’s seventh largest shipping company, was declared bankrupt by a South Korean court. In this paper, we focus on the analysis for the legislative provisions and problems in judicial practice of the jurisdictional system of maritime cross-border insolvency cases, summarize the factors affecting the jurisdictional system of maritime cross-border insolvency cases by combining the criteria and theories of jurisdictional determination, draw on the legislative and judicial practice experience of major shipping countries, and put forward feasible suggestions to improve the jurisdictional system of maritime cross-border insolvency cases. This dissertation analyzes the conflict of jurisdiction between maritime and bankruptcy in the same jurisdiction and the conflict of jurisdiction in different jurisdictions from both horizontal and vertical dimensions; theoretically and practically, through the current regulations and judicial practice of China and major shipping countries, it puts forward feasible suggestions to improve the jurisdictional system of maritime cross-border bankruptcy cases in China.

The Rise of \u2018Group Solution\u2019 in Insolvency Law and Bank Resolution

This article traces the emergence of the concept of ‘group solution’ and its manifestations in insolvency law and bank resolution as an alternative to the rigid entity-by-entity approach. The rise of this concept can be linked to the recognition of the specificity of problems related to the insolvency of multinational enterprise groups, arising from group operational and financial interconnectedness. This has not happened at once, but has resulted from the evolution of views and ideas, evident in hard and soft law instruments of the 2000s and the 2010s. In light of this important development the article explores the concept of a group solution, its rationale, scope of application and limitations. It concludes that despite the gradual acceptance of the group phenomenon, a group solution has not been formed as a coherent and well-defined legal principle. Instead, it represents a variety of approaches, tools and practices, which pursue different policy objectives underpinned by different societal values. Among them are asset value maximization, business rescue, the protection of financial stability and the preservation of banks’ critical functions. With all its flexibility, a group solution has one pervasive limitation—it cannot trump the interests of individual group members and their creditors. At the same time, in order to realize the full potential of a group solution, it is necessary to embrace the group-sensitive and forward-looking interpretation of creditors’ interest, facilitating commercially sensible and practical group solutions.

Cross-border effects of R&D tax incentives

Existing evidence shows that R&D tax incentives boost countries’ private sector R&D. Given the importance of multinational enterprises (MNEs) for private sector innovation, it is unclear, however, whether firms engage in genuinely new R&D or whether R&D is reallocated across borders. Drawing on data on unconsolidated R&D activity of MNEs in Europe, we provide evidence that responses are dominated by cross-border relocations: More generous tax incentives in one country increase MNEs’ R&D investments in affiliates located there, while lowering R&D investments in affiliates of the same MNE group located in other countries. Globally, firms hardly raise their R&D activities when tax incentives become more generous.

New CbC Reporting Regulations in the United Arab Emirates

September 2019 and February 2020, the author published articles in the International Transfer Pricing Journal on CbC reporting regulations in the United Arab Emirates (UAE). As the UAE introduced new CbC reporting regulations for UAE-headquartered multinational enterprise groups on 4 June 2020, this article is structured to provide the latest information concerning CbC reporting regulations in the UAE.

Third-Party Releases in Insolvency of Multinational Enterprise Groups

Abstract Europe is experiencing the rise of restructuring proceedings, which has recently culminated in the adoption of the Restructuring Directive. While being a major achievement in harmonising substantive (pre)insolvency law in the EU, it lacks rules targeting restructuring of multinational enterprise groups. As a result, effectiveness of group reorganisations may be undermined. Nevertheless, some jurisdictions adopt innovative tools, facilitating group solutions. Among them – third-party releases. Such releases entail a total or partial discharge or amendment of claims against third parties, such as co-obligors, guarantors and collateral providers (typically, group members) in the insolvency or restructuring proceeding of the principal debtor.The diversity of approaches to third-party releases highlights their controversial nature. Such releases may frustrate legitimate expectations of creditors relying on cross-guarantees and other forms of cross-liability arrangements. Extending the effects of debt reorganisation to third parties in the absence of a separate insolvency proceeding may also run contrary to the longstanding views on corporate insolvency and entity shielding. This article argues that a single-entity-restructuring risks being short-sighted and that third-party releases are a matter of commercial necessity, synchronising legal responses with actual business models and better addressing the complexity of group interdependencies, realised through various intra-group liability arrangements.

Research on the Construction of Enterprise Financial Shared Service Center Based on Cloud Computing

Multinational companies and large enterprise groups in the economic globalization and information era have high financial costs, difficult management, and poor financial information quality. In the financial sharing service, it centralizes and centralizes the branch’s accounting, expense reimbursement, fund payment and other services, and uses cloud computing technology to effectively improve its data storage capacity and calculation and analysis capabilities, thereby effectively solving the company’s financial management problems. This paper focuses on the financial management problems of large multinational enterprises, studies cloud computing, financial sharing services and other related theories and technologies, and discusses in depth the advantages, construction principles and construction processes of financial sharing services in cloud computing environments. Reengineering, repayable process reengineering, and receivables process discussed the construction of a cloud-based financial shared service center to provide a reference for related companies to improve their financial management models and obtain good business results.

Third-Party Releases in Insolvency of Multinational Enterprise Groups

Europe is experiencing the rise of restructuring proceedings, which has been facilitated by the Restructuring Directive (Directive (EU) 2019/1023 of 20 June 2019). While being a major achievement in harmonizing substantive (pre)insolvency law in the EU, it lacks rules targeting restructuring of multinational enterprise groups. As a result, effectiveness of group reorganizations may be undermined. Nevertheless, some jurisdictions adopt innovative tools, offering group solutions. Among them – third-party releases. Such releases entail a total or partial discharge or amendment of claims against third parties, such as co-obligors, guarantors and collateral providers (typically, group members) in insolvency or restructuring proceedings of a principal debtor. The diversity of approaches to third-party releases highlights their controversial nature. They may frustrate legitimate expectations of creditors relying on cross-guarantees and other forms of cross-liability arrangements. Extending the effects of debt reorganization to third parties in the absence of a separate insolvency proceeding may also run contrary to the longstanding views on corporate insolvency and entity shielding. This article argues that a single-entity-restructuring risks being short-sighted and that third-party releases are a matter of commercial necessity, synchronizing legal responses with actual business models and better addressing the complexity of group interdependencies, realized through various intra-group liability arrangements.

Profit Allocation within MNEs in Light of the Ongoing Digital Debate on Pillar I – A “2020 Compromise”?

The current profit allocation framework, i.e. the arm’s length standard, is mainly based on a facts and circumstances analysis. In particular, depending on the situation, facts and circumstances-related allocation keys are used to allocate profits among various entities within a multinational enterprise (MNE). Nevertheless, there are situations wherein predetermined formulas and/or allocation keys are also used within the standard. The purpose of this article is to show that predetermined approaches will quickly infiltrate the profit allocation framework, although a facts and circumstances analysis and/or allocation keys will continue to be used. The authors support this proposition by analysing the current debate on profit allocation with respect to the digitalization of the economy. They conclude that the use of predetermined approaches is inevitable if the objective is to develop a simplified solution with respect to the profit allocation debate made in the context of Pillar 1 of the digital debate. A simplified solution would be to apply a formulary approach at the MNE group level and an arm’s length principle (ALP) approach at a separate-entity level. More specifically, a predetermined formulary approach in the form of a simplified but modified residual profit split method could be applied at the MNE group level to reallocate residual profits (the so-called Amount A). Simultaneously, a predetermined formula based on the arm’s length approach could be applied at a separate-entity level, that is, to routine distribution and/or marketing activities (the so-called Amount B). This latter approach will be complemented and backed up by a facts and circumstances arm’s length analysis (the so-called Amount C, which, in some respects, would seem to be more of a process, rather than a separate amount). In this context, the authors address their view on a few key questions that arise in the “new” profit allocation context for Amounts A, B and C. For Amount A, the authors express their view on determination of the MNE tax base, determination of losses, revenue sourcing rules, information reporting, collection of taxes as well as stabilization of the MNE group approach. For Amount B, they provide their view on issues such as the determination of the scope of application, the determination of the fixed return, its legal qualification and its possible stabilization. The need to introduce a more robust dispute resolution institutional framework is also addressed with specific regard to Amount C. Finally, they analyse the impact of the new profit allocation mechanisms on selected business models used by MNEs. It should be noted that the present contribution does not address, as far as necessary to provide adequate context, the normative debate on a new scope, new nexus or new relief rules but rather focuses on the challenges arising from profit allocation.

The Use of Country-by-Country Reporting for Tax Risk Assessment: Challenges and Potential Solutions

This article provides some considerations on the use of the country-by-country reporting for tax risk assessment through an in-depth review of the potential issues associated with the implementation, design and appropriate use of the country-by-country report. After providing a broader conceptual framework that outlines the general benefits of incorporating the report into a tax authority’s risk assessment framework, the article specifically suggests potential areas for improvement in respect of how to address the different issues and examines whether modifications should be made to the standard, especially in light of the forthcoming 2020 review.. Such recommendations are addressed to tax administrations and multinational enterprise groups, since inefficient use will be burdensome for both parties The analysis also takes into consideration the recent public consultation draft issued by the OECD.

Legislative and Administrative Aspects of the UAE Country-by-Country Reporting

This article is structured to provide more practical information concerning legislative and administrative aspects of country-by-country requirements so that the UAE tax-resident multinational enterprise groups can achieve adequate and timely compliance with the requirements.

Sharing data on the activities of multinational enterprise groups: Innovations to redesign statistical practices and processes

The professional discussion on “The future of economic statistics” has a practical driver: Economic statistics, produced by national statistical offices, face severe difficulties in describing the national and global economic development in a relevant and coherent manner. This is not only our perception as statisticians – there is a growing criticism towards traditional economic statistics among researchers, policymakers and other users. In this article, we reflect on the factors that have caused the current situation and propose solutions to improving the situation by data sharing. One aspect of the solution relates to the role of national statistical offices. Instead of being solely national institutions, dealing with national data only, they should exploit the possibilities of using statistical data, collected by statistical authorities of other countries, to produce better quality economic statistics. The other aspect of the solution is the sharing of innovative practices to understand and correctly record the activities of multinational enterprise groups (MNEs). The proposals we make in this article are not restricted to MNEs but are applicable to any type of economic activity with a cross-border dimension. The observations we make here are based on the work done when preparing the UNECE Guide to Sharing Economic Data.

Cross-Border Effects of R&D Tax Incentives

Existing evidence shows that R&D tax incentives boost countries' private sector R&D. Given the importance of multinational enterprises (MNEs) for private sector innovation, it is unclear, however, whether firms engage in genuinely new R&D or whether R&D is reallocated across borders. Drawing on data on unconsolidated R&D activity of MNEs in Europe, we provide evidence that responses are dominated by cross-border relocations: More generous tax incentives in one country increase MNEs' R&D investments in affiliates located there, while lowering R&D investments in affiliates of the same MNE group located in other countries. Globally, firms hardly raise their R&D activities when tax incentives become more generous.

The role of small- and medium-sized enterprises in the Dutch economy: an analysis using an extended supply and use table

Firm size is increasingly acknowledged as an important factor for (macro-)economic policy. It is known that the overall importance of small- and medium-sized enterprises (SMEs) is different relative to large multinationals in terms of their impact on economic growth, exports and innovation. Yet empirical evidence to substantiate the role of firms of different sizes is rare. To tackle this problem, we develop a novel approach by extending the Dutch supply–use framework to firm size. We utilize firm-level data to construct a purpose-built supply–use table distinguishing between SMEs and large enterprises and derive an extended input–output table. In doing so, we adopt a more evolved definition of SMEs, accounting for the fact that small firms may be subsidiaries of large (multinational) enterprise groups. The analysis shows that due to their function as suppliers, SMEs benefit much more from Dutch exports to foreign markets than the traditional export figures show. SMEs are less dependent on imports than large enterprises. This might be detrimental to the competitiveness of SMEs if they do not fully appreciate the benefits of sourcing internationally in terms of cheaper or higher quality inputs. The paper shows the policy relevance of macroeconomic statistics which distinguish firm size.