Tax Purposes Research Articles

Charity in the 21st Century: Trending Toward Decay

The turn of the century seemed to bring with it a sharply critical focus on charity.(FN1) Under federal tax law, a charity includes organizations that are "organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes." This single phrase provides a standard not just for tax exemption for over 1.2 million organizations (which are diverse in purpose, size, function, complexity, and effectiveness) but also access to several tax and nontax preferences, including eligibility to receive tax deductible contributions (for income, estate, and gift tax purposes),(FN2) access to tax-exempt financing,(FN3) State property tax exemptions,(FN4) and regulatory relief, among other benefits.(FN5) The concerns about charities surfaced largely through press reports and are legion: spending of earmarked contributions for non-earmarked purposes; excess compensation to organization insiders; mission drift -- deliberate, or aided by faulty corporate governance; acceptance of property contributions when donors or others are the principal beneficiaries; participation in illicit tax shelter transactions; spending for non-charitable purposes; accumulations of income; failure to provide charitable services; use of the charitable form for non-charitable purposes; questionable investment practices; participation in political campaigns; and self-dealing transactions, to name a few.(FN6) The response to ongoing scandals by the Internal Revenue Service (IRS) and the Congress was mixed. As the scandals unfolded, the IRS continually pointed to abuses and the need to address them,(FN7) but also asserted that the charitable sector is "compliant," notwithstanding a minimal examination rate.(FN8) As part of its enforcement efforts, the IRS completed an ambitious overhaul of the annual information return charitable (and other tax-exempt) organizations file each year (the Form 990);(FN9) undertook intensive studies on the two largest segments of the charitable sector: hospitals,(FN10) and colleges and universities;(FN11) made an inquiry into executive compensation practices;(FN12) and raised new questions about governance.(FN13) The IRS's continuing actions indicate, at a minimum, suspicion that the charitable sector indeed has large pockets of noncompliance and that oversight, or the perception of it, is necessary. But the IRS can only do so much. Meaningful change of any underlying weaknesses in the tax law of charities ultimately must come from Congress.

Allocating Business Profits for Tax Purposes: A Proposal to Adopt a Formulary Profit Split

The current system of taxing the income of multinational firms in the United States is flawed across multiple dimensions. The system provides an artificial tax incentive to earn income in low-tax countries, rewards aggressive tax planning, and is not compatible with any common metrics of efficiency. The U.S. system is also notoriously complex; observers are nearly unanimous in lamenting the heavy compliance burdens and the impracticality of coherent enforcement. Further, despite a corporate tax rate one standard deviation above that of other OECD countries, the U.S. corporate tax system raises relatively little revenue, due in part to the shifting of income outside the U.S. tax base.In this proposal, we advocate moving to a system of formulary apportionment for taxing the corporate income of multinational firms. Under our proposal, the U.S. tax base for multinational corporations would be calculated based on a fraction of their worldwide incomes. This fraction would be the sum of (1) a fixed return on their expenses in the United States and (2) the share of their worldwide sales that occur in the United States. This system is similar in significant respects to the current “residual profit split” method of the U.S. transfer pricing regulations and the OECD Guidelines, as well as to the current method that U.S. states use to allocate national income across states. The state system arose due to the widespread belief that it was impractical to account separately for the economic activity supposedly earned in each state when states are highly integrated economically. Similarly, in an increasingly global world economy, it is difficult to assign profits to individual countries, and attempts to do so are fraught with opportunities for tax avoidance.

Stateless Income

This paper and its companion, The Lessons of Stateless Income, together comprehensively analyze the tax consequences and policy implications of the phenomenon of “stateless income.” Stateless income comprises income derived for tax purposes by a multinational group from business activities in a country other than the domicile of the group’s ultimate parent company, but which is subject to tax only in a jurisdiction that is not the location of the customers or the factors of production through which the income was derived, and is not the domicile of the group’s parent company. Google Inc.’s “Double Irish Dutch Sandwich” structure is one example of stateless income tax planning in operation.This paper focuses on the consequences to current tax policies of stateless income tax planning. The companion paper extends the analysis along two margins, by considering the implications of stateless income tax planning for the reliability of standard efficiency benchmarks relating to foreign direct investment, and by considering in detail the phenomenon’s implications for the design of future U.S. tax policy in this area, whether couched as the adoption of a territorial tax regime or a genuine worldwide tax consolidation system.This paper first demonstrates that the current U.S. tax rules governing income from foreign direct investments often are misapprehended: in practice the U.S. tax rules do not operate as a “worldwide” system of taxation, but rather as an ersatz variant on territorial systems, with hidden benefits and costs when compared to standard territorial regimes. This claim holds whether one analyzes these rules as a cash tax matter, or through the lens of financial accounting standards. This paper rejects as inconsistent with the data any suggestion that current law disadvantages U.S. multinational firms in respect of the effective foreign tax rates they suffer, when compared with their territorial-based competitors.This paper’s fundamental thesis is that the pervasive presence of stateless income tax planning changes everything. Stateless income privileges multinational firms over domestic ones by offering the former the prospect of capturing “tax rents” — low-risk inframarginal returns derived by moving income from high-tax foreign countries to low-tax ones. Other important implications of stateless income include the dissolution of any coherence to the concept of geographic source, the systematic bias towards offshore rather than domestic investment, the more surprising bias in favor of investment in high-tax foreign countries to provide the raw feedstock for the generation of low-tax foreign income in other countries, the erosion of the U.S. domestic tax base through debt-financed tax arbitrage, many instances of deadweight loss, and — essentially uniquely to the United States — the exacerbation of the lock-out phenomenon, under which the price that U.S. firms pay to enjoy the benefits of dramatically low foreign tax rates is the accumulation of extraordinary amounts of earnings (about $1.4 trillion, by the most recent estimates) and cash outside the United States.Stateless income tax planning as applied in practice to current U.S. law’s ersatz territorial tax system means that the lock-out effect now operates in fact as a kind of lock-in effect: firms retain more overseas earnings than they profitably can redeploy, to the great frustration of their shareholders, who would prefer that the cash be distributed to them. This tension between shareholders and management likely lies at the heart of current demands by U.S.-based multinational firms that the United States adopt a territorial tax system. The firms themselves are not greatly disadvantaged by the current U.S. tax system, but shareholders are. The ultimate reward of successful stateless income tax planning from this perspective should be massive stock repurchases, but instead shareholders are tantalized by glimpses of enormous cash hoards just out of their reach.

Trading One Danger for Another: Creating U.S. Tax Residency while Fleeing Violence at Home

Recent levels of violence in Mexico have caused certain of its citizens who do not hold permanent U.S. residency status (and who may not intend to reside in the United States permanently) to spend more time in the United States. By doing so, these individuals create the risk that they will become U.S. residents for U.S. tax purposes, thereby subjecting their income to worldwide taxation by the United States (as well as creating potential U.S. estate and gift tax issues). This paper explores whether there is relief available to such individuals under U.S. domestic law (the “substantial presence” test and its various exceptions). It also explores whether Mexican nationals can obtain relief from U.S. residency under the terms of the United States-Mexico income tax treaty. The paper concludes that it is less than clear whether relief is available; in particular, it is not clear whether the tax authorities or the courts may consider violence in the person’s home country in determining whether the individual is a U.S. tax resident. The paper then goes on to propose various statutory changes to the law to allow the tax authorities to provide relief and certainty on the question of U.S. tax residency to individuals who are present in the United States merely to avoid violence at home. The paper argues for such relief on the basis that imposing worldwide U.S. taxation and tax reporting obligations on Mexican nationals present in the United States merely to avoid danger at home is inequitable given the contributions of U.S. policy to the violence in Mexico.

Partnership Special Allocations Revisited

Special allocations of items of partnership income, gain, loss, and deduction have long created difficulties for the tax law. The paper argues that most such allocations should not be respected for tax purposes because they inappropriately separate the character of partnership items from the partners that are economically entitled to them. The paper suggests that special allocations instead ought to be viewed as transactions in partnership interests between or among the partners themselves. A number of consequences follow. The paper also argues that Treasury‘s rules for establishing the partners‘ interests in the partnership when an allocation fails the test for substantiality likely are inconsistent with section 704(b) of the Internal Revenue Code.

Was Blackstone's Initial Public Offering Too Good to be True?: A Case Study in Closing Loopholes in the Partnership Tax Allocation Rules

Typically, publicly traded entities must be treated as corporations for tax purposes. Blackstone Group LP is publicly traded, yet it is not treated as a corporation for tax purposes. Why not? Blackstone Group LP utilizes complex tax structuring in order to qualify for an exception from the typical corporate tax treatment and, in the process, saves millions of dollars in taxliability annually.Members of Congress have proposed reforms that would have prevented Blackstone Group LP from reducing its tax liability in this manner. However, these reforms were not enacted This Article takes a different approach. It argues that existing law already provides the IRS with the tools needed to challenge the legitimacy of the results claimed by Blackstone Group LP.In the process, this Article highlights an important and unintended loophole in existing partnership tax allocation rules - specifically, the failure of the rules to adequately address allocations among related partners. Finally, this Article proposes that the IRS use general tax law standards to close this unintended loophole.

주택 관련 세제의 이중과세에 대한 고찰*

Housing-related taxes can be classified by inheritance tax, gift tax, and acquisition tax at the time of acquisition, property tax and comprehensive real estate tax at the time of possession, and capital gains tax and local income tax at the time of disposal. Among the taxes at the time of acquisition, inheritance and acquisition taxes are levied at the time of inheritance, and gift and acquisition taxes are levied at the time of donation. Each tax at the time of inheritance and donation is levied by the market price of the house. Therefore, both the object of taxation is the same and the taxpayer are the same. The purpose of taxation is the same as financing, housing prices and supply-demand stability and the method of taxation for this is also heavily taxed. Accordingly, there is a high possibility of double taxation. Even in the precedent of judging double taxation, it is judged as double taxation because the purpose of taxation was similar and the taxable objectives were overlapped on matters with identical payment targets and taxation plans except different payment timing. In terms of this, it is likely that both the inheritance tax and acquisition tax at the necessary time and gift tax and acquisition tax at the time of donation could be double taxation. In order to solve the problem, acquisition tax could be levied on the inheritance deduction and gift deduction in conjunction with from the process of calculating the inheritance and gift taxes.

IMPROVING THE ORGANIZATION OF TOPOGRAPHIC AND GEODETIC WORKS IN THE CADASTRAL SERVICE

As socio-economic factors developed, the land cadastre became fiscal in nature and served mainly tax purposes. Land cadastre is constantly evolving and improving as a special calculation and evaluation phenomenon that occurred at a certain stage of development of society, and first of all, there were changes in the methods and techniques of study, accounting, evaluation, classification of land types and qualities. Geodetic works play an important role in the cadastral service. Their composition depends on the level of cadastre management and its automation.

Article: The Effect of Article 6 MLI on Covered Tax Agreements: Fata Morgana or New Reality?

Article 6 of the multilateral instrument (MLI) provides all bilateral covered tax agreements (CTAs) with preamble language expressing that it is the purpose of tax treaties to eliminate double taxation without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including through treaty-shopping arrangements). This contribution explores the effect this new preamble language will (realistically) have on the interpretation and application of CTAs. The author begins by discussing the current function of preambles for (tax) treaties, including in decisions of tax courts, then analyses the interaction between Article 6 MLI and CTAs, after which an interpretation is provided of Article 6 MLI itself and the terms used therein. Lastly, several objections against attributing the new preamble much effect in practice are discussed as well as the relationship between Article 6 MLI and the principal purpose test. The author comes to the conclusion that the preamble language of Article 6 MLI deserves a different status than the preambles that typically preceded it. Parties to the MLI will need to heed the working of Article 6 MLI for future questions of interpretation and application of tax treaties and should use caution in order to not dismiss the preamble as either irrelevant or superfluous too quickly. MLI, preamble, CTA, BEPS, abuse, non-taxation, avoidance, interpretation, purpose, treaty

Tax regulation of transactions with crypto assets in Russia and abroad

The article is devoted to the study of crypto assets as a specific category for tax purposes with the allocation of inherent features that affect tax regulation. The purpose of the article is to update the main approaches to taxation of transactions with crypto assets based on the experience of different countries, including Russia. To achieve this goal, the following tasks were set: to identify the features of crypto assets that allow considering crypto assets as a specific category for tax regulation purposes, to formulate theoretical approaches to taxation of crypto assets, to investigate practical experience and trends in taxation of transactions with such digital assets both in the international arena and in the Russian Federation; to identify the main problems in tax regulation transactions with crypto assets and suggest ways to solve them. As a result of the study, conclusions were drawn about the presence of specific characteristics of crypto assets (decentralization, a high degree of anonymity of transactions, the international nature of use, hybridity), which, together with the lag of regulatory legislation due to the rapid development of the crypto industry, complicate the tax regulation of transactions with this type of asset. It has been established that the absence of taxation rules for crypto assets in general does not mean that taxation is impossible and allows the application of tax rules established for similar categories of assets. The presence of special tax regulation of transactions with crypto assets allows both to influence the attractiveness of doing business in this area in certain jurisdictions, and to simplify regulation in this area by providing benefits to participants in crypto relations. The author revealed that a critical problem in this area is the difficulty of tax administration of transactions with crypto assets using traditional methods of tax control due to the difficulty of identifying the transactions, including due to the international nature of the use of crypto assets, which entails tax evasion of subjects of cryptocurrency transactions.

Business activities in pandemic of COVID-19 era, the source of accounting information and how do know how well our business is doing?

The purpose of this research is to analyze the completeness of accounting records kept by SMEs as a source of information for economic decision making Accounting plays an important role in the success or failure of a business institution. Type of this paper is qualitative methods. The result of this paper explained the accounting system is responsible for recording, analyzing, monitoring and evaluating the company's financial condition, preparation of documents required for tax purposes, providing information support for many other organizational functions. Accounting information is important because it can help companies manage their short-term problems in critical areas such as costing, spending, and cash flow, by providing information to support monitoring and control. Small companies are often founded from family businesses. For the most part, in family businesses, management is between family members. However, the workforce can come from non-family members. Therefore, the business environment differs according to the management style as well as the culture passed down from generation to generation Small and Medium Enterprises (MSMEs) It has been recognized that proper accounting information is essential for the successful management of any business entity, whether large or small, the types of accounting records kept and maintained by SMEs.

ЦИФРОВІЗАЦІЯ ОРГАНІВ ПОДАТКОВОГО АДМІНІСТРУВАННЯ В КОНТЕКСТІ СУЧАСНИХ ВИКЛИКІВ І ЗАГРОЗ

The article considers the role of tax administration digitalization bodies in the context of current challenges and threats caused by the pandemic in the world and war in Ukraine. The importance of developing the electronic interaction channels between the State Tax Service of Ukraine, tax administrations of OECD countries and taxpayers in the context of Covid-19 and war action is outlined. The focus is on expanding the list of electronic services (for business, private entrepreneurs, IT services), which will increase opportunities for the implementation of the principle of convenience in fulfilling the tax obligation to the state. Continuous development and improvement of services provided by state tax authorities increase the image rating of state institutions, in particular, carry out electronic taxation, which allows: automate internal tax functions; to build electronic information interaction between taxpayers and state tax authorities in the field of taxation; to form effective online communication and ensure fast and secure data exchange between government agencies in the field of taxation; to ensure effective international cooperation in electronic format. The directions for the tax authorities digitalization strategy change for the purpose of effective taxes and fees administration process are offered: granting equal access of citizens, business representatives, tax administrators to digital technologies and new opportunities (to reduce digital gaps); advanced training of personnel for the full development of digitalization of the State Tax Service; increasing the level of automation and digitalization of public services together with the motivation of government agencies.

Reflections on the proposals of the European Commission for a digital tax

Digitalisation leads to significant changes in many areas of the economy. Chancellor Angela Merkel believes that the increasing collection and the use of consumer data associated with digitalisation is creating fundamental justice problems. The public debate focuses on the taxation of international digital companies. Facebook and other Internet giants make high profits in Europe, but they are hardly taxed there. In the opinion of many politicians, this is unacceptable - but it complies with the applicable standards of the international tax system. The current corporate tax rules are built on the principle that profits should be taxed where the value is created. The tax rules were mainly conceived in the early 20th century for traditional businesses. They define what triggers a right to tax in a country ("where to tax") and how much of corporate income is allocated to a country ("how much to tax") largely based on having a physical presence in that country and without reflecting the value created by user participation. That means that non-residents for taxation purposes become liable to tax in a country only if they have a presence that amounts to a permanent establishment there. The Commission has made two legislative proposals in 2018. The new rules would ensure that online businesses contribute to public finances at the same level as traditional 'brick-and-mortar' companies. 1. A digital platform will be deemed to have a taxable 'digital presence' or a virtual permanent establishment in a Member State if it fulfils certain criteria. 2. The European Commission intends to introduce a 3% tax on sales through the sale of user data, the provision of online advertising and the provision of online marketplaces. The tax will apply to companies with a total turnover of EUR 750 million worldwide and a digital turnover of EUR 50 million in the EU. The digital tax raises various questions about the justifications. Especially for the export nation Germany, it could turn out to be a dangerous boomerang.

Resolving Residence of a Company for Tax Purposes in Tanzania: Is ‘Management and Control’ Test Still Relevant?

Abstract It is an accepted principle that countries have the right to tax residents and nonresidents on their income from business on source or residence. The determination of the residence of a company for tax purposes based on the “management and control” and ‘place of effective management’ may pose challenges in establishing tax liability of a dual resident corporation. Such challenges cause problems on corporate taxes and transfer pricing between related parties. Similarly, multinational companies may face challenges in ascertaining their tax liability. The new criteria for determination of residence of a company based on mutual agreement under the OECD and UN Models of 2017, have ramification over the two tests. This article analyses residence of a company on the basis of the two tests in Tanzania. It argues that the two tests as used in Tanzania are superseded by new criteria. Finally, it offers a modest proposal for determination of dual resident of a company in Tanzania.

Book Review

Book Review

Article: The EU’s Uncoordinated Approach to Tax Avoidance and Tax Abuse in Relation to ‘Uncooperative’ Tax Jurisdictions

The European Union (EU)’s external tax policies in relation to ‘uncooperative’ tax jurisdictions are predominantly shaped by the case law of the Court of Justice of the European Union (CJEU), the Member States’ domestic tax laws and, most recently, the EU list of non-cooperative jurisdictions for tax purposes (EU blacklist). Research in academia scholarship has assessed the EU blacklist from various angles. The objective of this article is to contribute to this discussion by contextualizing the EU blacklist with the relevant CJEU case law on anti-avoidance and antiabuse provisions applied in third country situations. Beyond an assessment from a doctrinal perspective, particular emphasis is placed on related tax policy issues. This combined evaluation yields three primary conclusions: the EU blacklist’s soft law character allows the Member States to continue to take advantage of type-casted and irrebuttable anti-avoidance and anti-abuse provisions in light of the CJEU case law; the EU blacklist’s inability to meet its initial objectives can be explained by political dynamics at the EU level; and the EU blacklist might relieve some of the currently manifesting symptoms without addressing the fundamental flaws in the international tax system. CJEU case law, developing countries, EU blacklist, EU external tax policies, free movement of capital, harmful tax competition, mutual assistance, tax abuse, tax avoidance

Развитие международной методологии оценки товаров для таможенных целей

The subject of the article is the customs value of goods. The category “valuation of goods for customs purposes” in application to international practice and practice of the EAEU. To explore the directions of development and approaches to the determination of the customs value of goods (on the basis of international methodology), the principles of its formation. Despite the apparent attractiveness of specific rates of customs duties, the trends of recent years confirm an increase in the frequency of use of ad valorem rates. In these circumstances, the volume of customs duties directly depends on the methodologically correct assessment of the customs value of goods. Comparative analysis, analogy, graphic and compilation, induction and deduction are the methods used in the study. Methodology of the work is the rationale for the relevance of the work, the statement of the problem, the study of international practice, the results of the study and conclusions. Structural and logical scheme of determining the customs value of the “transaction value”, on the basis of which a practical example of its application is considered (case 3), as well as the method of calculation of additional charges to the TFC is shown in detail, taking into account the features of the contract. Two methodologically different approaches to the valuation of goods for customs taxation purposes were determined. Determined the constraints in terms of customs taxation, which hinder the development of foreign trade. The 8 principles of article 7 of the GATT are structured, it is noted that these are only the most general provisions on the customs valuation, methodologically ensuring to a minimum extent the possibility of their practical use by the countries. On the basis of the approach base.

Perumusan Norma Sanksi Serta Penegakan Hukum dalam Undang-Undang Pajak Indonesia

Taxes as a source of state revenue have four formulations of sanctions norms in tax collection, there are two formulations of criminal sanctions that intersect with administrative sanctions by providing space or opportunity for law enforcement to be resolved by prioritizing administrative methods. This is contrary to the ultimum remidium principle resulting in legal uncertainty. This normative juridical legal research analyzed secondary legal materials as the main data, consisting of primary legal materials, secondary legal materials, and tertiary legal materials. The primary legal materials strengthened the secondary legal materials. Legal materials were qualitatively analyzed using juridical analysis. The results showed that the implication of the ultimum remedium is due to two reasons, first, there is no measure or parameter "for the benefit of state revenue" and second, "the termination of the investigation is carried out after the taxpayer has paid the tax debt or is not paid or is underpaid. The implication of the ultimum remedium principle in imposing criminal sanctions on taxpayers is used if other legal instruments such as administrative law or civil law are not effective. The purpose of taxes is not to punish and give sorrow to the perpetrators but to end violations and restore the situation for the sake of state revenue

Methodological approaches to the formation of income and expense accounting registers for tax purposes

The article analyzes the main aspects of the problem and promising approaches to accounting for income and expenses when determining the object of taxation for agricultural producers under a special tax regime; the main differences in the accounting of income and expenses in determining the object of taxation for agricultural producers and for accounting purposes are studied and the main correspondence of accounting accounts on the reflection of income and expenses in the conditions of the domestic agro-industrial complex, in particular for agricultural producers using a special tax regime, is proposed.

Proposal for an EU Directive Laying Down Rules to Prevent the Misuse of Shell Entities for Tax Purposes (Unshell): Seven Steps towards Disgrace or Redemption

This note describes measures proposed by the European Commission on 22 December 2021 to prevent the misuse of shell entities (i.e. the Unshell Directive proposal).