Recent Tax Research Articles

Recent Competitive Tax and Immigration Measures are Turning Italy into an ‘El Dorado’ for Foreign Investors, Workers and HNWIs

The end of globalization, following the Brexit and Trump’s election, is having immediate repercussions also on the approach of States on tax policies. Although the international community is still engaged in various multilateral projects (e.g. Base Erosion and Profit Shifting (BEPS), etc.), in the recent years various States, especially in the European area, have unilaterally introduced optional tax regimes specifically designed to attract foreign individuals, reopening a new phase of (lawful) tax competition. Italy has recently aligned with this trend by introducing significant amendments to its immigration and tax rules aimed at permitting a ‘fast-track’ visa procedure for relevant foreign investors and a fifteen-year long exception to the worldwide income tax principle, which allows for the payment of an annual flat tax of EUR 100,000 (plus EUR 25,000 for each family member transferring to Italy with the main applicant) for foreign-sourced income in lieu of the standard progressive tax rates. This measure, which is very interesting also because it allows ‘new Italian residents’ to start accumulating the years necessary for applying for citizenship, appears compatible both with EU law and Italian constitutional principles, and guarantees a coordination with the double tax treaties in force.

Case Notes

The author provides three case notes on recent significant international tax decisions released by the Supreme Court of India and the Delhi High Court. The first note explains the Supreme Court’s February 2017 decision in Director of Income Tax v. AP Moller Maersk AS, which confirmed the decisions of the Income Tax Appellate Tribunal and the High Court that payments made to the AP Moller Maersk AS international shipping line by its agents located in India for the use of a shared global telecommunication facility were not fees for technical services, which would have been liable for tax in India. Rather, the Supreme Court held that the payments were cost reimbursements, which did not have an income character and, therefore, were not liable to tax in India. The second case addresses the Supreme Court’s decision in Formula One World Championship Limited v. Commissioner of Income Tax, International, which upheld the Delhi High Court’s decision that the taxpayer carried on a business in India through a permanent establishment and was liable to tax in India in respect of the profits attributable to that permanent establishment. The third note outlines the judgment of the Delhi High Court in Commissioner of Income-tax, International-2 v. ZTE Corporation, which held that payments for software embedded in mobile telephone equipment were not royalties, but were part of the purchase price of the equipment itself. Therefore, India could not impose tax on the software component of the purchase price as a tax on a royalty.

Are the EU Member States Ready for the New Union Customs Code: Emerging Legal Issues On the National Level

AbstractIn 2016, the European Union has launched a new and ambitious project for the future regulation of international trade in the European Union and the rules of its taxation: since the 1 May 2016, the new Union Customs Code (UCC) has entered into force. It revokes the old Community Customs Code (CCC), which was applied since 1992, and passed in the form of EU regulation sets brand-new rules for the application of Common Customs Tariff and calculation of customs duties (tariffs) in all the EU Member States. It is oriented to the creation of the paperless environment for the formalisation of international trade operations (full electronic declaration of customs procedures) and ensuring of a more uniform administration of customs duties in the tax and customs authorities of the Member States in the European Union. Therefore, the article raises and seeks to answer the problematic question whether the Member States of the European Union themselves are ready to implement these ambitious goals and does the actual practice of the Member States support that (considering the practice of the Republic of Lithuania). The research, which is based on the analysis of case law in the Republic of Lithuania (case study of recent tax disputes between the taxpayers and customs authorities that arose immediately before and after the entry into force of the UCC), leads to the conclusion that many problematic areas that may negatively impact the functioning of the new Customs Code remain and must be improved, including an adoption of new legislative solutions.

The European Union and the United States: The Good Old Tax “Frenemies” in the Shadows of Reforms

In this article, the authors discuss the long-standing cooperation between the United States and the leading Member States of the European Union and comment on recent tax developments in these countries.

Japan’s Shift to Territoriality in 2009 and the Recent Corporate Tax Reform: A Japan–United States Comparison of Taxing Income from Multinationals

Japan’s Shift to Territoriality in 2009 and the Recent Corporate Tax Reform: A Japan–United States Comparison of Taxing Income from Multinationals

The Impact of IRS Tax Policy on Hospital Community Benefit Activities.

The Internal Revenue Service (IRS) recently introduced tax code revisions requiring stricter oversight of community benefit activities (CBAs) conducted by tax-exempt, not-for-profit hospitals. We examine the impact of this tax requirement on CBAs among these hospitals relative to for-profit and government hospitals that were not subject to the new policy. We employed a quasi-experimental, difference-in-difference study design using a longitudinal observational approach and used secondary data collected by the American Hospital Association (years 2006-2010 including 20,538 hospital year observations). Findings show a significant increase in the reporting of 7 of the 13 CBAs among tax-exempt, not-for-profit hospitals compared with other hospitals after the policy change. Examples include partnering to conduct community health assessments ( b = 0.035, p = .002) and using capacity assessments to identify unmet community health needs ( b = 0.041, p = .001). Recent tax revisions are associated with increases in reported CBAs among tax-exempt, not-for-profit hospitals. As the debate continues regarding tax exemption status for not-for-profit hospitals, policy makers should expand efforts for enhanced accountability.

Taxation and consumption: evidence from a representative survey of the German population

ABSTRACTUsing a representative survey of the German population, this article studies self-reported individual consumption responses to a recent exogenous payroll tax reduction. About 55% of the respondents report that they spend the extra money, indicating considerable potential for tax changes to affect consumption and economic activity. Our analysis of the socio-demographic and economic covariates of consumption responses suggests, among other effects, that interest rates are related to consumption responses to tax changes, and that households with higher income have a higher propensity to consume.

Taxation and Consumption: Evidence from a Representative Survey of the German Population

Using a representative survey of the German population, this paper studies self-reported individual consumption responses to a recent payroll tax reduction. About 55 percent of the respondents report that they spend the extra money, indicating considerable potential for tax changes to affect consumption and economic activity. Our analysis of the socio-demographic and economic covariates of consumption responses suggests, among other effects, that interest rates are related to consumption responses to tax changes, and that households with higher income have a higher propensity to consume.

A Tax-Systems Perspective on Recent Global Tax Initiatives

We present four important dimensions to international tax policy from a tax-systems perspective, stressing that non-rate/base tax policies can have different cross-jurisdictional spillover effects than changes in tax rates. The dimensions are the allocation of global income among taxing jurisdictions, information sharing between governments about taxpayers, multilateral efforts in tax policy and tax administration, and information sharing about governments’ tax practices. The paper discusses two recent global tax initiatives, the G20/OECD Automatic Exchange of Information (AEOI) and the Base Erosion and Profit Shifting (BEPS) Project in these four dimensions of tax systems in a cross-border context. As evidenced by these global initiatives using new types of tax-systems policy options, national tax systems and their policy and tax administration designs will also reflect more non-tax-rate/base issues. With increasing globalization and technological developments in economies, more tax policy and tax administration options will be needed in the future to deliver optimal tax policy. Effective use of tax-systems instruments can protect countries’ tax sovereignty in a world of increasing globalization.

Tax Avoidance in the 21st Century

Over the past few decades, several factors have contributed to what numerous revenue agencies and academic authors have characterized as a significant increase in tax avoidance activity. This paper considers both the causes of increased tax avoidance activity over the past several years as well as governmental responses to this phenomenon in key common law jurisdictions, notably Australia, Canada, New Zealand, the United Kingdom and the United States. Part 2 examines the concept of tax avoidance, distinguishing unacceptable or abusive tax avoidance both from illegal tax evasion on the one hand and acceptable tax planning or tax minimization on the other. Part 3 considers the causes of recent tax avoidance activity and its adverse effects for domestic tax systems. Part 4 reviews government responses to tax avoidance, examining both legislative reforms and administrative innovations. Part 5 considers whether these legislative and administrative measures are sufficient to the address the problem of tax avoidance in the 21st century, concluding that, although they can be expected to discourage some abusive tax avoidance, there is also much that remains to be done.

The Future of Globalization Under New Political Realities

At a time when many state that globalization is stalled, if not suffering reversals, there are indications that international cooperation on trade issues is alive and can deliver results, provided adequate and timely leadership is exercised. Foreign investment continues to flow, capital markets continue to be global, and trade liberalization continues to take place (not always multilaterally but certainly on a bilateral or plurilateral basis). At the same time, processes of national integration—a sort of national globalization—continue to take place as measures such as the recent national sales tax reform in India, to say nothing of several policies applied in China and elsewhere, all reflect the robust growth of the middle class in emerging economies. Globalization is an endless process that has accelerated and deepened in the last decades and presumably will continue to do so. This implies that the forms and processes of globalization also change. It is therefore very important to have in mind what the drivers of these changes are in order to better understand the necessary adjustments and adaptions. The backlash against globalization is also strong and undeniable. One does not need to go too far to see the political consequences. Different surveys confirm a decline in the support of globalization.

ED12.05 Tobacco Control Policies in Japan

ED12.05 Tobacco Control Policies in Japan

Interactions between Climate and Local Air Pollution Policies

Several studies have found that taxing vehicle purchase or ownership on the basis of carbon dioxide (CO2) emissions reduces CO2 emissions. In this paper I show that CO2-based vehicle taxation can raise emissions of other pollutants that harm air quality and that the magnitude of this unintended effect depends on consumer substitution across and within gasoline and diesel fuel vehicles. Using data on European vehicle registrations, fuel prices, fuel taxes, and vehicle taxes from 2002 through 2010, I estimate the relevant substitution patterns and compare the performance of several empirical strategies based on the recent vehicle tax literature. According to the preferred specification, vehicle tax reforms have increased nitrogen oxide emissions, which harm local air quality. Moreover, fuel-based CO2 taxes introduce milder trade-offs between CO2 and nitrogen oxides emissions than do vehicle taxes.

Forecasting residential solar photovoltaic deployment in California

Residential distributed photovoltaic (PV) deployment in the United States has experienced robust growth, and policy changes impacting the value of solar are likely to occur at the federal and state levels. To establish a credible baseline and evaluate impacts of potential new policies, this analysis employs multiple methods to forecast residential PV deployment in California, including a time-series forecasting model, a threshold heterogeneity diffusion model, a Bass diffusion model, and National Renewable Energy Laboratory's dSolar model. As a baseline, the residential PV market in California is modeled to peak in the early 2020s, with a peak annual installation of 1.5–2GW across models. We then use the baseline results from the dSolar model and the threshold model to gauge the impact of the recent federal investment tax credit (ITC) extension, the newly approved California net energy metering (NEM) policy, and a hypothetical value-of-solar (VOS) compensation scheme. We find that the recent ITC extension may increase annual PV installations by 12%–18% (roughly 500MW) for the California residential sector in 2019–2020. The new NEM policy only has a negligible effect in California due to the relatively small new charges (<100MW in 2019–2020). Furthermore, impacts of the VOS compensation scheme ($0.12 per kilowatt-hour) are larger, reducing annual PV adoption by 32% (or 900–1300MW) in 2019–2020.

INCREASED TAX DISCLOSURES AND CORPORATE TAX AVOIDANCE

This paper examines whether three recent mandatory tax disclosure regimes (Schedule M-3, FIN 48, and Schedule UTP) are associated with long-term changes in corporate tax avoidance. We find that both the Schedule M-3 and Schedule UTP disclosure regimes are associated with increased levels of tax avoidance while the FIN 48 disclosure regime is associated with decreased levels of tax avoidance. We also posit that these associations could differ for domestic and multinational firms because of the specific information required within each disclosure. We find that the increased tax avoidance associated with Schedule M-3 and Schedule UTP is stronger for domestic firms than for multinational firms. The decreased tax avoidance associated with FIN 48 is also stronger for domestic firms than for multinational firms.

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.

Bulgarian Tax Developments

This note discusses recent Bulgarian tax developments, including amendments to the Bulgarian National Accounting Standards in connection with the Bulgarian Corporate Income Tax Act, as well as changes in respect of tax treaty policy.

Pensions, tax and the anaesthetist: significant implications for workforce planning.

This paper shows how recent tax changes to pensions (i.e. new lifetime and annual allowance contribution limits) mean that NHS consultants will need to adopt one of four rational strategies to work and financial planning. Two of those strategies (termed 'Earn Fast, Drop Out' and 'Never Enter') involve a break between work and pensions. The logical consequence of this break is that consultants may exercise options to maximise their total income, which in turn will result in less work within the NHS and more work in alternative higher paying (e.g. private) sectors. A third strategy ('Go Slow, Stay Low') also involves less-than-full-time NHS work. Only one option ('Do Nothing' as a result of the tax changes) has no effect. In short, the tax changes will predictably lead to future senior consultants devoting proportionately much less of their time to NHS work than before. The article discusses the important implications of this conclusion for NHS workforce planning.

DESTINATION TAXATION: ROAD TO ECONOMIC SUCCESS?

Movement toward destination taxation has been the most significant change in recent state corporation income tax (CIT) policy. This paper explores these changes on both economic activity and CIT re...

Why Do Distressed Firms Acquire?

textabstractAcquisitions made by distressed firms in recent years are economically important. This paper explores the rationale behind such acquisitions using a natural experiment. Exploiting a recent tax change which reduces debt restructuring costs for certain creditors and decreases bankruptcy risk, I identify the causal link between financial distress and acquisitions. Upon an exogenous reduction in the probability of bankruptcy, distressed firms react by cutting 34% of cash spending on acquisitions. Moreover, distressed firms refocus by decreasing 75% of the transaction value of diversifying acquisitions and doubling divestitures. The evidence supports the financial synergy hypothesis that distressed firms acquire to diversify cash flow risk, rather than the growth opportunity hypothesis that distressed firms acquire to capture external growth opportunities and revive growth. These findings indicate a new effect of financial distress on investment decisions. When firms are under pressure to meet debt obligations, it creates an incentive for firms to diversify via acquisitions.