Tax Matters Research Articles

Council

This overview highlights: (i) the removal of Antigua and Barbuda from the list of non-cooperative jurisdictions and (ii) the publication of a position paper note vis-à-vis the UN on international cooperation on tax matters.

The side effects of a big push growth strategy: export incentives and primary education under military rule in Brazil, 1967–1985

Abstract During the military regime in Brazil (1964–1985), enrollment ratios in primary education grew substantially in the first decade under dictatorship, but stagnated in the mid-1970s. This paper shows that education spending might depend on the levels of centralisation in tax matters. Using panel data regressions and qualitative evidence, we argue that a massive big push industrialisation programme increased the pressure on external accounts, leading the government to intensify an export incentive policy based on tax subsidies that decreased the income of subnational governments. As a result, the capacity of funding mass education was compromised in the second half of the 1970s.

The Instruments Used to Counter Illicit Financial Flows at the International Level and Their Application to Matters of Taxation

Tax-related illicit financial flows (TIFFs) deprive states of much-needed public resources and hinder revenue mobilization from achieving sustainable development efforts. Currently, there is no conceptual clarity on the phenomenon of TIFFs, with different definitions and approaches adopted within different regional and international settings. To address the existing gaps, this study starts by mapping the diverse qualifications of TIFFs with particular regard to the different legal statuses that can be attached to behaviour deemed illicit. This requires a clarification of the conceptual differences between tax evasion and tax avoidance, and more specifically, between criminal law and (criminal) tax law. While the international tax law agenda has prioritized countering tax avoidance, the issue of tax evasion remains inadequately addressed within the existing framework. In this regard, this study concludes that when it comes to aligning the notion of tax crimes as predicate offence for existing criminal law, countries should be allowed to keep their de minimis qualifying rules to ensure flexibility and respect national sovereignty, thus ensuring proportionality and the respect for taxpayers’ fundamental rights.

The OECD Dispute Resolution System in Tax Controversies

The article analyses the latest international tax law developments in dispute resolution settlement protocols and the need for effective multilateral solutions to prevent international double taxation. While several treaties currently minimise the risks of international double taxation, more must be achieved to provide judicial remedies in cases where two states want to tax the same income simultaneously. The OECD has developed a dispute resolution system based on arbitration clauses to be introduced in conventions signed by the state and a brand-new MLI (multilateral instrument) that should be applicable on a broader scale. These remedies have proven unsatisfactory as the taxpayer is not entitled to play any role in these (arbitration) procedures and cannot stand personally in front of any panel. The authors argue that such a scenario is inconsistent with the rule of law and the due process clauses and should be amended. Creating a supranational court with the entitlement to adjudicate the power to tax would be the optimal solution, but this would collide with the position of several states and their distrust of the international judiciary in tax matters.

Methodological and Practical Aspects on Accounting for Foreign Currency Advances

This Study addresses the methodological and practical aspects of accounting for operations that include the payment, receipt, use, repayment and settlement of foreign currency advances. Such aspects cover the classification methods for advances paid and received, for recognising and measuring the foreign exchange differences related to transactions that include foreign currency advances. In particular, the issues of accounting for such advances in compliance with the national and international accounting requirements are investigated. Likewise, the way of presenting the information on foreign currency advances in complete and abridged financial statements is reviewed, as well as the tax matters related to the operations with the mentioned advances. The authors have developed recommendations on how to modernise the accounting for advances paid and received in a foreign currency, which will ensure a higher level of financial information reliability, transparency and comparability at the national and international levels.

THE PUNITIVE POWER OF INDEPENDENT ADMINISTRATIVE AUTHORITIES: FOCUS ON FINANCIAL AND TAX VIOLATIONS (A COMPARATIVE STUDY)

Background: In France, some independent administrative authorities have been granted punitive powers concerning violations committed against stated regulatory rules. In this regard, the issue of the accumulation of penalties has been repeatedly raised concerning sanctions imposed by independent administrative authorities and criminal justice penalties. For example, a certain action could be criminalised by virtue of the Penal Law, necessitating a custodial sanction or a fine, while also considered a mere breach under financial and monetary laws, leading to the imposition of a certain financial penalty. This raises the question of whether the infliction of both criminal and administrative sanctions on financial and tax crimes violates the 'ne bis in idem' principle. The French Constitutional Council has addressed this issue extensively; it has banned the accumulation of criminal penalties and administrative sanctions of a punitive nature upon the fulfilment of certain conditions. Interestingly, these conditions did not apply to tax disputes, permitting the accumulation of penalties in this specific field. However, the accumulation of penalties was banned and deemed impermissible in financial markets. Therefore, a major question can be raised: Why has the Constitutional Council adopted two different approaches in those two similar fields? Methods: In pursuit of the research goals, this study employed a combination of comparative, historical, and analytical methodologies. By examining the legal nature of independent administrative authorities, this study conducts a comprehensive examination of relevant legal texts, encompassing constitutional provisions, legislation, and judicial decisions, to analyse the ne bis in idem principle in France. A comparative analysis approach was utilised to compare the rulings of the French Constitutional Council, the French Court of Cassation, and European judicial bodies. Results and conclusions: In various jurisdictions, including France and the EU, the principle of non-accumulation of criminal penalties and administrative sanctions is recognised, yet differences arise in its application. Jurisdictions vary in approach, with some strictly prohibiting accumulation while others allow flexibility based on factors like offence nature and societal interests. The French Constitutional Council sets standards, allowing dual penalties in tax matters but not in finance. Rulings by the French Constitutional Council and Court of Cassation offer insights into applying the principle, revealing complexities in balancing regulatory enforcement and individual rights.

Beyond the bottom line: exploring the role of governance mechanisms in promoting corporate tax responsibility

PurposeBecause of growing corporate tax scandals, there is an enhanced focus on corporate taxation by governments, institutions and the general public. Transparency in tax matters has been identified as critical for effectively managing and promoting socially responsible tax behaviour. This study aims to explore the impact of ownership structure, board and audit committee characteristics on corporate tax responsibility (CTR) disclosure.Design/methodology/approachThis research collected data from the annual reports of Pakistani-listed firms over 12 years, from 2009 to 2020. Consequently, the data set encompasses a total of 1,800 firm-year observations. This study uses regression analysis to test the relationship between corporate governance and CTR disclosure.FindingsThe results show that board gender diversity, managerial ownership and audit committee independence promote tax responsibility disclosure. In contrast, family board membership, CEO duality, foreign ownership and family ownership negatively impact tax responsibility disclosure. Additional analyses reveal the specific information categories that produce the overall effects on tax responsibility disclosure and assess the moderating impact of family firms on the governance and CTR disclosure nexus.Practical implicationsCorporations can use the results to encourage practices that enhance transparency and improve the quality of disclosures. Regulatory authorities can use the findings to stipulate better protocols. Doing so will be vital for developing countries such as Pakistan to improve tax revenue and cultivate economic growth.Originality/valueWhile this research represents, to the best of the authors’ knowledge, one of the first empirical investigations of the association between corporate governance and CTR, the results contribute to the corporate governance literature and offer fresh insights into CTR, an emerging dimension of corporate social responsibility.

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).

State Taxation of Nonresident Income and the Location of Work

Prior studies show that taxes matter for the residential locations of high-income earners. But states raise a significant share of revenue from nonresidents. Using variation in state tax rates, we provide causal evidence on the effect of the net-of-tax rate on the location of labor supply for professional golfers. State taxes induce high-income earners to shift employment to low-tax states without a residence change. The elasticity of working in a state is 0.34 and, consistent with the superstar phenomenon, increases with earnings. Our results suggest a novel margin of mobility responses for top earners: the spatial relocation of labor supply by nonresidents. (JEL H71, H73, J22, J44, J61, R23, Z22)

SURVEY ON DISSENTING OPINIONS IN THE JURISPRUDENCE OF COLLEGIAL PUBLIC FINANCE BODIES IN POLAND

Dissenting opinions to the rulings of state bodies are submitted very rarely. The purpose of this article was to identify the reasons for this phenomenon in case of rulings of collegial public finance bodies, such as committees adjudicating on cases of violation of public finance discipline (including joint adjudication committee, inter-ministerial adjudication committee, adjudication committee at the Chief of Staff of the Prime Minister Chancellery, regional adjudication committees at regional accounting chambers, the Main Adjudication Committee) and rulings of local government appeal boards adjudicating on tax matters. The research was conducted using the Computer-Assisted Web Interview research technique. The research material included 67 questionnaires completed by a group of employees-adjudicators of the above-mentioned bodies. Their analysis led to the following research findings which explained why dissenting opinions to the decisions of collegial public finance authorities are submitted so seldom: rare occurrence of controversies among the members of the adjudicating panel, personality traits of the members of these bodies, and more specifically, striving to ensure their independence and a sense of collegiality. The shape of the procedural provisions governing the rules for submitting dissenting opinions cannot be seen as one of such reasons.

Effect of Tax Compliance Costs on Tax Evasion by Small and Medium Enterprises

This study examined the effect of tax compliance costs on tax evasion by small and medium scale enterprises (SMEs) in Akwa Ibom State. Survey research design was adopted in realising the objectives of the study. The population (1,887) of the study consists of all SMEs in Akwa Ibom, from where a sample size of 330 was drawn using Taro Yamane model. 330 copies of questionnaire were administered to Accountants and owner/managers of the selected SMEs across the three senatorial districts of Akwa Ibom State. The questionnaire was constructed on a 5-point Likert scale and was analysed using non-parametric tests such as mean, standard deviation and percentages. The questions in the questionnaire centred around tax evasion as dependent variable while independent variables were proxied as cost of registration for tax purposes; cost incurred in engaging tax professionals; complexity in the tax system; cost incurred in keeping books and accounting records for tax purposes; cost incurred in obtaining tax education information and changes in tax policy; time spent for tax purposes and cost implication of such time element. The findings of the study shows that 90% of the respondents agreed that the cost incurred by SMEs in registration for tax purposes is high and that this high costs leads to tax evasion. Also, 91% are in agreed that the complexity in the tax system is the reason why SMEs engage the services of external tax professionals to assist in tax matters and this leads to high compliance cost and the attendant tax evasion. 88% of the respondents agreed that high costs of keeping books and accounting records for tax purpose while those on obtaining information on tax policy is 94%. Also, 93% of the respondents agreed that the time spent by SMEs exclusively for tax purposes encourages tax evasion Finally, 89% of the respondents agree that the combined effect of all costs, other than tax liability, and the time spent in tax processes contributed to tax evasion by SMEs. Based on these findings it was concluded that there is a strong indication that compliance costs greatly affect tax evasion. It was recommended that Government should simplify tax policies in order to reduce compliance costs incurred by SMEs and tax professionals should reduce their charges for SMEs as a way of reducing their compliance costs.

The Need for A Constitutional Complaint Mechanism for Tax Matters in Indonesia

Currently, there is no available mechanism for directly protecting taxpayers’ constitutional rights from potential violations resulting from tax regulations and policies in Indonesia. The Constitutional Court’s authority for constitutional review, the Supreme Court’s authority for judicial review, and the administrative appeal process before the State Administrative Court all fail to provide sufficient protection for taxpayers’ constitutional rights. This article proposes the introduction of a constitutional complaint mechanism for tax matters in Indonesia, as a mechanism to directly protect these rights. The constitutional complaint process ensures direct conformity between the reviewed regulation or policy and the Constitution, with an emphasis on the application of a proportionality test. This test serves as a valuable tool for assessing the balance between taxpayers’ constitutional rights and the government’s duty to collect taxes. Striking this balance is essential for advancing the exercise of political accountability in taxation. This study employs a normative-empirical methodology, combining case law studies and theoretical perspectives to conceptualize the use of constitutional complaint against tax regulations and policies in Indonesia. The main finding of this research shows that the current constitutional review mechanisms put taxpayers at a disadvantage. Therefore, the authors conclude that the establishment of a constitutional complaint process will improve the protection of taxpayers’ rights.

Outer Space: The Final Frontier of Taxation

As the pace of commercial space exploration quickens, the question arises: is the global tax framework equipped to handle the complexities tied to revenues from outer space? The very nature of these revenues, derived from a deemed sovereign-free source, clashes with traditional tax principles like the source and residence doctrines. While the Outer Space Treaty, accepted by the majority of countries, bars any claims of sovereignty in space and complicates taxation, countries like the United States and Luxembourg have introduced domestic laws granting their residents rights over resources retrieved from space. Additionally, emerging space industries bring to light challenges in areas such as transfer pricing and satellite taxation, highlighting the pressing need for international consensus on these intricate tax matters.

The Fiat Chrysler Finance Europe Case: One Step Forward Towards an Appropriate Application of the Ban on State Aid

The judgment of the Grand Chamber of the European Court of Justice of 8 November 2022 (joined Cases C-885/19 P and C-898/19 P) marks an important point in the Court’s jurisprudence on State Aid because the principle of legality in tax matters, the attribution of competencies to the European Union, and the application of State Aid are addressed in a coordinated way. The decision clarifies that the reference system, which is relied upon to measure the actual selectivity of a national measure, must be based exclusively on the statutory law applicable at the national level, according to the principle of legality. This is a first step towards an appropriate application of Article 107 TFEU, whose application had been stretched too much in the last years. The next steps should be the overruling of Gibraltar jurisprudence and the need to limit the ban on State Aid to national measures for which evidence of actual damage to free trade between the Member States is manifest. Ban of State Aid, Selectivity, Reference system, Legality principle, Attribution of competences, Tax rulings, Arm’s length principle, Transfer pricing, Tax sovereignty, Competition, Trade between Member States

Asset managers and withholding tax : Problems, options and best practices for asset managers on withholding tax processing

This paper presents a detailed analysis of the critical role and complications surrounding withholding tax processing in the asset management industry. The paper first explores the substantial losses incurred by the industry due to a lack of proper attention and expertise in withholding tax matters, demonstrating the urgency of this issue. It then examines the current approach of relying predominantly on custodian banks for managing these issues, highlighting the shortcomings and risks inherent in this practice. The paper further investigates the current state of asset management companies, revealing their limited capabilities in managing withholding tax efficiently due to various factors including cost pressures, technological gaps and lack of awareness. To address these challenges, the paper proposes two primary options for asset managers: increased collaboration with tax advisers, and automation through software solutions. A detailed comparison is made on the pros and cons of these options. Collaborating with tax consultants, while beneficial in many ways, might fall short due to the complexity and volume of the withholding tax challenges. On the other hand, automation can provide significant benefits in terms of efficiency, accuracy, scalability, compliance and cost-effectiveness, although challenges related to implementation and integration exist. The paper concludes with a checklist of critical success factors for selecting, implementing and operating withholding tax processing software, providing practical guidance for asset management companies seeking to improve their handling of withholding tax matters. These findings underline the importance of a proactive approach and the necessity for asset managers to explore the potential of technology-based solutions in this crucial area.

Financing child rights in Malawi

BackgroundNearly all countries have ratified the United Nations Convention on the Rights of the Child and, therefore, support children having access to their rights. However, only a small minority of children worldwide have access to their environmental, economic, and social rights. The most recent global effort to address these deficits came in 2015, when the United Nations General Assembly agreed to a plan for a fairer and more sustainable future by 2030 and outlined the Sustainable Development Goals (SDGs). One remediable cause is the lack of revenue in many countries, which affects all SDGs. However, illicit financial flows from low-income to high-income countries, including international tax abuse, continue unabated.MethodsUsing the most recent estimates of tax abuse perpetuated by multinational companies and tax evasion through offshore wealth, and precise econometric modelling, we illustrate the potential regarding child rights (or progress towards the SDGs) if there was an increase in revenue equivalent to tax abuse in Malawi, a low-income country particularly vulnerable to climate change. The Government Revenue and Development Estimations model provides realistic estimates of government revenue changes in developmental outcomes. Using panel data on government revenue per capita, it models the impact of increased revenue on governance and SDG progress.ResultsIf cross-border tax abuse and tax evasion were curtailed, the equivalent increase in government revenue in one country, Malawi, would be associated with 12,000 and 20,000 people having access to basic water and sanitation respectively each year. Each year, an additional 5000 children would attend school, 150 additional children would survive, and 10 mothers would survive childbirth.ConclusionsMore children would access their economic and social rights if actions were taken to close the gap in global governance regarding taxation. We discuss the responsibility of duty bearers, the need for a global body to arbitrate and monitor international tax matters, and how the Government of Malawi could take further domestic action to mitigate the gaps in global governance and protect itself against illicit financial flows, including tax abuse.

Exploring financial literacy education strategies based on small- and micro-enterprise business practices

Purpose: This study explored the nature of business practices of small- and micro-enterprises within the South African context to propose recommendations for financial literacy education strategies.Design/methodology/approach: The data collection technique used for this qualitative study included semi-structured in-depth interviews with a case study of 10 small- and micro-enterprise owners who collectively trade within five of the nine South African provinces.Findings/results: Small- and micro-enterprises do not need to differ significantly because the respective business practice themes identified are relevant within both contexts. Both category enterprises make use of a cash basis system, generally have inventory management systems in place and do not have sophisticated financial planning practices. The micro-enterprises studied do not have business plans or accurate pricing strategies and cash management is a concern. The small-enterprise participants generally did not show interest in competitors and their enterprises had more sophisticated bookkeeping practices in place than micro-enterprises.Practical implications: Financial literacy education strategies for the owners should focus on providing guidance on tax matters, significance of business plans and how to prepare them, debtors management strategies, inventory management strategies, and a basic bookkeeping system that evolves from the cash basis of accounting to the accrual basis of accounting. It should also aim to educate owners on the importance of financial planning and risk management.Originality/value: This research provides an evidence-based description of the characteristics of South African small- and micro-enterprises, which could prove valuable in developing future owner financial literacy education programmes as well as other support strategies targeted at this audience.

Does the design of a soda tax matter? Evidence from school children in Europe

This paper compares the effects of two different health taxes on soda consumption and the body mass index (BMI) of school children in Europe. Hungary imposed a comprehensive tax on several unhealthy products in 2011. In contrast, France introduced a tax on sodas with sugar or artificial sweeteners, in 2012. To evaluate these taxation designs, I use a flexible semi-parametric difference-in-differences (DID) approach. The results suggest a counter-intuitive increase in soda consumption caused by the tax in Hungary. The effect of the soda tax on soda consumption in France is insignificant. The BMI is not affected by any tax.

Tax Planning in Companies in the Commercial Sector: A Literature Review

The objective of this literature review article was to determine the general guidelines for planning in companies in the commercial sector, as well as identify the aspects of developing tax planning and finally the benefits of this action. The methodology used to carry out the study consisted of the search and synthesis of scientific articles collected from the most reliable databases, such as SCOPUS, Web of Science, ProQuest, EbscoHost, and Science Direct, among others. As a result, it was found that the factor that motivates organizations to implement tax planning as a tool is the optimization of fiscal resources. In addition, due to the constant modifications in legislation in recent years, it has had and will continue to have a significant impact. Finally, it is concluded that to achieve an adequate development of tax planning in companies, it is essential that those who carry it out have a business vision and, above all, deep knowledge about the structure and operation of the company, in addition to having a professional specialized in tax matters.
 
 Received: 10 May 2023 / Accepted: 9 September 2023 / Published: 5 November 2023

Interpretation of tax law in cases involving commercial entities: Opportunities to exchange best practices in the area of corporate social responsibility regulation

The article aims to develop a correct understanding of the essence and implications of the basic principles and legal provisions governing tax matters, as well as to form an insight into their evolutionary transformations on the basis of the exchange of relevant best practices between Ukraine and other countries. Relying on methods of comparative review, as well as methods of systematic review and standard techniques of text analysis, the author covers theoretical and practical issues related to the balanced combination of literal and intentional interpretation of tax legislation provisions, in dubio pro tributario in the interpretation of tax laws and question of reasonable cause and good faith of taxpayers. It is noted, in particular, that common law countries and continental legal systems are united by a tendency towards a balanced combination of literal and purposive interpretation. It is emphasized in the conclusions that, along with the literal wording of tax law provisions, the purpose of their introduction and the general principles of tax law are taken into account. Moreover, in some countries, reference to the intention of the legislators is even allowed.