Academic literature on the topic 'Thin capitalization rules'

The literature suggests that when taking tax effects into account, debt ought to be preferable to equity. Thus, with all else being equal, levered firms are expected to show higher firm values. However, there are no uniform predictions of the size of this tax benefit from interest deductibility nor on the effect of changes in interest deductibility. We believe that the German corporate tax reform in 2008, which introduced an interest barrier, can serve as a promising "quasiexperiment" to investigate the effects from a reform of interest deductibility. A study of this reform on the basis of German financial statement data is of general interest because, first, similar interest barriers have been introduced in several countries and proposed by the OECD to fight BEPS. Second, the major characteristics of the German tax system can be regarded as representative for most European and major Asian countries. Third, single entity financial statements for German companies allows us to capture tax and capital structure details that have not been available in most prior studies. With significance at the 5% level, we find evidence that the companies that are affected by the interest barrier reduce their leverage by 4.7 percentage points more than companies that are not affected by the interest barrier. We are the first to employ a detailed matching approach to the underlying rich dataset, which enables us to overcome several limitations of previous studies. Our results imply that capital structure reactions most likely have been underestimated in previous studies.<br>Series: WU International Taxation Research Paper Series

To be able to do business, companies have to be equipped with capital by their shareholders. Usually, this capital is granted to them as equity. Nevertheless, it is also reasonable for shareholders to provide debt to the company. In any case, companies have to onsider the differences in taxation regarding equity and debt financing. That is why for internationally operating roups of companies the differing legal frameworks between countries are crucial factors for making decisions in corporate financing (Obser 2005: 1ff), especially because interest expenditure due to debt financing is usually tax-deductible in almost every country and thus considerably reduces a company's tax base (Jacobs 2007, 909). Hence, internationally operating companies should consider the various differing corporate tax rates between countries in their financing strategies in order to minimize their total tax base. (author's abstract)<br>Series: Discussion Papers SFB International Tax Coordination

A capacidade de atração de Investimento Direto Estrangeiro (IDE) é um fator a considerar ao aferir a competitividade da economia de um Estado. Esta tese pretende demonstrar a existência de uma relação entre políticas fiscais e a capacidade de atrair IDE e, por essa via, pretende demonstrar que as políticas fiscais são fatores relevantes na competitividade das economias dos países objeto de estudo. A tese é constituída por três ensaios distintos, mas inter-relacionados. No primeiro ensaio procede-se a uma revisão da literatura acerca dos diversos fatores que influenciam as decisões de IDE e conclui que algumas políticas fiscais são determinantes na captação de IDE. Os dois outros ensaios analisam o impacto de certas políticas fiscais específicas na captação de IDE. Mais concretamente, o segundo ensaio procura avaliar a existência de uma relação entre a captação de IDE e os regimes fiscais de reporte de prejuízos fiscais. O terceiro ensaio versa sobre o impacto das regras fiscais de tributação de dividendos e de subcapitalização na capacidade de atrair IDE. O objetivo do estudo é contribuir para um melhor conhecimento da relevância, na captação de IDE, das diversas políticas fiscais de dividendos, de subcapitalização e de reporte de prejuízos, vigentes em diferentes Estados Europeus. Com tal objetivo, no segundo e no terceiro ensaios analisam-se comparativamente os regimes específicos em 7 países da Europa Ocidental. Os ensaios chegaram a um conjunto coerente de conclusões, utilizando como metodologia de análise a fuzzy set – Qualitative Comparative Analyis (fsQCA). Mais concretamente a análise fsQCA fornece evidência empírica de que a tributação dos dividendos e os regimes fiscais de subcapitalização e de reporte de prejuízos são condições centrais para a verificação do resultado (as decisões de IDE), na medida em que essas condições integram as soluções simples e as soluções intermédias, resultantes da aplicação do modelo de análise. No âmbito da análise foram também consideradas outras variáveis, não relacionadas com a política fiscal, como condições para a verificação do resultado. A análise fsQCA revela que o Produto Interno Bruto em Paridade do Poder de Compra (GDPppp) é condição periférica para a verificação do resultado; Abstract: The attractiveness of Foreign Direct Investment (FDI) is a factor to consider when assessing the competitiveness of a State economy. This thesis intends to demonstrate the existence of a relationship between fiscal policies and the capacity to attract FDI and by this way the thesis intends to demonstrate fiscal policies are relevant factors in economies competitiveness of the countries under study. The thesis consists of three distinct but interrelated essays. The first essay is about literature review on the various factors that influence FDI decisions and concludes some fiscal policies are determinant in attracting FDI. The other two papers analyse the impact of certain specific fiscal policies on FDI inflows. More specifically, the second essay tries to evaluate the existence of a link between FDI inflows and tax loss carryforwards. The third essay is about the impact of the dividend withholding tax rules and of thin capitalization tax rules on the ability to attract FDI. The objective of the study is to contribute to a better understanding of the relevance on FDI attractiveness of the taxation policies of dividends, thin capitalization and tax losses, in force in different European States. Looking for the objective above mentioned the second and third essays compare these specific tax regimes in force on seven Western European countries. The studies reached a coherent set of conclusions using the fuzzy set - Qualitative Comparative Analyis (fsQCA). More specifically, the fsQCA analysis provides empirical evidence that dividend taxation and thin capitalization and loss carryover tax regimes are central conditions for outcome verification (FDI decisions), as these conditions integrate simple solutions and the intermediate solutions, resulting from the application of the model analysis. In the scope of the analysis, other variables, not related to fiscal policy, were also considered as conditions for the verification of the result. The fsQCA analysis reveals that the Gross Domestic Product in Purchasing Power Parity (GDPppp) is a peripheral condition for the verification of the result.

Magistro darbo objektas - Lietuvos Respublikos norminiuose mokesčių teisės aktuose įtvirtintos prieš mokesčių vengimą nukreiptos normos: jų doktrininis aiškinimas bei analizė, jų taikymas mokestinius ginčus nagrinėjančių institucijų praktikoje. Pagrindinis dėmesys skiriamas turinio viršenybės prieš formą principui, kaip bendrajai prieš mokesčių vengimą nukreiptai normai ir specialiosioms antivengiminėms priemonėms – pajamų arba išmokų apibūdinimo iš naujo (plonos kapitalizacijos – angl. thin capitalization) taisyklėms, kontroliuojamųjų užsienio vienetų apmokestinimo taisyklėms, sandorių kainodaros (angl. transfer pricing) taisyklėms, ūkinių operacijų, atliekamų su tikslinėse teritorijose registruotais asmenimis, apmokestinimas. Darbo tikslai - išanalizuoti antivengiminių priemonių teisinį reglamentavimą bei atskleisti jo praktinio taikymo problemas. Darbo uždaviniai: atskleisti turinio viršenybės prieš formą principo įtvirtinimo įstatyme istorinę raidą; išanalizuoti jį įtvirtinančias teisės normas, atskleisti mokesčių vengimo kaip teisės pažeidimo sudėties analizę, o taip pat pateikti turinio viršenybės prieš formą principo taikymo tvarką mokesčių administratoriui apskaičiuojant mokėtinus mokesčius; išnagrinėti Lietuvos Respublikos mokesčių teisės aktuose įtvirtintas specialiąsias antivengimines normas, identifikuoti jas, suformuluoti ir išanalizuoti atskirų priemonių, nukreiptų prieš mokesčių vengimą, sampratą, pasitelkiant teisinį reglamentavimą, atskleisti jų turinį... [toliau žr. visą tekstą]<br>The object of the master thesis – norms, which are embeded in Lithuanian Republic tax laws and which are against tax avoidance: their doctrinal explanation and analysis, their practical appliance in a light of institutions, which solve taxing disputes. Main consideration is paid to substance over form principle, which is a general anti-avoidance rule and to specific anti-avoidance rules – thin capitalization rules, controlled foreign corporations imposition rules, transfer pricing rules, transactions with organizations, which operate in tax-heavens, imposition. The two objectives of this dissertation are as follows: to analyse anti-avoidance measures embeded in tax laws and unfold their practical implication problems. In order to reach the goal, further tasks were set: to unfold substance over form principles historical embedment evolution in laws; to analyse law rules, which embed this principle, to unfold tax avoidance composition as violation of law analysis and also to present the order of substance over form principle application, when tax authority has to impose a tax; to study special anti-avoidance rules, which are infixed in Lithuanian Republic tax laws, identify these rules, formulate and analyse seperate definitions of measures pointed against tax avoidance, conception, by employing law rules, to unfold their substance; to estimate relationship between general and specific anti-avoidance rules; to analyse and structure practice of institutions, which solve taxing... [to full text]

碩士<br>國立高雄大學<br>法律學系碩士班<br>106<br>In transnational investments, if taxpayers overuse borrowed funds to invest in gaining tax benefits instead of using equity funds, their conduct may be regarded as abuse legal forms due to the lack of reasonable commercial purposes. It is necessary to limit such excess interest expenses through tax laws. The behavior of adjusting capital structure by using legal form of debt as a substance of equity is known as “Thin Capitalization.” As a response, many countries have legislated against tax avoidance conducts from undermining tax bases. On January 26, 2011, Taiwan passed Article 43-2 of the Income Tax Act, a special preventive provision known as an “Anti-Thin Capitalization Rules.” According to the provision, the constituent elements including subjects of taxation, objects of taxation, and tax bases in business income tax, are solely carried out by the tax collection authority in the form of administrative orders. It begs the question whether or not the legislation is appropriate. Article 43-2 adopts the “fixed ratio” as a criterion for anti-thin capitalization. Although the method is rather specific, it neglects the fact that in addition to industrial characteristics, such factors as cost of funding, risk appetite and arrangement, profit expectation, the possibility of debt financing, shareholder structure, the acquisition of control, and company governance can also affect the capital structure of a profit-seeking enterprise. Using only one standard to determine whether or not there is Thin Capitalization may be arbitrary as it gives no consideration to specific situations of different profit-seeking enterprises. For modern market economy countries, the most important legal relationship between a country and its people involves taxation and the related cooperation obligations. Therefore, the legislation and implementation of tax laws are regarded as important indicators of the extent of legalization in the country. On the other hand, legal awareness of tax officers reflects the level of emphasis the government attaches to the rule of law. Hence, this study focuses on people’s right of access to timely and effective legal remedies, constitutional reviews of tax laws, and the taxpayer rights protections. In response to frequent economic exchanges between the two sides of Taiwan Strait in recent years, Taiwan and China signed the Cross-Strait Agreement on Avoidance of Double Taxation and Enhancement of Tax Cooperation (Cross-Strait Tax Agreement for short) on August 25, 2015. The provisions of the exchange of information in the agreement were stipulated by referring to examples of international tax treaties and tax agreements signed by Taiwan and other countries. This study compares the respective anti-tax avoidance measures of Taiwan and China. In the context of advantageous taxation strategies for the globalization of business, it also provides suggestions for the respective anti-thin capitalization measures of the two sides of the Taiwan Strait.

碩士<br>國立臺中科技大學<br>企業管理系碩士班<br>103<br>Taiwan released the amended Article 43-2 of the Income Tax Act on the 26th of January, 2011 with Anti-Thin Capitalization Rules added. The rules indicate that from 2011, if the debt and equity financing ratio of corporations and its direct or indirect affiliates exceeds 3, excess interest expenditure incurred shall not be listed as expense or loss. The intension of this amendment is to prevent the erosion of Taiwan’s tax base from thin capitalization. This research explored the impact on Taiwan listed corporations’ debt-to-equity ratio and financing channels since the implementation of Anti-Thin Capitalization Rules on 2011. The empirical study result indicated that before the implementation of the Anti-Thin Capitalization Rules, corporations had the debt-raising tax benefit by deducting debt-raising interest expenditure with calculating taxable income. The more debt corporations raise, the more tax benefit they attain. This has affected shareholders’ interest and eroded our country’s tax base. However, after the practice of the Anti-Thin Capitalization Rules from 2011, if corporations exceed their debt raising quotas, interest expenditures shall not be deductible from taxable income. The empirical study showed that debt-to-equity ratio has dropped to a lower percentage since the implantation of the Rules. As to corporations with higher debt-to-equity ratio, their financing channels has also changed to decline the debt ratio.

碩士<br>銘傳大學<br>會計學系碩士班<br>106<br>There are tax shield benefits from interest expense on debt financing. Some companies take borrowing from related companies as a tool of tax evasion. It is a common business model in recent years that firms gain more competitive advantage by internationalization and diversification. By referencing OCED guidance of Base Erosion and Profit Shifting, in 2011, Taiwan authority amended Income Tax Article 43-2 to minimize the impact on tax revenue from multinational corporations’ tax avoidance behavior via debt-financing instead of equity-financing. This study takes those companies listed in Taiwan during 2005-2016 as sample. Firstly, we adopt independent sample test to examine whether there is difference in related companies’ debt level, group companies’ debt level and corporates’ tax avoidance behavior after the implementation of the anti-thin capitalization ruling. We then analysis the impact of anti-thin capitalization ruling on corporate’s tax avoidance behavior and related companies’ debt level. there are several factors affecting corporate’s tax avoidance behavior and capital structure and the anti-thin capitalization ruling cannot apply to all companies. We further employ the difference in differences (“DID”) with matching model to examine if the debt level difference between group companies and non-group companies or multinational companies and non-multination companies is narrowed after the ruling implemented. The empirical results show that there is significant difference in the debt level of related companies after anti-thin capitalization ruling is implemented. We find that DID with matching model shows that the debt level of group or multinational companies have significantly lower than non-group or non-multinational companies, whether before or after pairing. After pairing, the group or multinational company's debt level is significantly lower than that of non-group or non-multinational companies after the ruling. However, it is still unable to support a certain causal relationship between anti-thin capitalization ruling and the reduction of the debt level of the group or multinational enterprises.

碩士<br>國立政治大學<br>財政學系<br>106<br>Tax planning favoring corporate debt financing over equity financing (debt bias) are widely recognized as a risk of financial stability. This paper examines the impact of thin capitalization rules that limit the debt bias of the foreign affiliates of Taiwanese multinationals. This study uses a new data that set on thin capitalization rules in 85 countries from Taiwanese listed companies at stock exchange market and over-the-counter market for the period 2006-2015. Recently, more and more papers focus on debt shifting about internal leverage between parent companies and subsidiaries. However, this research focus on how thin capitalization rules impact debt bias in all affiliates. And designs the strictness index of thin capitalization rules to test the corporate debt ratio and debt behavior. Three fixed-effect models in this paper are constructed by using unbalanced panel data. Model1 is to examine how thin capitalization rules affect debt bias of multinational affiliates. Model2 is to examine the corporate debt behavior that debt over equity ratio of multinational affiliates under the safe harbor ratio in host countries. And Model3 is to analyze how the strictness index of thin capitalization rules affect corporate debt bias. This paper finds that rules targeted at fixed ratio approach or earnings stripping rules can’t limit corporate debt bias effectively. But if the countries use fixed ratio approach and earnings stripping rules simultaneously, the thin capitalization rules have negative significant impact on corporate debt bias.

Dissertação de mestrado em Direito dos Negócios, Europeu e Transnacional<br>This research first addresses the different tax treatment that is given to debt and equity financing, showing that the benefits associated with debt make this source of financing more attractive. The different treatment of these two forms of finance incentivizes debt exploitation, by which deductibility of interest payments decreases the tax base in a high-tax jurisdiction, preferably ending up in a low-tax jurisdiction’s tax base. This project shows that the deductibility of interest for tax purposes combined with the existence of a myriad of different tax systems leads to a number of possibilities for tax arbitrage, especially through international debt-shifting and hybrid financial instruments. It then demonstrates that the most popular response given by countries to mitigate this debt bias problem has been the adoption of thin capitalization rules which are aimed at limiting the deduction of interest that is deemed excessive. This research intends to look at these rules in the context of the OECD, tax treaties and EU law. The work presented concludes by providing two alternatives (the ACE and the CBIT systems) in order to achieve more neutrality between debt and equity.<br>Esta pesquisa começa por abordar o diferente tratamento fiscal que é dado à dívida e à equidade, mostrando que os benefícios associados com a dívida tornam esta fonte de financiamento mais atractiva. A diferença de tratamento entre estas duas formas de financiamento incentiva a exploração da dívida, através da qual a dedutibilidade de juros diminui a base tributária numa jurisdição de alta tributação, de preferência terminando numa jurisdição que aplique baixas taxas de imposto. Este projeto mostra que a dedutibilidade de juros para efeitos fiscais, combinada com a existência de uma miríade de diferentes sistemas fiscais, leva a uma série de possibilidades para arbitragem fiscal, especialmente através do deslocamento da dívida a nível internacional e de instrumentos financeiros híbridos. É, seguidamente, demonstrado que a resposta mais popular dada pelos países para atenuar este problema de recurso excessivo ao financiamento por endividamento tem sido a adopção de regras de subcapitalização, que visam limitar a dedução dos juros considerada excessiva. Esta pesquisa pretende analisar estas regras no contexto da OCDE, dos tratados fiscais internacionais e da legislação Europeia. Na sua parte final, este trabalho oferece duas alternativas (os sistemas CBIT e ACE) com vista a alcançar mais neutralidade entre as duas formas de financiamento.