Taxation and International Tax Framework

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Questions and Answers

What is the main purpose of taxation?

Reduce tax payments

Influence behavior (correct)

Promote entrepreneurship

Increase profits

According to Adam Smith, what are the principles of good taxation?

Fairness and efficiency (correct)

Convenience and fairness

Efficiency and certainty

Certainty and convenience

What does the term 'tax avoidance' refer to?

Deductibility of mortgage interest payments

Complying with the spirit of the law

Avoiding excise duty and VAT

Reducing tax payments in high-tax jurisdictions (correct)

What does 'residence of a natural person' refer to in the context of taxation?

Place of economic and social interest Signup and view all the answers

What is the aim of tax credits for small businesses/entrepreneurs?

To reduce personal income tax Signup and view all the answers

What is the concept of 'tax minimization through creative compliance with tax law' often referred to as?

'Game playing' of corporate tax Signup and view all the answers

What is the primary goal of profit shifting in the context of taxation?

Reduce tax payments in high-tax jurisdictions Signup and view all the answers

What is the purpose of transfer pricing in intercompany transactions?

Apply at arm’s length principle = act as if unrelated Signup and view all the answers

What does the concept of 'dominant practices' refer to in the context of taxation?

'Game playing' of corporate tax Signup and view all the answers

'Tax minimization through creative compliance with tax law' is often associated with:

'Grey area': complying with the letter of the law while avoiding the spirit of the law Signup and view all the answers

What is the main objective of using intercompany transactions?

Applying at arm’s length principle = act as if unrelated Signup and view all the answers

What is the primary goal of profit shifting in taxation?

Reduce tax payments in high-tax jurisdictions Signup and view all the answers

What is the main problem with the sharing economy in terms of taxes?

Inability to tackle the main problem of needing a permanent establishment Signup and view all the answers

Why does the profit from Airbnb in the Netherlands go to Ireland?

Ireland taxes foreign-produced capital differently Signup and view all the answers

What is one of the criticisms of the BEPS project (base erosion and profit shifting)?

Penalties are not in line with the upside of tax avoidance Signup and view all the answers

What is the main issue with the DSTs (digital service taxes) adopted by countries?

They cause chaos and destroy stability Signup and view all the answers

Why do many countries struggle to collect taxes from sharing economy platforms?

Platforms have unclear tax liabilities due to their lack of physical presence Signup and view all the answers

What is the main challenge at a governmental level in terms of taxes related to the sharing economy?

Taxes being collected elsewhere, away from the platform's operational country Signup and view all the answers

Why are traditional international tax principles criticized?

"Stateless income" issue is not addressed Signup and view all the answers

What is the primary problem with the sharing economy in terms of taxes?

Unclear distinction between personal and hobby transactions Signup and view all the answers

Why does the profit from Airbnb in the Netherlands go to Ireland?

It is taxed as foreign-produced capital in Ireland Signup and view all the answers

What is one of the criticisms of the BEPS project (base erosion and profit shifting)?

Penalties are not in line with the upside of tax avoidance Signup and view all the answers

What is the main issue with the digital service taxes (DSTs) adopted by countries?

Inability to tackle the main problem of why a permanent establishment (PE) is needed in the 21st century Signup and view all the answers

What is the primary goal of profit shifting in taxation?

To reduce the tax burden Signup and view all the answers

What does 'stateless income' refer to in the context of taxation?

Income that is not liable to pay taxes in any country Signup and view all the answers

Why are traditional international tax principles criticized?

They are outdated and do not address the digital economy Signup and view all the answers

What is one of the challenges at a governmental level in terms of taxes related to the sharing economy?

Uncertainty at a governmental level Signup and view all the answers

According to the lecture, what is one of the problems with transfer pricing?

Encouragement for legal separation Signup and view all the answers

What does 'capital import and export neutrality' (CIEN) refer to?

Outdated principle criticized for not addressing digital economy Signup and view all the answers

What is one of the problems faced by developing and emerging economies according to the lecture?

Tax treaties enable tax avoidance by creating 'stateless income' Signup and view all the answers

What is the primary objective of taxation?

To fund public expenditures Signup and view all the answers

According to Adam Smith, which principle is considered as a characteristic of good taxation?

Fairness Signup and view all the answers

What does the term 'residence of a natural person' refer to in the context of taxation?

183 days in a year criterium Signup and view all the answers

What is the purpose of tax credits for small businesses/entrepreneurs?

Encourage entrepreneurship and business growth Signup and view all the answers

What is one of the challenges at a governmental level in terms of taxes related to the sharing economy?

Difficulty in collecting taxes from sharing economy platforms Signup and view all the answers

What does 'dominant practices' refer to in the context of taxation?

Widespread tax strategies used by companies Signup and view all the answers

What is the concept of 'tax avoidance' often referred to as?

Tax planning Signup and view all the answers

'Tax minimization through creative compliance with tax law' is often associated with:

'Game playing' of corporate tax Signup and view all the answers

What is the primary goal of profit shifting in the context of taxation?

Increase profits booked in low tax jurisdictions Signup and view all the answers

'Tax minimization through creative compliance with tax law' is criticized for:

Complying with the letter of the law while avoiding the spirit of the law Signup and view all the answers

What is the primary objective of intercompany transactions?

Apply at arm’s length principle = act as if unrelated Signup and view all the answers

What does 'residence of a company' refer to in the context of taxation?

Place of effective management Signup and view all the answers

What is recommended for the computation of CFC income?

Using the rules of the parent jurisdiction Signup and view all the answers

What does the report recommend regarding the offsetting of CFC losses?

Offsetting against the profits of the same CFC or other CFCs in the same jurisdiction Signup and view all the answers

What is emphasized as one of the fundamental policy issues when designing effective CFC rules?

Preventing and eliminating double taxation Signup and view all the answers

What approach is recommended to limit base erosion involving interest deductions and other financial payments?

A de minimis threshold for entities with a low level of net interest expense Signup and view all the answers

What is required for large multinational enterprises (MNEs) under Action 13 of the BEPS Action Plan?

To provide a Country-by-Country Report Signup and view all the answers

What is the focus of the work on transfer pricing under the BEPS Action Plan?

Transactions involving intangibles, a contractual allocation of risk, and addressing profit allocations resulting from non-commercially rational transactions Signup and view all the answers

What is the primary objective of capital import neutrality in international tax rules?

To ensure that foreign and local investors are taxed in a balanced manner Signup and view all the answers

What is the main focus of tax equity in the context of cross-border transactions?

Ensuring equal taxes on taxpayers with equal income or equal ability to pay Signup and view all the answers

What is the primary conflict resolution principle when conflicts arise in international tax objectives?

The government should set its priorities correctly Signup and view all the answers

What is the main aim of administrative efficiency in the context of taxation?

Minimization of 'dead-weight' and administrative costs Signup and view all the answers

Why is it important for a country to adhere to international compatibility in imposing taxes?

To avoid imposing harsher international taxes than other countries Signup and view all the answers

What is the primary objective of national wealth maximization in the context of taxation?

Maximizing the country's share of revenue from cross-border transactions Signup and view all the answers

What is the primary objective of CFC (controlled foreign corporation) rules as mentioned in the text?

To prevent the erosion of the home country’s tax base by MNEs’ shifting of profits and assets into zero or low-taxed subsidiaries Signup and view all the answers

What is the main focus of the BEPS 2.0 project?

Ensuring that MNEs pay a minimum level of tax on profits Signup and view all the answers

What is the purpose of hybrid mismatch arrangements as explained in the text?

To achieve double non-taxation Signup and view all the answers

What role does transfer pricing play in the context of intercompany transactions?

Maximizing income through skewing the transfer pricing between group members Signup and view all the answers

What is the overarching goal of the BEPS project regarding interest deductions?

To address concerns related to excessive interest deductions Signup and view all the answers

What is the primary function of transfer pricing policies in intercompany transactions?

Achieving tax savings by exploiting multiple countries’ differing characterizations Signup and view all the answers

What is the purpose of controlled foreign companies in tax policy?

To prevent tax evasion and solve double taxation Signup and view all the answers

In the context of taxation, what does 'profit shifting' primarily aim to achieve?

Increase profits booked in low-tax jurisdictions to reduce tax payments Signup and view all the answers

What is the primary purpose of double tax treaties (DTA)?

To prevent tax evasion and solve double taxation Signup and view all the answers

What characterizes a fixed place of business as a permanent establishment (PE) according to tax regulations?

A fixed place with a nature of permanence through which an enterprise carries on business Signup and view all the answers

What is the primary goal of the BEPS project (base erosion and profit shifting) in the taxation context?

To prevent tax evasion and solve double taxation Signup and view all the answers

What do offshore centers categorized as 'co-ordination centers' primarily host according to the text?

Regional MNC management and high value adding operations Signup and view all the answers

What is the main focus of the BEPS 2.0 project?

Restoring fairness by changing transfer pricing and permanent establishment concepts Signup and view all the answers

What is one of the criticisms of the current tax treaty network mentioned in the text?

It is designed for business models dating back to the 1920s economy Signup and view all the answers

What is the fundamental problem that the BEPS project has been facing since its publication?

The need for political consensus to implement a new tax framework Signup and view all the answers

What is one of the potential solutions mentioned for addressing the challenges of the emerging digital economy?

Transitioning from bilateral tax treaties to multilateral treaty networks Signup and view all the answers

Why is the US mentioned as a potential limitation to the BEPS project?

Due to reluctance to major changes in the tax framework Signup and view all the answers

What becomes evident according to the text regarding the impact of seeking consensus among industrialized and developing economies?

It will have a major impact on the future shape of the world tax regime Signup and view all the answers

What is the primary purpose of the proposed digital levy according to the text?

To generate substantial tax revenue with less effort Signup and view all the answers

What is the purpose of the subject-to-tax rule in the context of the new international tax framework?

To counterbalance the unpaid tax by imposing a withholding tax and another appropriate adjustment Signup and view all the answers

What is the main concern raised about the EU digital levy proposal in the text?

It may cause double taxation or affect the competitiveness of a firm Signup and view all the answers

What is the primary focus of Pillar Two in international taxation as per the text?

To address remaining BEPS issues and discourage profit shifting Signup and view all the answers

What is one of the technical problems with the digital levy proposal mentioned in the text?

Issues regarding the location of the taxable event Signup and view all the answers

What does amount A represent in the new international tax framework according to the text?

Taxing rights for market jurisdictions to impose tax without physical presence Signup and view all the answers

What is the key advantage of introducing a digital levy as mentioned in the text?

Ending distortions and fragmentation of the internal market created by existing unilateral digital levies Signup and view all the answers

What is the aim of pillar two in international taxation as per the text?

To discourage profit shifting by addressing remaining BEPS issues Signup and view all the answers

What is one of the main criticisms raised about introducing a digital levy according to the text?

It may cause double taxation or affect the competitiveness of a firm Signup and view all the answers

What is one of the proposed solutions mentioned for addressing challenges with digital levies in the text?

Solving internal problems with favorable tax regimes within EU countries Signup and view all the answers

What is the primary objective of capital import neutrality in international tax rules?

Concern about the way both foreign and local investors are taxed Signup and view all the answers

What does 'capital import and export neutrality' (CIEN) refer to?

Ensuring equal taxation of capital exported and imported Signup and view all the answers

What is the main aim of administrative efficiency in the context of taxation?

Minimizing 'dead-weight' and administrative costs Signup and view all the answers

'Tax minimization through creative compliance with tax law' is often associated with:

Unethical tax practices Signup and view all the answers

What is the primary focus of the CFC rules as recommended in the report?

Prevention of double taxation Signup and view all the answers

What is one of the recommended approaches for limiting base erosion involving interest deductions and other financial payments, as explained in the report?

A de minimis threshold for entities with low net interest expense Signup and view all the answers

What does Action 5 aim to achieve, as part of countering harmful tax practices more effectively?

Requiring substantial activity for preferential regimes to take place in reality Signup and view all the answers

What is the primary goal of the arm’s length principle in the context of transfer pricing outcomes?

Aligning transactions as if enterprises were independent Signup and view all the answers

What does Action 13 of the BEPS Action Plan require large MNEs to provide annually?

Information on their global allocation of income and economic activity Signup and view all the answers

What is the purpose of the master file required under the three-tiered approach to transfer pricing documentation?

To offer high-level information on global business operations Signup and view all the answers

What is the recommended approach to prevent and eliminate double taxation as per the report?

Allowing a credit for foreign taxes actually paid Signup and view all the answers

What is Action 4's recommended approach for limiting base erosion involving interest deductions and other financial payments?

Excluding interest paid to third-party lenders on loans used to fund public-benefit projects Signup and view all the answers

What is one of the key areas focused on under the work of transfer pricing under the BEPS Action Plan?

Transactions involving intangibles Signup and view all the answers

What is one of the fundamental policy issues to consider when designing effective CFC rules?

Ensuring that rules do not lead to double taxation Signup and view all the answers

What is the main function of transfer pricing policies in intercompany transactions as highlighted in the report?

Pricing transactions as if enterprises were independent Signup and view all the answers

What is the primary objective of CFC (controlled foreign corporation) rules as mentioned in the text?

To prevent the erosion of the home country’s tax base by MNEs’ shifting of profits and assets into zero or low-taxed subsidiaries. Signup and view all the answers

What does 'stateless income' refer to in the context of taxation?

Income that is not subject to taxation in any country. Signup and view all the answers

What is the primary focus of the work on transfer pricing under the BEPS Action Plan?

Ensuring that prices charged in intercompany transactions reflect those that would be charged between unrelated parties. Signup and view all the answers

What becomes evident according to the text regarding the impact of seeking consensus among industrialized and developing economies?

Many issues arise when seeking consensus between industrialized and developing economies. Signup and view all the answers

What is the main issue with the digital service taxes (DSTs) adopted by countries?

They lack international cooperation and may lead to double taxation. Signup and view all the answers

What does amount A represent in the new international tax framework according to the text?

A mechanism for determining a minimum level of tax that MNEs should pay on their profits. Signup and view all the answers

'Tax minimization through creative compliance with tax law' is often associated with:

Aggressive tax avoidance schemes. Signup and view all the answers

What is recommended for the computation of CFC income?

Applying CFC rules only if foreign subsidiaries have a lower effective tax rate than the parent jurisdiction. Signup and view all the answers

What is one of the technical problems with the digital levy proposal mentioned in the text?

It lacks clear guidelines for classification of digital services subject to the levy. Signup and view all the answers

What is emphasized as one of the fundamental policy issues when designing effective CFC rules?

The need to consider meaningful differences in effective tax rates between jurisdictions. Signup and view all the answers

What is the purpose of hybrid mismatch arrangements as explained in the text?

To obtain deductions for interest expense in two or more countries through financing. Signup and view all the answers

What is the purpose of the Capital export neutrality in the tax regime?

To tax income derived from investing at home or abroad in a neutral way Signup and view all the answers

What is the primary goal of the exemption with progression method for relief from juridical double taxation?

To ensure progressive tax rates are applied to foreign income Signup and view all the answers

What is the main focus of double tax treaties (DTA)?

To prevent tax evasion and solve double taxation Signup and view all the answers

What are the factors determining residence for individuals in terms of taxation?

Nationality and citizenship Signup and view all the answers

What is the key strategy used by MNCs to exploit gaps in the taxing mechanism according to the text?

"Transfer mispricing" - moving profits between subsidiaries to different tax jurisdictions using price manipulation Signup and view all the answers

What does 'Profit shifting' aim to achieve primarily in the context of taxation?

Increase profits booked in low-tax jurisdictions to reduce tax payments Signup and view all the answers

What is the concept of 'tax minimization through creative compliance with tax law' often referred to as?

"Aggressive tax planning (ATP)" Signup and view all the answers

What role does transfer pricing play in the context of intercompany transactions?

Determining the profit allocation among different entities within a multinational group Signup and view all the answers

What approach is recommended to limit base erosion involving interest deductions and other financial payments?

"Strengthening transfer pricing regulations" Signup and view all the answers

'Offshore centers' can be distributed into two categories, which of the following is one of those categories according to the text?

"Profit centers" Signup and view all the answers

What is the primary goal of profit shifting in taxation?

Reduce tax payments by increasing profits booked in low-tax jurisdictions Signup and view all the answers

What does Financialization primarily refer to according to Greta Knipper?

Accumulation of profits through financial channels rather than trade and commodity production Signup and view all the answers

What is the primary focus of Pillar two in international taxation as per the text?

Addressing remaining BEPS issues Signup and view all the answers

What is the main criticism raised about the EU digital levy proposal in the text?

It lacks a clear definition of 'digital business' Signup and view all the answers

What is one of the technical problems with the digital levy proposal mentioned in the text?

Identifying the taxable event location Signup and view all the answers

'Tax minimization through creative compliance with tax law' is criticized for:

Using loopholes to reduce tax liabilities Signup and view all the answers

What is the primary goal of the BEPS project (base erosion and profit shifting) in the taxation context?

To prevent tax evasion through international cooperation Signup and view all the answers

What is one of the challenges at a governmental level in terms of taxes related to the sharing economy?

Collecting taxes from sharing economy platforms Signup and view all the answers

'Capital import and export neutrality' (CIEN) refers to:

Ensuring equal treatment of domestic and foreign investments Signup and view all the answers

What role does transfer pricing play in the context of intercompany transactions?

Distributing profits and costs among related entities Signup and view all the answers

'Tax minimization through creative compliance with tax law' is often associated with:

'Thin capitalization' strategies to reduce tax liabilities Signup and view all the answers

'Profit shifting' primarily aims to achieve:

'Double non-taxation' by exploiting loopholes in tax laws Signup and view all the answers

What is one of the criticisms of the BEPS project (base erosion and profit shifting)?

Failing to address issues related to international tax avoidance Signup and view all the answers

What is a fundamental problem faced by the BEPS project since its publication?

The need for political consensus for a new tax framework Signup and view all the answers

What issue does the emergence of the digital economy raise in terms of tax treaties?

The outdated nature of the current treaty network Signup and view all the answers

What is one of the criticisms mentioned about the current tax treaty network?

It is outdated and not suited for the digital economy Signup and view all the answers

What is one of the potential solutions mentioned for addressing challenges with the emerging digital economy?

Transitioning from bilateral to multilateral tax treaties Signup and view all the answers

What is the primary reason for the reluctance of some conservative OECD members towards changes in the tax framework?

Desire to maintain taxation according to source and residence principle Signup and view all the answers

What does the BEPS 2.0 consensus advocate for in order to restore fairness in international tax policies?

Introducing a new taxing right for market jurisdictions Signup and view all the answers

Why are some experts blaming the US for being reluctant to major changes in the tax framework?

Protectiveness towards their own tech firms Signup and view all the answers

What is a potential limitation of the BEPS project mentioned in the text?

Lack of action against stateless income mechanism Signup and view all the answers

Why is there a need to change the current treaty network, as mentioned in the text?

The shift towards taxation according to value creation principle Signup and view all the answers

Why do some conservative OECD members resist significant change in the tax framework?

Concern about potential instability caused by major changes Signup and view all the answers

What is one of the criticisms raised about introducing a digital levy, according to the text?

It lacks interaction with the actual problems generated by the emerging digital economy Signup and view all the answers

What does tax equity aim to achieve in the context of cross-border transactions?

Equal taxes on taxpayers with equal income or equal ability to pay Signup and view all the answers

What is the primary focus of Pillar Two in international taxation as per the text?

Prevention of base erosion and profit shifting (BEPS) Signup and view all the answers

What is the aim of tax credits for small businesses/entrepreneurs?

Encouraging investment in small businesses/entrepreneurs Signup and view all the answers

What is one of the problems faced by developing and emerging economies according to the lecture?

Lack of administrative efficiency Signup and view all the answers

What is the primary purpose of double tax treaties (DTA)?

Prevent tax evasion and solve double taxation Signup and view all the answers

What does 'transfer mispricing' primarily involve according to the text?

Moving profits between subsidiaries to generate double non-taxation Signup and view all the answers

What is the main goal of 'capital export neutrality' (CIEN) as mentioned in the text?

To tax income derived from investing at home or abroad neutrally Signup and view all the answers

What are the factors determining residence for individuals in terms of taxation?

Nationality and citizenship Signup and view all the answers

What is the primary focus of the BEPS 2.0 project?

To prevent base erosion and profit shifting activities by multinational companies Signup and view all the answers

What is the main function of transfer pricing policies in intercompany transactions as highlighted in the report?

To ensure fair pricing between related entities for tax purposes Signup and view all the answers

'Offshore centers' can be distributed into two categories, which of the following is one of those categories according to the text?

Coordination centers Signup and view all the answers

'Tax minimization through creative compliance with tax law' is often associated with:

'Aggressive tax planning' (ATP) for reducing tax liability Signup and view all the answers

What is required for large multinational enterprises (MNEs) under Action 13 of the BEPS Action Plan?

Disclosure of their country-by-country reporting Signup and view all the answers

Why do many countries struggle to collect taxes from sharing economy platforms?

The sharing platform users under-report their income Signup and view all the answers

What is emphasized as one of the fundamental policy issues when designing effective CFC rules?

Preventing artificial shifting of profits to low-tax jurisdictions Signup and view all the answers

What is one of the recommended approaches for preventing and eliminating double taxation?

Allowing a credit for foreign taxes actually paid Signup and view all the answers

What is recommended for the computation of CFC income?

Using the rules of the parent jurisdiction Signup and view all the answers

What approach is recommended to limit base erosion involving interest deductions and other financial payments?

Implementing a de minimis threshold for net interest expense Signup and view all the answers

What is the primary focus of the CFC rules as recommended in the report?

Attributing income to shareholders Signup and view all the answers

What is the primary goal of the arm’s length principle in the context of transfer pricing outcomes?

To ensure transactions are priced without regard to market conditions Signup and view all the answers

What is one of the criticisms raised about introducing a digital levy according to the text?

It may discourage digital innovation and growth Signup and view all the answers

What is one of the potential limitations of the BEPS project mentioned in the text?

'It may not effectively address transfer pricing issues' Signup and view all the answers

'Offshore centers' can be distributed into two categories, which of the following is one of those categories according to the text?

'Low-tax offshore centers' Signup and view all the answers

'Profit shifting' aims to achieve primarily what in the context of taxation?

'Shifting profits between jurisdictions to minimize tax liability' Signup and view all the answers

'Tax minimization through creative compliance with tax law' is often associated with:

'Aggressive tax planning strategies' Signup and view all the answers

'Dominant practices' refer to what in the context of taxation?

'Commonly used tax planning techniques' Signup and view all the answers

What is required for large multinational enterprises (MNEs) under Action 13 of the BEPS Action Plan?

To provide all relevant governments with information on their global allocation of income, economic activity, and taxes paid among countries Signup and view all the answers

What was the primary criticism of the 'old system' that led to the need for a proper tax framework?

Inability to tackle stateless income mechanism Signup and view all the answers

What is one of the fundamental problems with the value creation principle as mentioned in the text?

Unclear extent of 'value creation' Signup and view all the answers

What is one potential solution mentioned for addressing the challenges of the emerging digital economy?

Moving toward coordination and cooperation Signup and view all the answers

What is one of the limitations mentioned regarding the BEPS project?

Reluctance of OECD members for dramatic changes Signup and view all the answers

Why are some experts blaming the US for being reluctant to major changes in the tax framework?

Tendency to be protective with other countries' tech firms Signup and view all the answers

What is one of the outcomes resulting from the transition from bilateral tax treaties to multilateral treaty networks as mentioned in the text?

Closure of legislative gaps between different tax regimes Signup and view all the answers

What is the primary focus of Pillar 1 in BEPS 2.0?

'Single tax principle' Signup and view all the answers

What is one primary criticism raised about introducing a digital levy according to the text?

'Value creation' principle inadequacy Signup and view all the answers

What is one of the proposed solutions mentioned for addressing challenges with digital levies in the text?

Movement toward coordination and cooperation in depth Signup and view all the answers

What becomes evident according to the text regarding the impact of seeking consensus among industrialized and developing economies?

Major impact on future shape of world tax regime Signup and view all the answers

What is one of the challenges at a governmental level in terms of taxes related to the sharing economy?

Inability to tackle aggressive tax planning Signup and view all the answers

What is the primary focus of the OECD/G20 Base Erosion and Profit Shifting (BEPS) project?

Ensuring that multinational enterprises pay a minimum level of tax on profits Signup and view all the answers

What is the main objective of CFC (controlled foreign corporation) rules as recommended in the report?

To prevent erosion of the home country’s tax base by shifting profits and assets Signup and view all the answers

What is the primary focus of Action 1 within the BEPS project?

Addressing issues related to the digital economy Signup and view all the answers

What is the purpose of hybrid mismatch arrangements as explained in the text?

To exploit differences in the tax treatment of entities to avoid taxation Signup and view all the answers

What is the main aim of transfer pricing policies as part of intercompany transactions under the BEPS project?

To ensure that transactions are conducted at arm’s length standard Signup and view all the answers

What characterizes a fixed place of business as a permanent establishment (PE) according to tax regulations?

Having any form of physical presence in a tax jurisdiction Signup and view all the answers

What does the report recommend regarding the definition of a Controlled Foreign Company (CFC)?

The CFC rules only apply to controlled foreign companies that are subject to effective tax rates that are meaningfully lower than those applied in the parent jurisdiction. Signup and view all the answers

What does 'Profit shifting' primarily aim to achieve in the context of taxation?

Minimizing tax liabilities through legal means Signup and view all the answers

What is one of the criticisms mentioned about the current tax treaty network?

Being used for treaty shopping and exploiting benefits offered by some countries Signup and view all the answers

What is recommended for computing CFC income according to the BEPS report?

Treating all income of a CFC as 'CFC income' without differentiation Signup and view all the answers

What does amount A represent in the new international tax framework?

The excess of groupwide profits over the routine profits from functions and activities Signup and view all the answers

What is the primary purpose of the proposed digital levy according to the text?

To end distortions and fragmentation of the internal market Signup and view all the answers

What is the subject-to-tax rule mentioned in the text?

An appropriate adjustment to counterbalance unpaid tax Signup and view all the answers

What is one of the technical problems with the digital levy proposal mentioned in the text?

Problems with defining and identifying 'digital business' Signup and view all the answers

What does pillar two focus on as per the text?

Remaining BEPS issues Signup and view all the answers

What is the main objective of introducing a digital levy according to the text?

To generate substantial revenue with limited effort Signup and view all the answers

What is the purpose of the income inclusion rule mentioned in the text?

Making it mandatory for an MNE’s home country to impose tax at the minimum rate Signup and view all the answers

What does amount C represent according to the text?

Profits from other activities and functions Signup and view all the answers

What is emphasized as one of the fundamental policy issues when designing effective CFC rules?

Ensuring that all shifted profits are subject to at least a minimum tax Signup and view all the answers

What does the under-taxed payment rule aim to achieve as mentioned in the text?

Implemented by disallowing a deduction for profit-shifting payment Signup and view all the answers

What is the main criticism raised about the EU digital levy proposal?

It may be incompatible with EU law due to interaction with member states' self-determination principle Signup and view all the answers

What does pillar two aim to achieve as mentioned in the text?

Discouraging MNE profit shifting through a minimum tax Signup and view all the answers

What is the difference between capital import neutrality and capital export neutrality?

Capital import neutrality means that non-residents investing in a country shouldn't have an after-tax higher return on investments than actual residents of that country, while capital export neutrality means that the residents should have the same after-tax returns on investments both if they choose to invest in or outside the country. Signup and view all the answers

What does the term 'source jurisdiction of taxation' refer to?

Taxing the subject where it was produced. Signup and view all the answers

What is one of the main criticisms raised about the BEPS project (base erosion and profit shifting)?

It claims to implement single tax principle and taxation based on value creation, but in reality seeks anti-avoidance measures. Signup and view all the answers

What is the policy reason behind residence countries preferring to offer ordinary tax credit relief rather than full tax credit relief?

To prevent double taxation for residents with foreign income. Signup and view all the answers

What is the primary focus of the OECD/G20 Base Erosion and Profit Shifting (BEPS) project?

To address the issue of tax avoidance by multinational enterprises Signup and view all the answers

What does 'capital export neutrality' aim to achieve?

Ensuring that residents do not have a tax advantage when investing either domestically or internationally. Signup and view all the answers

What is one of the criticisms mentioned about the current tax treaty network?

It has been moving very slowly despite dense multilateral cooperation Signup and view all the answers

What does the term 'taxable subject' refer to?

An international transaction or an economic event. Signup and view all the answers

What is the primary difference between 'residence jurisdiction of taxation' and 'source jurisdiction of taxation'?

'Residence jurisdiction' is related to taxing the revenue generated by a transaction, while 'source jurisdiction' focuses on taxing the subject where it was produced. Signup and view all the answers

What does 'stateless income' refer to in the context of taxation?

Income that is not subject to taxation in any country Signup and view all the answers

What does 'Profit shifting' aim to achieve primarily in the context of taxation?

To shift profits to low-tax jurisdictions Signup and view all the answers

What are the advantages of an EU levy on digital services according to the text?

It generates substantial revenue with limited effort and ends market distortions Signup and view all the answers

What was the mean reason for the European Commission to justify its digital tax package of 2018?

To ensure that digital businesses are taxed similarly to traditional businesses Signup and view all the answers

'Tax minimization through creative compliance with tax law' is often associated with:

Shifting profits to low-tax jurisdictions Signup and view all the answers

What are the difficulties of a Digital Levy Proposal?

Defining and identifying 'digital business', location of taxable event, and interactions with income tax system Signup and view all the answers

What is the Two-Pillar solution according to the text?

A framework to address the tax challenges arising from the digitalization of the economy Signup and view all the answers

What are the three dilemmas from the European Commission in case the EU levy on digital services will be implemented?

Acting in short term, implementing tax without global agreement, and addressing rules emerging from consensus Signup and view all the answers

What are the two alternatives mentioned according to the text?

A withholding tax on sales/operations and a method for minimizing tax burdens on individuals Signup and view all the answers

What is the primary goal of DTAs?

To reduce tax evasion by implementing clear rules Signup and view all the answers

Why is transfer pricing more difficult in case of intangible assets?

Because tracking the accuracy of a transfer price is virtually impossible Signup and view all the answers

What is the unitary approach as described by the author?

Treating any MNE group as centrally managed and as a single taxable entity Signup and view all the answers

What has been the reason/background for the OECD to initiate the BEPS project?

Public pressure regarding low to no taxes paid by multinational enterprises (MNEs) Signup and view all the answers

What is transfer mispricing within profit shifting by MNCs?

Involves profits being moved between subsidiaries using illegal price manipulation Signup and view all the answers

What is an 'inversion' and why may it result in a tax benefit?

A strategy used by companies to merge with an Irish subsidiary and avoid taxes in their home country Signup and view all the answers

What are hybrid mismatches within profit shifting by MNCs?

'Double non-taxation' exploiting gaps in international treaties Signup and view all the answers

What is the role of CFC rules?

To clarify the status of an economic entity and prevent profit shifting Signup and view all the answers

What is Country by country reporting?

A system designed to transfer information between tax authorities from member countries Signup and view all the answers

What was the view of the EC in the Apple State Aid case?

The European Commission considered that Ireland unfairly aided Apple to avoid paying taxes Signup and view all the answers

What is the essence of the concept of PE?

PE is an auxiliary term necessary to clarify the status of economic entities Signup and view all the answers

Study Notes

Taxation: compulsory financial charge imposed by a government to fund public expenditures
Policy purposes of taxation: influence behavior, distribute income, increase total welfare
Principles of good taxation (Adam Smith): fairness, certainty, convenience, efficiency
Corporate income tax: taxable subject are companies; tax object is profits; tax rate in NL is 25.8%
Residence of a natural person: determined by nationality, citizenship, 183 days in a year, place of economic and social interest
Residence of a company: place of incorporation, place of effective management
Tax avoidance: methods include avoiding alcohol consumption and excise duty, working as self-employed, tax credits for small businesses, deductibility of mortgage interest payments, and profit shifting through intercompany transactions
Profit shifting: exploits mismatches between tax systems to increase profits booked in low tax jurisdictions and reduce tax payments in high-tax jurisdictions
Transfer pricing: apply at arm's length principle to determine fair market value of transactions between related entities
International tax framework: includes traditional principles like benefit principle and single tax principle, but faces challenges with profit shifting, tax treaties, and the digital economy
Methods of profit shifting: transfer pricing, hybrid financing instruments
Drivers for tax avoidance: lack of an international tax system, lack of international coordination, difficulties with transfer pricing
Criticism of the BEPS project: lack of incentives for authorities in low tax jurisdictions, inadequate exchange of information, penalties not in line with the upside of tax avoidance
Sharing economy: transactions include cash, barter, cost-sharing agreements, and donations
Difficulties with the sharing economy: unclear border between personal and hobby, taxes collected elsewhere, uncertainty for platforms
Business model of tech companies: customers access a resource from outside the country, making it inexistent in the tax system view
Digital service tax (DST) wouldn't do real changes as it can't tackle the main problem: why do we still need a PE in the 21st century
Lack of coordination inside the international structures: US rejects proposals affecting US-based companies, individual DSTs are harmful to the environment.

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Description

Explore the principles of good taxation, corporate income tax, residence determination for individuals and companies, tax avoidance methods, profit shifting, transfer pricing, international tax framework, challenges with the sharing economy, and the business model of tech companies. Dive into the complexities of digital service tax (DST) and the lack of international coordination inside the structures.