Loss-making companies and the deductibility of taxes paid abroad

European Taxation, 2023

In this CFE Opinion Statement, submitted to the EU Institutions in November 2022, the CFE ECJ Task Force comments on the ECJ decision of 22 September 2022 in W AG (Case C-538/20), on the deductibility of foreign final losses. * The CFE ECJ Task Force is formed by CFE Tax Advisors Europe and its members are Alfredo Garcia Prats (Professor at the University of Valencia), Werner Haslehner (Professor at the University of Luxembourg). Volker Heydt (Former official of the European Commission), Eric Kemmeren (Professor of International Taxation and International Tax Law at the Fiscal Institute Tilburg of Tilburg University), Georg Kofler (Chair of this Task Force and Professor at the Institute for Austrian and International Tax Law of WU Wien), Michael Lang (Professor at the Institute for Austrian and International Tax Law of WU Wien), João Nogueira (Deputy Academic Chairman at IBFD), Christiana HJI Panayi

Proceedings …, 2004

Motivated by the EU Commission's suggested company tax reforms, this paper investigates how cross-border loss offset and formulary apportionment of a consolidated tax base affect the investment and transfer pricing behaviour of a multijurisdictional firm, and how they affect the behaviour of governments potentially engaged in tax competition. The paper shows that cross-border loss offset mitigates both the reactions of a multijurisdictional firm to tax changes and the amount of tax competition engaged in by governments. However, formulary apportionment (with a consolidated tax base) boosts the sensitivity of firms to tax changes and increases the scope for interjurisdictional tax competition as well. For governments, formulary apportionment operates like a risk-sharing or partial equalisation mechanism.

Action 6 of the BEPS project has been recently approved by OECD in 2015. The article addresses the purpose of the Action and it ambitious goal, namely to turn DTCs into legal instruments capable of granting an effective taxation on cross border operations. This change will be arguably implemented using together LoB clauses, Principal Purpose Test one and domestic GAAR (if any). Being the development of a working paper presented in Sevilla (Spain) in 2014, the article analyzes Action 6 in a perspective which is closer to the Itaian and Spanish experiences. This contribute has to be considered at a very early stage of development.

2000

Journal of Legal, Ethical and Regulatory Issues, 2019

This paper aims to understand what kind of fundamentals can justify the tax adjustments imposed by the Portuguese Corporate Income Tax Law. For this purpose, it analyzes the legal dispositions and doctrine, particularly, it examines Portugal data sources: the Corporate Income Tax Law (Codigo do Imposto sobre o Rendimento das Pessoas Coletivas - CIRC) and doctrinal's understandings. The results show that doctrinal interpretations identifies four reasons to tax correction. They are the technical and practical reasons, the separation between corporate and personal equity, the formal reasons; and the disincentive of the no moralistic behavior. This study helps to know better the corporate income tax’s particularities. Although it is a relevant contribution to international tax law literature, and countries can analyze this experience and collet it to its profit, it only researches the Portugal case.

2008

First and foremost I would like to thank my thesis supervisor Bernd Huber. I am very grateful for his encouragement and his insightful comments. Moreover, as my boss at the Lehrstuhl für Finanzwissenschaft, he kept my teaching and administrative workload comparably low. I am also indebted to Peter Egger who agreed to serve as second supervisor on my committee. I also benefited a lot from his insightful comments. Andreas Haufler completes my thesis committee as third examiner and I am very grateful for his support and encouragement.

2015

According to the OECD, 4% to 10% of the global corporate income tax revenue, i.e. USD 100 to 240 billion annually, is lost due to corporate income tax avoidance (OECD, 2015). Although the existence of the issue is well-accepted by the tax policy makers of the developed world, it is extremely difficult to agree on an international tax policy standard which could reduce the vulnerability of the sovereign tax regimes. In this article, we summarize the historical background of corporate income tax avoidance, and provide evidence of its existence in the EU member states. In addition, we also examine a new international income tax model proposed by the European Commission and analyse the expected effects of the proposal onthe risk associated with tax avoidance in Europe.

Journal of Economic Behavior and Organization, 2014

Following recent court rulings, cross-border loss compensation for multinational firms will likely be introduced, at least in Europe. This paper analyzes the effects of introducing a coordinated cross-border tax relief in a setting where multinational firms choose the size of a risky investment and host countries endogenously choose tax rates. We show that coordinated cross-border loss compensation is likely to intensify tax competition when, following current international practice, the parent firm's home country bases the tax rebate for a loss-making subsidiary on its own tax rate. In equilibrium, tax revenue losses will then be even higher than is implied by the direct effect of the reform. In contrast, tax competition will be mitigated when the home country bases its loss relief on the tax rate in the subsidiary's host country.

Recently, a number of exit tax regimes have been referred to the Court of Justice, on the basis that they are obstructing the cross-border movement of companies. There are no decided cases on exit taxes affecting corporate mobility – only cases affecting the mobility of individuals. This article studies the extent to which Member States can impose restrictions, in terms of exit taxes, to domestic companies wishing to migrate to another jurisdiction. The first part examines the principles derived from the case law of the Court of Justice relating to emigrating individuals. It is then questioned whether the same principles are applicable to exit taxes affecting migrating companies. For this question to be answered, it is considered important to determine the actual scope of protection offered by EU law to migrating companies from a general, non-tax perspective. The second part to this article examines the inherent limitations to corporate migration from a private international law perspective and from an EU law perspective. It is made apparent that some of these limitations to corporate mobility, mostly from an outbound perspective, survive in the EU context and are proliferated as a result of the case law of the Court of Justice and the (lack of) legislative framework. The third part examines the overall extent to which the case law of the Court of Justice on exit taxes has been affected by developments in the corporate mobility field. It questions whether exit tax regimes affecting migrating companies may be treated more leniently under EU law following the Cartesio judgment or whether the exit tax consequences of the transfer of tax residence do not and should not follow the company law consequences of the transfer of seat of a company. The author concludes by speculating how exit tax cases relating to companies might be dealt with under the Court of Justice.

Theory, Methodology, Practice, 2015

According to the OECD, 4% to 10% of the global corporate income tax revenue, i.e. USD 100 to 240 billion annually, is lost due to corporate income tax avoidance (OECD, 2015). Although the existence of the issue is well-accepted by the tax policy makers of the developed world, it is extremely difficult to agree on an international tax policy standard which could reduce the vulnerability of the sovereign tax regimes. In this article, we summarize the historical background of corporate income tax avoidance, and provide evidence of its existence in the EU member states. In addition, we also examine a new international income tax model proposed by the European Commission and analyse the expected effects of the proposal onthe risk associated with tax avoidance in Europe.