Explore the vast range of titles available.

This study has two objectives. First, the content and scope of the prohibition of extraterritorial taxation under Article 10 paragraph 5 of the 2017 Organisation for Economic Co-operation and Development Model Tax Convention (OECD MTC) are examined. It deals with dual resident corporations as distributing companies. The prohibition of extraterritorial taxation of dividends is included in all double taxation conventions (DTC). However, the exact conditions of application and the interpretation of the prohibition of extraterritorial taxation are disputed in research and literature and the regulation has only been examined cursorily to date. Second, the prohibition of extraterritorial taxation under treaty law is brought into the context of bilateral and unilateral anti-treaty shopping regulations for the first time. Here, it can be shown that, due to their specific structure, anti-treaty shopping rules generally do not apply to dividend payments from dual resident companies that fall under the prohibition of extraterritorial taxation under treaty law, according to Article 10 paragraph 5 of the 2017 OECD MTC. This leads to the tax planning conclusion that dual resident companies can generally be used to optimize withholding taxes on dividends. This is an important finding, as the strategy of interposing holding companies to avoid or reduce withholding tax on dividends has now become largely ineffective due to the introduction of the Principal Purpose Test (PPT) in double tax conventions (Article 29 paragraph 9 of the 2017 OECD MTC) and unilateral anti-treaty shopping rules. From a tax policy perspective, this article examines options for limiting withholding tax avoidance by dual resident companies.

Out of all double tax treaties (DTTs) in force in 2012, around 41% are symmetric (single-rated) and 59% are asymmetric (multi-rated), i.e., they prescribe different dividend withholding tax rates depending on the foreign investor’s ownership fraction. The paper investigates the reasons for this phenomenon, namely why some countries in their DTTs prefer homogenous withholding tax rates over separate rates for participation and portfolio dividends. In a theoretical model, I demonstrate why home countries may have an interest in a high withholding tax rate in the host country, even though they do not receive the revenue from this tax. Further, I find confirming evidence that a reason for having multi-rated withholding taxes on dividends is an existing spatial dependence on the rates of the countries’ peers that may be a driving factor for setting multi-rated taxes. Finally, I confirm that the spread itself (i.e., the difference between the portfolio and participation dividends negotiated in the tax treaty) is also affected by the peer countries.

Many multinationals divert Foreign Direct Investment (FDI) through conduit countries that have a favorable tax treaty network, to avoid host country withholding taxes. This is referred to as tax treaty shopping. The Netherlands is the world’s largest conduit country; in 2009, multinationals held approximately €1,600 billion of FDI via the Netherlands. This paper uses microdata from Dutch Special Purpose Entities to analyze geographical patterns and structural determinants of FDI diversion. Regression analysis confirms that tax treaties are a key determinant of FDI routed through the Netherlands. The effect of tax treaties on FDI diversion partly arises from the reduction of dividend withholding tax rates, which provides strong evidence for tax treaty shopping.

Malaysia introduced Monthly Tax Deduction (MTD) as final tax system so that salaried earner can be excluded from reporting their employment income. However, the system is on voluntary basis and the take-up rate is low. So, this study was undertaken to examine the issues faced by employees on the implementation of MTD as final tax system in Malaysia. This study comprises a case study on MTD implementation at two institutions which remain anonymous due to confidentiality. Data was collected from 64 responses from open ended questionnaires to employees at both institutions. The data was analysed using thematic analysis. Findings from the analysis revealed that employees‘ hesitation to such a system is more apparent. There are three main issues discovered from this study which are: lack of knowledge on MTD as final tax among employees; burden on claiming tax reliefs and the accuracy of MTD calculation; and employer‘s readiness. The findings provide evidence to the IRBM and it will provide good foundation for the IRBM to strategize on mechanisms to enhance the implementation of the scheme. For instance, the information on low readiness among employers may call for roundtable discussion between the tax authority and employers. This would help both parties to discuss possible ways to resolve the issue. Other implications and recommendations for policy makers were also discussed in this paper.

Research background: Poland is a significant recipient of intercompany loans as a part of foreign direct investment (FDI) debt instruments reported in the Balance of Payments. Most of them come from the developed West European countries — Netherlands, Luxembourg, France, Germany, and Belgium. Igan et al. (2020) confirm debt-based FDI inflows to emerging markets had a higher impact on the industries’ growth in the pre-crisis period 1998–2007 than after (till 2010). Purpose of the article: We aim to identify withholding tax (WHT) impact on intercorporate loans inflow to Poland and analyse the relationship between trade credit and intercompany loans to assess the importance of the profit-shifting role of FDI after 2010. Methods: To reflect the impact of withholding tax and trade credit on inter-company loans (in-ward debt-based FDI) in 2011–2017 to Poland, we use Arellano-Bond and random effects panel model estimators. The estimated specification is derived from the knowledge-capital model and includes two types of capital: human and physical. Findings value-added: We show that WHT on interests reduces profit-shifting by multinational companies’ intercompany lending to Poland. But intercompany loans are positively related to foreign trade credit. Unlike in the case of total FDI inward to Poland (Cieślik, 2019), we identified that vertically integrated multinational enterprises are more likely to provide loans to Polish firms. This study is the first to confirm that withholding tax of interests reduces international profit-shifting by FDI and to provide evidence on the relationship between foreign trade credit and intercompany loans provided by multi-national companies.

Abstract Swiss withholding tax (WHT) is levied on Swiss investment income at a hefty 35%. Reimbursement, in full or in part, chiefly depends on the recipient’s tax residence at the time the income became due and his being its “beneficial owner”. If the income subject to WHT is received by a trust, then the eligibility to claim reimbursement may lie with the settlor or with the beneficiary, and, in very limited circumstances, with the trustee or the trust. Finally, the article also takes a look ahead: Swiss trustees may become paying agents under a proposed legislative amendment.

Over three-quarters of US taxpayers receive income tax refunds, which are effectively zero-interest loans to the government. Previous explanations include precautionary and'forforced savings motives. I present evidence on a third explanation: inertia. I find that following a change in tax liability, prepayments are only adjusted by 29 percent of the tax change after one year and 61 percent after three years. Adjustment increases with income and experience, and for EITC recipients, I rule out adjustment greater than 2 percent. Thus, policies affecting default-withholding rules are no longer neutral decisions, but rather, may affect consumption smoothing, particularly for low-income taxpayers.

Large firms may issue debt securities to obtain external financing or set up lowly-taxed affiliates for internal debt-shifting purposes. In addition, they may channel interest payments through Dutch special purpose entities (SPEs) to avoid withholding taxes, a widely-used arbitrage strategy. Analysing the capital structure of large EU-based multinationals, this paper provides evidence that the use of Dutch-issuing SPEs is associated with higher debt financing relative to equity. Furthermore, it shows that EU subsidiaries of larger firms are more leveraged and that the use of Dutch on-lending SPEs is also associated with higher subsidiary leverage. Thus, the paper provides evidence that Dutch SPEs facilitate higher external debt financing as well as internal debt shifting. The findings indicate that withholding taxes on interest payments to entities outside the EU, determined by individual EU member states, are not very effective. The national tax systems of EU countries such as the Netherlands, which does not impose interest withholding tax, allow large firms to avoid those taxes.

This paper analyzes a 1992 decrease in U.S. federal income tax withholding that shifted the timing of income tax payments while leaving ultimate tax burdens unchanged. Consequently income typically received as a lump-sum refund on filing a tax return was shifted into the previous year's monthly income. This paper considers the impact of the withholding change in the context of mental accounting and finds a decrease in the probability that households contributed to a tax-preferred retirement account. Additional robustness tests show that short-term saving did not simultaneously increase and that the main findings are not driven by liquidity constraints.