Papers & Reports

The OECD/G20 Inclusive Framework on BEPS released the report on Amount B of Pillar One, which provides a simplified and streamlined approach to the application of the arm's length principle to baseline marketing and distribution activities, with a particular focus on the needs of low-capacity countries.

The emergence of cryptocurrencies has dramatically transformed the financial landscape, ushering in a new era of digital assets. The lack of uniformity in the classification of cryptocurrencies—whether as property, currency, or something entirely distinct—has led to a patchwork of tax treatments across different jurisdictions. This classification bears significant implications for tax liabilities, which requires a nuanced understanding of local tax laws.  This article underscores the role of international organizations like the OECD and FATF in attempting to forge a consensus and harmonize tax rules across borders to mitigate issues of tax evasion and double taxation.

The purpose of this study is to provide feedback to the European Commission and the European Parliament on the proposed Council Directive on transfer pricing (the proposed Directive). The proposed Directive follows the impact assessment of this initiative, and it seeks to integrate key transfer pricing principles into EU law to put forward certain common approaches for Member States in the European Union. The comments of this study seek to provide constructive technical input, including alternative solutions. This might overcome the identified issues and, thus, support the EU institutions to improve the proposed text. The study has revealed that there are discrepancies between the EU Commission’s aim to align with the OECD Transfer Pricing Guidelines. These discrepancies might frustrate the goal of positive integration and cast doubt on whether the proposed Directive can promote legal and tax certainty while simplifying compliance.

Pasquale Pistone, João Félix Pinto Nogueira, Sergio Messina, Alessandro Turina & Ivan Lazarov, The Proposal for a Council Directive on Transfer Pricing: An Assessment, IBFD (2024).  

Using detailed firm-level exports for Ukrainian firms, the authors demonstrate a robust negative decline in trade conducted through Panama in the aftermath of the Panama Papers data leak. International trade-related financial transactions going through Panama fell by 12-17 percent (conditioned on trade flows being present) and the fraction of trade going through Panama declined from 22 percent to less than 10 percent at the exporting firm level. At least some of this decline was offset by trade through other offshore havens. This paper offers policy-relevant evidence on the role of displacement in limiting any efforts at curbing offshore activities. To the extent that such efforts focus on a subset of offshore havens, companies can shift transactions, even in the relatively short run, to other more compliant jurisdictions. Thus, the findings of this paper reinforce the potential revenue benefits of proposals, such as the global minimum tax of 15 percent proposed by the OECD and the critical importance of broad-based participation in these initiatives.

The 2017 Tax Cut and Jobs Act (TCJA) introduced the Global Intangible Low-Taxed Income (GILTI). This paper surveys the empirical literature on the impact of the TCJA’s international provisions. It documents five robust findings in this empirical literature. First, the TCJA led to a general decline in US MNCs’ foreign acquisitions. Second, the TCJA increased US MNCs’ investment in routine foreign tangible assets. Third, the reform did not lead to any change in profit shifting by US MNCs beyond the magnitude that would be expected based on the TCJA’s tax rate reduction. Fourth, The TCJA appears to have reduced the market value of US MNCs relative to domestic US firms. Lastly, the TCJA does not appear to have had any detectable impact on domestic US investment and wages (although there are some contrary results for capital expenditures).

On January 1, 2024, the 1979 tax treaty between the U.S. and Hungary was officially terminated. A revised treaty was signed in 2010 but was never ratified by the United States. This paper uses the termination of the U.S.-Hungarian treaty to argue that a limitation on benefits (LOB) article is not effective in preventing double non-taxation. Terminating Hungary’s treaty with the U.S. because it lacks a LOB will not achieve the twin goals of preventing treaty shopping and double non-taxation, especially since other US treaties do not have a LOB article. Instead, the US should follow the rest of the world and adopt the principal purpose test (PPT) in its future tax treaties.

The three corporate tax directives (i.e. the Parent-Subsidiary Directive, the Interest and Royalty Directive, and the Merger Directive) adopt a similar formula to restrict subjective entitlement to their benefits. Corporate tax directives were designed on the assumption of an underlying tax obstacle, being it juridical or economic double taxation. However, the way they were designed does not ensure a strict link between such obstacles and the entitlement to the directive benefits. With a more robust and stricter alignment between the wording and the rationale of the provision, this article argues that better-designed provisions can reduce administrative and compliance costs. Better-designed provisions can decrease cases where the EU-nationals may exploit frictions between the wording of the provision and its purpose. This would decrease the instances where national administrations and/or courts are forced to resort to anti-avoidance provisions or (unwritten) principles.

Exit taxation can impose a significant tax and cash flow burden on multinational enterprises (MNEs) in their cross-border operations, as it taxes unrealized capital gains. Using country-level data on newly established MNE subsidiaries in the European Union,  this paper investigates the effect of exit taxation and the inherent cash flow aspect on MNEs’ greenfield investments for the period 2005-2019.

Georg Winkler, Tax It before Exit: Exit Taxation and Greenfield Investments (WU Int’l Tax’n Rsch. Paper Series No. 2024-01).

This article explains the interplay between the UTPR and tax treaties and the role played by customary international tax law, including treaty overrides and soak-up taxes.

Reuven S. Avi-Yonah, The UTPR and the Treaties, 109 Tax Notes Int’l 45 (2023).

This paper illustrates the EU’s tax attractiveness as an investment location over time in terms of effective average tax rates and evaluates potential tax reform options. The paper’s quantitative assessment of recent tax policies suggests that corporate tax rate cuts, notional interest deductions, and R&D incentives reduce the effective average tax rate significantly. This paper, however, argues that targeted measures such as accelerated depreciation and R&D incentives are most suitable for creating an attractive tax environment for business investments, especially in the context of the global minimum tax.

Hannah Gundert, Katharina Nicolay, Daniela Steinbrenner & Sophia Wickel, The Tax Attractiveness of EU Locations for corporate Investments: A Stocktaking of past Developments and recent Reforms (ZEW, Discussion Paper No. 23-066, 2023).