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2017 | OriginalPaper | Chapter

1. Taxation and Development: Overview

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Abstract

In an effort to promote internationally accepted standards that embody principles underlying their own systems, developed countries have, in some respects, ignored the spill-over effect of their tax regimes on the viability of strategies of countries in the developing world to attract much needed investment. A reconsideration of the principles underlying the decisions made by higher-income countries concerning the proper allocation of taxing jurisdiction over income arising from global operations of multinationals could and should result in a re-examination of the ways in which countries, particularly developing ones, are able to build economies. This chapter provides an overview of contributions that consider whether 19 different countries use their tax laws to attract foreign investment or to encourage investment in developing countries.

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Appendix
Available only for authorised users
Footnotes
1
A list of the National Reporters is appended to this General Report.
 
2
Organisation for Economic Cooperation and Development (OECD), Harmful Tax Competition (1998).
 
3
OECD, Part 2 of a Report to G20 Development Working Group on the Impact of BEPS in Low Income Countries 4 (Aug 13 2014) (BEPS DWG Pt 2).
 
4
OECD, Part 1 of a Report to G20 Development Working Group on the Impact of BEPS in Low Income Countries 25 (July 2014).
 
5
Lee A. Sheppard, BEPS Action 2: The Hybrid Hydra, 149 Tax Notes 183 (Oct 12 2015).
 
6
These are Australia, Belgium, Brazil, Croatia, Czech Republic, Israel, Italy, Japan, Netherlands, Poland, Portugal, South Africa, Uganda, United Kingdom, United States, and Venezuela.
 
7
The U.S. regime briefly featured a participation exemption-type regime when a special provision enacted in 2004 provided an 85 % deduction for certain dividends received from controlled corporations. Although Uganda has a worldwide tax regime, the government does grant tax holidays on an ad hoc basis. Although the governing principles under Brazilian law continue to be re-evaluated by the courts, it appears that Brazil provides no exemption for earnings of controlled foreign corporations, but may provide one for non-controlled foreign affiliates in certain cases. Poland and Portugal provide a participation exemption for corporations organized in EU or EEA member states or Switzerland.
 
8
This may also suggest that “capital ownership neutrality,” a principle that evolved from the work of two economists, Mihir Desai and James Hines, who argued that evaluations by multinationals of the appropriate location for investment should not be impeded by countries’ tax laws, has gained acceptance. Some argue that this principle is served only if there is uniformity in the international tax regimes of all countries. See, e.g., C. Gustafson, R. Peroni & R. Pugh, taxation of international transactions 22 (2011).
 
9
One important country not covered in this volume, China, recently moved from a territorial to a worldwide system of taxation. This move was designed to crack down on certain tax avoidance schemes using special purpose vehicles owned by foreign residents.
 
10
Ninety-five percent of the dividend is excluded under the participation exemption, while eighty-eight percent of capital gain is excluded from tax.
 
11
See, e.g., Apple May Owe $8 Billion in European Taxes from Use of Irish Subsidiaries to Shelter Profits, Bloomberg News, Jan 15, 2016 (referring to certain favorable transfer pricing methodologies allowed by Ireland).
 
12
OECD, Tax Sparing (1998).
 
13
The U.S. national report indicates that the U.S. has provided relief similar to tax sparing in its internal law. Relief for certain investments in Puerto Rico, a U.S. possession was provided in§ 936 of the Internal Revenue Code until its phase-out for years after 2006.
 
14
Belgium’s only full double taxation treaty (not limited to information exchange like a TIEA) with a developing country is with Burundi, a former colony.
 
15
Croatia, Czech Republic, Poland, South Africa, and Uganda, ranging along the spectrum from developed to developing country, all offered some type of rate reduction for specified activities. Uganda offers tax holidays on an ad hoc basis depending upon the merits of a particular project. Israel, while not a developing country, is a small country with special reasons for encouraging investment within its own borders.
 
16
Karl P. Sauvant, Attracting Foreign Direct Investment and Benefiting from it: Challenges for the Least Developed Countries, 7 Transn’l Corporations Rev. 125–126 (June 2015) (available on line at www.​tnc-online.​net).
 
17
Id. at 125.
 
18
Reuven Avi-Yonah, Kimberly Clausing, and Michael C. Durst, Allocating Business Profits for Tax Purposes: A Proposal to Adopt a Formulary Profit Split, 9 Fla. Tax Rev. 497 (2009).
 
19
A corporation successful according to these measures would be awarded a low tax rate.
 
Metadata
Title
Taxation and Development: Overview
Author
Karen B. Brown
Copyright Year
2017
DOI
https://doi.org/10.1007/978-3-319-42157-5_1