Abstract In this paper, we describe the evolution of effective tax rates (ETR) of Finnish corporate groups and firms over time. Using detailed corporate tax return data from 2000–2015, we document a decreasing trend in effective tax rates over time, particularly for Finnish-headquartered multinational enterprises. We do not observe a significant decreasing trend for domestic firms, consistent with a broad tax base and limited means of tax avoidance. Complementing our results with unconditional quantile regression, we also observe heterogeneity in the time trend across the ETR distribution. Finally, we link multinational enterprises to their foreign subsidiaries and find that multinationals with tax haven subsidiaries report zero taxable profits more often than non-haven affiliated ones.
Audits and letters are two of the enforcement strategies available to a tax administration to ensure compliance. In this paper, we use a unique set of experiments to determine which of the two enforcement strategies is more effective. We use firm-level data from 1,974 randomized audits and 8,000 information letters. We find that audits result in an immediate and significant increase in firms' payroll tax remittance, whereas letters have a weaker effect. Updated, perceived audit probability seems to sustain adjustments in payroll tax remittance two years post-treatment (on-site audit or standardized, electronic information letters). Firms receiving the information letters also adjust their remittance upwards, and more so when the letters are actually read. Our “back of the envelope” cost-benefit calculations suggest that tax administrations could save resources by partially switching to cheaper enforcement strategies, like information letters.
Aggressive tax planning (ATP) does not have any legal definition or any other precise and established definition. Nor is it intended here to define precisely ATP. Instead, the primary purpose is to create a more general reference framework for aggressive tax planning after the base erosion and profit shifting (BEPS) project of the OECD and G20 countries. Some situations or means of ATP have been left outside the scope of the BEPS project. In some cases, various occurrences of ATP are not covered by the implemented regulation, that is, the regulation can be considered underinclusive. Further, some of the proposed means are such that even though precise regulation has been targeted at these situations, the regulation has been implemented in such a way that its ultimate purpose can be circumvented. Finally, various ATP methods can rely on the fact that different states have not fully implemented the BEPS recommendations. The proposed framework can serve as a tool and incentive for both current and future tax policy discussions. Locating concrete ATP activities in the reference framework also illustrates for whom it would be possible and with what kind of legislative means to intervene in such phenomena.
Abstract We examine the effect of compliance frictions in reclaiming foreign withholding taxes on Foreign Portfolio Investments (FPI) using a comprehensive panel of FPI stocks of 83 countries, including EU Member States, between 2005 and 2019 and country-pair specific withholding tax rates. We find a negative and statistically significant elasticity of the FPI stock of equity and debt holdings to “overwithheld” withholding taxes. The estimated elasticities imply that a 1 percentage point reduction in “overwithheld” withholding taxes increases the FPI stock of equity holdings by 1.5%. In a second step, we employ a general equilibrium model to quantify the macroeconomic implications of compliance frictions. In absence of costs in the withholding tax refund process, average GDP in the EU countries would increase by 0.26% (equivalent to EUR 46 billion in 2024), while capital and wages would rise by 0.72% and 0.26%, respectively, suggesting noticeable macroeconomic costs arising from such compliance frictions.
Abstract In a dual income tax (DIT) system, labor income is taxed progressively, while capital income is subject to a lower proportional tax. DIT systems were introduced in Sweden, Norway, and Finland in the early 1990s. In the absence of rules restricting capital income distributions, owners of closely held corporations would easily be able to circumvent the progressive tax on earned income by withdrawing an appropriate amount of dividends instead of wages. The Nordic countries adopted very different income splitting models, with immediate implications for the tax treatment of dividends. In this article, I first review the principles of the income splitting rules of Sweden, Norway, and Finland. I then discuss some of the trade-offs involved in the design of such rules.
Abstract The Norwegian dividend tax regime is uniquely characterized by the so-called shielding allowance, which implies that the shareholders are entitled to receive a nearly risk-free yield of the investment without tax, unlike the rest of the dividend. This article attempts to evaluate the arguments behind these rules. These arguments are embedded in economic theory on neutrality; in particular, the issue is to what extent the dividend tax increases the financial costs of a company. The Norwegian and international debates among economists show that the central issue today is to what extent the company’s financial cost is decided on international or domestic financial markets. In the former case, the Norwegian dividend tax does not affect the company’s financial cost. Arguments against the shielding allowance regime are also evaluated. The article ends with a brief discussion of a recent proposal to extend the shielding allowance regime to all types of capital income or to some of them.
Abstract South Korea introduced VAT in 1977 and the Sixth VAT Directive was enacted in the same year. In this article, the EU and Korean VAT systems are compared and analysed from a legal transplants perspective. The first research question pertains to whether there was any European influence on the Korean VAT Act at the time of its introduction, and, if so, how this influence was exerted. The second research question concerns the identification and explanation of similarities and differences between the two systems, both at the time of the introduction of Korean VAT and today. This leads to the third research question, whether the two VAT systems have moved towards or away from each other. The analysis has been carried out from a legal transplants’ perspective, which analyses whether, how and why such laws spread across the globe. The article ends with a final analysis and conclusions. Our conclusions are that there was a European influence on the Korean VAT Act by the time of its introduction, that many similarities are so close that they can hardly have occurred spontaneously, and that the two systems have drifted apart from each other.
Abstract The purpose of this article is to reconcile findings from Aaberge et al. (2020), which show that the Norwegian tax system is regressive at the top (1 percent richest) of the income distribution. We approach this through the example of an investor who exclusively owns stocks and earns only capital income. Our study examines how various aspects of the Norwegian tax code might contribute to the low average effective tax rate among the wealthiest individuals. Key elements of our analysis include the wealth tax, the tax on distributed dividends, the effective average corporate tax rate, and the type of stocks (listed or nonlisted) the investor holds. We find that, throughout the period from 2004 to 2018, the average effective tax rate for Norwegian investors ranged from 14 to 21 percent, varying based on their efforts to minimize tax payments. Our study confirms that the Norwegian tax system is regressive at the top of the income distribution.
Abstract This article revisits the income-splitting regulations within the Nordic dual income tax framework. These regulations were introduced to counteract the inclination to transfer income between labor and capital income tax bases. They involve imputing a return on equity, considered as capital income, and taxing the residual portion at rates similar to those imposed on labor income. There are primarily two methods for computing imputed capital income. One method involves imputing a return based on the shares’ acquisition price (implemented in Sweden and Norway), while the other calculates a return using the net book assets of the company (utilized in Finland). This study examines the economic implications of the net asset-based splitting approach, an area not extensively explored in earlier literature. Our findings suggest that with appropriate selection of tax-parameter values, the net asset-based splitting system embodies the fundamental characteristics of a neutral corporate tax system akin to the ACE corporation tax. Consequently, our analysis indicates that the issues regarding incentive concerns in the Finnish taxation of closely held companies, highlighted in previous studies, stem more from erroneous parameter values rather than flawed underlying principles.
Abstract Earlier studies of individuals’ law-abiding behavior find significant effects of home country corruption level on compliance. In our study of manager’s tax compliance, we use data from random audits and find associations between tax compliance and the use of an external accountant, age, manager’s place of origin and employees’ conflict exposure, but no effect from a manager’s own conflict exposure, nor Corruption Perception Index scores. The use of an external accountant seems to commit managers to comply with reporting requirements. Our findings suggest that factors such as managers’ age and company characteristics are important in understanding manager compliance. To study whether other mechanisms not previously tested may provide explanatory power, we specify two machinelearning models, which confirm our findings, but also suggest other associations.
Abstract This article focuses on how the concept of beneficial ownership (BO) is determined and applied in international taxation. Although the article analyzes the concept of BO under tax treaties, i.e., the major source of law reducing or eliminating withholding taxation (WHT) on cross-border income at the source state, it is by analogy relevant to European Union (EU) law. The analysis aims to verify whether the meaning of BO in legal provisions regulating WHT on dividend income is the same as under provisions dealing with such taxation on other types of income (typically interest and royalties). The article answers that research question affirmatively, arguing that the concept of BO should be understood in the same way under all provisions concerning WHT on income. This argument follows from the observation that the concept of BO has one and the same income allocation function under these provisions. In contrast, the anti-abusive function should be essentially dismissed, especially in the presence of general anti-abusive rules such as the principal purposes test (PPT) or the general anti-avoidance rule (GAAR). This approach to determining BO is agnostic, and so it applies alike to WHT on income under tax treaties across the globe and EU law.
Abstract The issue of how the Swedish welfare system should be organized in an increasingly market-driven economy has become an urgent one. The public sector’s retreat from its previous commitments through deregulation and new public management reforms, as well as the state’s ambition of highlighting non-profit actors as potential providers of welfare, can be understood as an illustration of two ongoing processes of transformation in Swedish society. The aim of this article is to place a legal doctrinal research methodology of the Swedish Income Tax Act’s incentive scheme for corporate and private donations to civil society at the intersection of these transformations (welfare and civil society). At the same time, it is in the understanding of the tax legislation and the advantages it can offer individuals, nonprofits or commercial actors, that changes can be brought about in both the patterns and our understanding of charity and giving. A question that arises in this context is whether it is meaningful to speak of a shift in the state’s control of the financing of civil society. The term nonprofit tax shift is introduced in the study to discuss this issue. The article also addresses how ideas,stances and policy initiatives are shaped and articulated in Swedish contemporary politics, including tax policy. The paper argues for the existence of a ressentiment driven discursive frontline, running parallel to the public dialogue on welfareand the role of nonprofits. Additionally, it examines whether these developments in tax policy have affected the notions of justice that were previously a significant consideration in designing the income tax system in Sweden.
Abstract This contribution serves to provide a fully-fledged analysis of the compatibility of the Spanish windfall tax on credit institutions with EU law (EU monetary and banking policy, EU Fundamental Freedoms, and state aid) and international law (investment law and double tax treaties). Our analysis reveals that the design of the Spanish tax captures windfall profits that are large and easy to detect due to inflation and high interest rates. Although the tax is compatible with EU law, it compromises the area of bilateral investment treaties and bilateral tax treaties.
Abstract Tax policy is one way to promote sustainability, and this paper focuses on the role of taxation for SDG 8 on economic growth and decent work. Three basic values for sustainability are identified—equity and equality, environmental protection, and coherence. All these values are important for SDG 8, but they are not easily or naturally combined as there are intermittent tensions among the various values. Equal treatment is important for both efficiency and legitimacy. However, globalization calling for equal treatment across borders may be hard to implement as it requires international agreements. This, in turn, may violate the required local coherence if taxes are more aligned with other countries than with the local context. Environmental taxation will likely play an increasing role in steering economies in a more sustainable way. A crucial issue and a possible challenge is to do that in a way that does not hamper growth.
Abstract This study discusses the role and development of carbon pricing via taxation by using Finland as a case example of several issues with carbon taxation. Carbon taxation and carbon pricing face some major problems, mainly competitiveness and social issues. Although Finland was one of the first countries to adopt carbon-based energy taxation, these problems shaped the tax system in a way that could even be described as “avoiding carbon pricing”. This study provides new insights on how to develop carbon taxation and how to overcome major problems related to commonly known problems with carbon pricing.
Abstract The paper examines what happened to the profitability of foreign-acquired firms following acquisition in Norway in the period 1994–2005. Propensity score matching combined with a difference-in-difference estimator is used to show that the profitability of the firms acquired goes down significantly following the acquisition. Cost elements, driving the lower profitability of the foreign-acquired firms, are the elements that could reflect transfer price manipulations. Furthermore, the results indicate that despite deteriorating financial performance, there is no significant change in the operating efficiency, liquidity, or solvency of the acquired firms. This may indicate that the observed changes in profitability can be explained by profit shifting activities of the acquired firms.
Abstract In Denmark, the rules on the reimbursement of electricity charges for charging electric cars have been introduced under the provisions of Act No. 1353 of December 21, 2012. Contrary to custom, the rules have not been introduced into the Electricity Tax Act itself, but are only laid down in the Special Act. However, the fact that the rules have given rise to problems of interpretation is due not only to the unusual way in which they were introduced, but also to the ambiguities caused by the legal text itself, and to the way in which the Danish tax authorities administer the rules. In this article I will highlight some of the areas where the rules have caused—and continue to cause—problems of interpretation. I will therefore highlight requirements for changing stations; interpretation of the company’s bill and risk; the supply of electricity to the charging point; and the correlation between the reimbursement rule and the electric heating rules, the renewable energy rules, the Danish Value Added Tax Act, and the European internal market rules. In addition, I will explain the rules for the reimbursement of electricity tax for charging electric cars in Sweden and Germany. Finally, I shall examine the possibility of support for the installation of charging points in the three countries.
Abstract This paper examines the budgetary impact and dynamic effects of implementing a global minimum tax in Sweden. Using a new dataset of global activities of large Swedish companies, we estimate that Swedish tax revenue could increase by approximately SEK 500 million per year (around EUR 50 million). In addition, we estimate that administrative costs can be of the same order of magnitude and discuss the role of safe harbor rules to limit the administrative burden.
Abstract According to the Swedish government, the Swedish general anti-avoidance rule that was already in place when the Anti-Tax Avoidance Directive was adopted sufficiently implements the general anti-avoidance rule of the Anti-Tax Avoidance Directive. The implementation strategy chosen raises questions of European Union (EU) law compatibility, as there are clearly differences between them. It also raises questions concerning the extent to which EU law will affect the interpretation of the Swedish general anti-avoidance rule in the future. The purpose of this article is to discuss these questions.
