Prior studies indicate that there are two main channels used by multinational enterprises (MNEs) to shift profits from high-tax countries to low-tax countries: transfer pricing and debt financing. This study investigates profit shifting through these channels in Indonesia using Indonesian tax return data. The performances of foreign-owned Indonesian companies (FOICs), which are Indonesian affiliates of foreign MNEs, and domestic-owned Indonesian companies (DOICs) are compared in terms of earnings before interest and taxes scaled by total sales, and long-term debt to related parties scaled by total assets, in order to capture profit shifting using the transfer pricing and debt financing channels respectively. Propensity score matching and coarsened exact matching are used to match FOICs as the treatment group and DOICs as the control group. The results show that FOICs use both transfer pricing and debt financing to shift profits out of Indonesia.
This paper provides a perspective on the phenomenon of tax exceptionalism in New Zealand administrative law. Tax exceptionalism is broadly defined as the perception that tax law is so different or special when compared to other areas of law that relevant developments in other areas of the law are not applied or applied inconsistently. However, there has not yet, to our knowledge, been any investigation into tax exceptionalism in New Zealand. This article aims to fill this gap. First, it argues that tax exceptionalism is evident in the New Zealand Supreme Court's judicial review judgment in Tannadyce v Commissioner of Inland Revenue (Tannadyce)4 and, in particular, the Supreme Court's approach to privative clauses. It then argues that New Zealand's particular brand of tax exceptionalism represents a concerning departure from its constitutional norms and this cannot be justified by public policy. In doing so, the article not only sheds light on something that has not received attention in New Zealand, but further contributes to the broader international understanding of the phenomenon while recognising that the precise manifestation of the phenomenon is a reflection of the particular environment in which it occurs.
The higher-level government's degree of control over the subnational government administration is frequently a topic for discussion among academics and policymakers. Generally, local taxes are designed poorly and in a presumptive way, and "administered with low coverage rates, arbitrary assessments, and large delinquent lists" (Bird, 2015, p. 18). Increases in incidences of tax evasion and compliance costs are important arguments against the local administration of taxes. Recent theoretical and empirical studies argue for the existence of self-governing local governments, which requires an efficient local tax system to be in place. Using panchayat-level and municipal-level data, this paper investigates the efficiency of the local tax administration in Kerala, a state in India, and tries to estimate the amount of revenue that would be generated if the system were to be rationalised. It also addresses the question of whether local tax administration needs to be re-examined.
Media representation of tax practices is important because of the impact of public opinion on tax policy. Traditionally viewed as a technical subject and the preserve of professionals, taxation has recently become the focus of widespread and more informed public attention, as a result of, inter alia, tax scandals and the financial crisis. These events, together with wider international tax reform initiatives, provide researchers with an opportunity to explore the impact of tax reform on discourse by the public, as well as by tax experts and professionals. To this end, we analyse the changing treatment of tax-related issues in the mainstream and professional media in Ireland and the United Kingdom (UK) in order to capture expert voices, as well as public discourse. We do so in the immediate and medium-term aftermath of the financial crisis. Our analysis of tax discourse in general, and of the public framing of the term "tax avoidance" in particular, in both Ireland and the UK, reveals that a marked change has occurred in the public discourse in Ireland, a country struggling in the aftermath of a severe financial crisis. In contrast, our research finds that there is greater consistency in the UK's mainstream and professional media. Our findings also indicate that expert voices may lag behind public opinion.
In this article, the author seeks to establish a functioning, non-context-specific definition of an "unequal treaty" that takes into account underlying principles of state equality, the concept of treaties, and non-coercion, whilst sitting outside of any single historical moment, by reference to international customary law, the United Nations (UNs)' resolutions of the General Assembly, and normative or moral concepts of coercion. Having established a definition, the author goes on to apply that definition to a number of developments and provisions that were put in place in the last decade, such as the Foreign Account Tax Compliance Act (FATCA), the Common Reporting Standard (CRS) and the outflows of the Organisation for Economic Co-operation and Development (OECD)'s Base Erosion and Profit Shifting (BEPS) project, setting these provisions within their political and procedural contexts so as to place them within the historical tradition of treaties between large and small powers. By applying this definition, the author concludes that some, but not all, of the recent tax-related provisions amount to "unequal treaties". In establishing a methodology with which to assess the inequality of treaties and applying that to the current tax relevant provisions, the author hopes to allow an informed discussion based not only on the objectives of large powers but also on an assessment of the characteristics of the methods by which the community of developed nations, as represented by the OECD, achieves its goals in the tax context.
Society is digitising at a rapid pace and tax authorities must keep up with significant changes in how companies administer their tax liabilities. Tax auditors must be able to achieve an efficient and effective audit quality regardless of the degrees to which digitisation and digitalisation have been implemented by the audited companies. Previous research shows a positive correlation between audit experience and audit quality. However, it is unclear whether more experience-which was most likely acquired in traditional audits of accounting systems with low levels of digitalisation-is also beneficial in a changing environment with more highly digitalised companies. We argue that more experienced tax auditors are only superior to less experienced auditors in this changing environment if they are sufficiently willing and equipped to use new technologies and more digitised data. We expect-and find-that experienced tax auditors with adequate technology readiness achieve a higher audit quality in detecting information technology (IT) risks than tax auditors with less experience and/or less technology readiness. Our results, however, also show that more experienced tax auditors do not perform better when detecting traditional risks (i.e. non-IT-related risks) than less experienced auditors. Overall, our results suggest that experience without the propensity to embrace and use new technologies and more digitised data might not be enough to achieve the required audit quality levels in the future. We therefore emphasise the importance of appropriate training (in order to adopt new ways of working and acquire competencies to understand new technologies) and the strategic composition of the tax authorities' audit teams.
Crypto losses have the potential to adversely impact the tax base, particularly if they are deducted against income from other profitable sources. There is a key question of fairness as to whether crypto losses should be cross-subsidised by income from other sources that may have nothing to do with cryptoassets at all. This article argues for stronger scrutiny of the deductibility of crypto losses at the stage of determining whether such losses can be set off against income from other sources or at the stage of the shifting of the losses across time and between companies. It explains why crypto losses are of particular concern to tax systems and considers how safeguards can be put in place at both stages to safeguard the tax base. In particular, it suggests that specific crypto legislation should be enacted in order to impose a loose "source matching" requirement on crypto losses. Crypto losses from the carrying on of a trade or business should only be deductible against crypto income. That said, there is probably no need to strictly require that the source of the crypto losses must exactly match the source of the crypto income which is sought to be deducted.
The upsurge in cryptoasset transactions in India has led the Indian Government to introduce the concept of virtual digital assets for the purpose of levying direct taxes. Although a direct tax mechanism has been formulated, a robust mechanism for the levying and collection of the Goods and Services Tax (GST), India's unified indirect tax system, has not been introduced to date. This has resulted in tax administration-related challenges for authorities dealing with the GST and has created legal interpretational ambiguities for companies in the virtual digital asset industry, leading to the possibility of endless litigation occurring. Therefore, this paper has been written with the objectives of identifying the difficulties that arise when levying and collecting the GST on virtual digital asset transactions and providing possible routes that can be taken in order to counteract such difficulties from the Indian perspective.
The virtual currency market has grown significantly worldwide in the last decade. Innovations have made it necessary for the concept of cryptocurrencies to be broadened to include so-called "cryptoassets". Countries differ in their legal frameworks for the taxation of cryptoassets and in how they address the challenges that cryptoassets create for tax administration. The pseudonymity of cryptoassets presents the biggest challenge when tax administrations are attempting to properly enforce tax compliance and counter tax evasion. This article provides an overview of the existing legislation addressing the pseudonymity of cryptoassets with an the United States' Foreign Account Tax Compliance Act (FATCA). It argues that both legislations have limitations in respect of their coverage of all stakeholders involved in the cryptoasset market, and provides insights into recent public consultations by the Organisation for Economic Development (OECD) and proposed legislation by the EU on the matter. Finally, it raises the question of whether or not a coordinated effort at the global level would be the best approach to take in order to address a problem that is common across tax administrations around the world: the pseudonymity of cryptoassets.
This paper investigates the taxation of capital gains from, the economic importance of, and the inherent challenges related to the taxation of cryptocurrencies. Based on novel data from Chainalysis, this paper simulates the revenue potential from taxing Bitcoin capital gains in the European Union (EU). The total estimated Bitcoin capital gains in the European Union in 2020 amounted to 12.7 billion, including 3.6 billion of realised gains. Applying national tax rules for capital gains from shares to capital gains from Bitcoin yielded a simulated tax revenue of about 850 million in 2020. This paper is, to the author's knowledge, the first to empirically assess the tax revenue potential of capital gains from Bitcoin in the European Union using disaggregated country-level data. The findings indicate that revenue from taxing cryptocurrencies is significant and will continue to increase if the cryptocurrency market continues to grow.
The explosion of non-fungible token activity in 2021 highlighted a growing prevalence of a form of cryptoasset with functionality distinct from cryptocurrencies such as Bitcoin. Rather than being limited to a means of payment or investment, non-fungible tokens (NFTs) offer a broad variety of use cases which, in turn, requires further understanding of the principles of Australian taxation law. This paper examines a multitude of income tax issues that can arise in respect of NFTs, both on capital and revenue account. It examines the characterisation of NFTs pursuant to the capital gains tax regime for both business and non-business taxpayers, with particular focus on the applicability of the regime's " collectables " and " personal use assets" categories. The paper then raises a number of issues specific to business taxpayers and the issues therein.
The 82-year-old Indian Income Tax Appellate Tribunal (ITAT) is regarded by taxpayers as an efficient and fair forum. This article describes challenges faced by the ITAT, for example, growing pains due to its rapid expansion during the past three decades, recent changes to the tenure of its adjudicating members and to the eligibility criteria for appointing such members, and anticipated challenges in light of the proposed changes to its operating model. The article relies primarily on interviews with retired tax officials, former ITAT adjudicators, retired judges, and tax practitioners.
The international tax regime for the taxation of corporate income is undergoing reform and moving further towards destination taxation. This article highlights the new blueprints for the destination-based taxation of corporate profit, namely the Organisation for Economic Cooperation and Development (OECD)'s blueprint, the United Nations' (UN) blueprint and the destination-based cash-flow tax (DBCFT) blueprint. Furthermore, it examines the seemingly overlooked implications of these blueprints for international tax policy and for nation-states. Arguably, the current move towards the destination-based taxation of the corporate income of multinational enterprises (MNEs) will lead to: (a) the expansion of the source principle, diverging unilateral actions, and challenges to the standardisation of the expanded source principle; (b) avertible costs; (c) distributional impact without the resolution of inter-nation equity issues and (d) tax competition by affluent states for sales factors. These implications provide lessons for international tax policymakers and nation-states. International tax policymakers should coordinate the processes of incorporating destination taxation into the international tax system. Low-income states need to evaluate matters further before adopting any blueprint for destination taxation as part of their domestic legislation. Affluent market states may require expanded country-by-country reporting (CBCR) and anti-tax avoidance rules to regulate their tax competition for sales factors.
Developed countries have, for some years, been introducing policies that focus more on the individual's responsibility to engage with taxpaying obligations. At the same time, they have provided less state support and assistance except where taxpayers are motivated to self-serve online. This paper argues that, given this change of approach to compliance, a greater focus on tax education is needed, particularly amongst younger people as they prepare to engage with the tax system beyond consumption taxation payment, and in order to build a platform for compliance improvement efforts in the future that is better suited to this greater focus on the individual's responsibility for compliance. As such, it is also necessary to ascertain the most effective way in which to educate young people about the tax system. This paper seeks to contribute to this. It presents quantitative research into socio-demographic influences and the impact that tax tuition may have on young adults' tax morale. The results of a two-staged survey show that gender, tax tuition, and employment experience significantly influence tax morale. The study contributes to the literature on tax morale and tax literacy by showing, through regression analysis, that the effect of tax tuition on tax morale is negatively influenced by employment experience.
Tax expenditures are government policy instruments that provide preferential tax incentives and exemptions instead of direct budget support. They are frequently applied in order to prioritise particular sectors and to attract foreign investment. Interestingly, most of these tax expenditures are applied opaquely in developing or emerging economies, mainly due to the unavailability of tax expenditure data. This study proposes a customised model in order to address this gap and recommends that Bangladesh uses the revenue forgone (RF) approach to tax expenditure estimation based on Gross Domestic Product (GDP). Developing economies like Bangladesh can replicate this method where gaining access to information is challenging. Using the recommended method of computation, we find that Bangladesh's tax expenditure for the 2018/2019 financial year is 2.28 per cent of its GDP value. Finally, we make a few recommendations with regard to the reform of the tax expenditure policies of emerging economies like Bangladesh.
This article considers the use of tax rulings by the South African tax authorities as a tool to provide legal and commercial certainty, in particular where either the tax administration or a taxpayer challenges an interpretation set out in a ruling. The role of tax rulings, in the form of binding general rulings and advance tax rulings, in providing certainty is analysed through the lens of the provisions of South African tax administration legislation and judgements made by the South African courts. The article finds that tax rulings and other South African tax administration publications play an important role in promoting certainty even where the interpretation set out in the rule is disputed. The role of rulings to support certainty is supported by both the provisions of the South African tax administration and the judgements made by the South African courts.
It has been suggested that the introduction of presumptive income tax regimes for small and medium-sized enterprises (SMEs) can help to reduce the tax compliance costs that these businesses face. Little evidence, however, is available to help us to evaluate whether this is indeed the case. This article discusses how a presumptive tax regime may impact upon the tax compliance costs of SMEs operated by individuals (individual SMEs) in Indonesia in 2019 and suggests that the use of such regimes can have a beneficial effect on such businesses. It considers all components of tax compliance costs, including explicit, implicit, and psychological costs. By applying a mixed-modes research method, two main findings are highlighted. First, the presumptive tax significantly reduces explicit costs, although it does not appear to influence the implicit and psychological costs incurred by individual SMEs in Indonesia. Secondly, the combination of explicit and implicit costs indirectly affects the psychological costs through the existence of tax disputes and tax stressors. Not only do the results provide us with a new understanding of aspects of tax compliance costs, they show how the components of the costs interact with each other. While the empirical application is country-specific, the conceptual framework developed in the study does not exclusively relate to taxpayers in Indonesia and can be applied to other countries or in other public regulation studies.
Purpose: Between 2011 and 2019, 52 transfer pricing cases were decided in tax arbitration courts in Portugal. The Portuguese tax authority prevailed in only seven. The research question that this paper seeks to address is: "What strategic and operational measures can the tax authority implement in order to improve its success rate in transfer pricing litigation?". Approach: This paper is based on a blend of the case study method and legal research approach. Six decisions made during 2011 to 2019 are analyzed in detail in order to find similarities in court reasoning that can be used as a basis for the proposed changes to tax audits. Findings: The main conclusions drawn from the research relate to the need for changes to performance metrics, careful planning for transfer pricing audits, solid analysis of comparability issues in auditing work, more intervention by senior staff acting as filters in respect of unsubstantiated audit reports, and the dissemination of best practices in audit and litigation procedures. Implications: By considering the arbitration court case outcomes, strategic and operational procedures can be applied in the planning, execution, and follow up of transfer pricing tax auditing. Originality: The tax authority's performance in transfer pricing arbitration court cases between 2011 and 2019 is discussed and forms the basis for recommendations to enhance the tax authority's litigation success rate. Transfer pricing is a globally litigated matter, with modest success rates for tax authorities. Thus, the conclusions presented in this paper are useful for policymakers worldwide.
