International tax arbitrage has come under intense scrutiny since the global financial crisis, and is usually portrayed as a form of aggressive tax avoidance. Press coverage has often shown little understanding of the distinction between tax avoidance and tax evasion, describing the legitimate behaviour of taxpayer banks, financial institutions and multinational businesses in emotive terms and often inaccurately.
This book aims to look at tax arbitrage, and demystify its practice. In a world where tax competition rather than tax harmonisation is the predominant norm, international tax arbitrage is a form of legitimate tax planning.
The book starts with a review of some of the press coverage (including of recent court cases) and also examines campaigns by the Uncut pressure group. It considers the confusion over the boundary between ‘legality’ and ‘morality’.
It covers the responses of tax authorities in major western economies to calls for tax reform.
This includes the choices to favour:
- substance or form
- worldwide or source taxation
- targeted legislation or general anti-avoidance rules.
It considers the role of jurisdictional competition in tax avoidance arbitrage and the approach taken by a number of countries (including the UK, Ireland and Netherlands) to fiscal policy.
A review of recent law reports in the UK, Italy, France, New Zealand, Australia, United States and South Africa involving tax arbitrage, helps to explain how it works, with detailed descriptions from court cases and flow charts of the structured finance arrangements.
The appendices include an extract from the OECD Report “Building Transparent Tax Compliance by Banks” on international arbitrage financing transactions, and the UK “Code of Practice on Taxation for Banks” with guidance notes.
Table of Contents
Introduction
Summary of the book
CHAPTER 1: The bail out – from hero to villain
The media feeding frenzy
Other side of the Atlantic
US Senate “Tax Dodge” Report
CHAPTER 2: Tax authorities intervention
USA borrower
Substance v Form
Worldwide taxation and tax credits
Securities Lending and Repo
Taxpayers file lawsuits in the US claiming tax refunds
US docketed cases
Who owns the public transport system?
CHAPTER 3: Structured finance
The ‘art’ of tax avoidance
Blowing the whistle
Regulators and tax arbitrage
When the herd moves in
The spirit of the law
GAAR
Differing approaches
Impact of European jurisprudence
Are tax havens to blame?
CHAPTER 4: The role of jurisdictional competition in tax avoidance arbitrage
Uncut
Going Dutch
Consumer choice
Entity classification for tax purposes
Every taxpayer’s dream (or not)
When the taxman calleth
CHAPTER 5: Jurisdictional case review
THE UK
ITALY
FRANCE
NEW ZEALAND
AUSTRALIA
UNITED STATES
SOUTH AFRICA
Concluding remarks
Epilogue
Appendix 1: Jurisdictional Arbitrage Financing Transaction
Appendix 2: A Code of Practice on Taxation for Banks
Appendix 3: Supplementary Guidance Note
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