Hybrid finance in the double tax treaties PDF Download

Author: Martin Alexander Six
Publisher:
ISBN:
Category :
Languages : en
Pages : 13

View

Book Description
The compartmentalisation of company finance into equity and debt does not truly capture the enormous diversity of financial instruments available. A wide variety of hybrid instruments incorporate elements of both equity and debt. From a fiscal point of view the classification of such hybrid instruments as equity or debt is crucial for two reasons. First of all, the issuer can treat interest on the latter as tax-deductible in most cases, and secondly, for the investor the classification determines whether the payments received from the respective instrument is treated as a dividend or as interest. One important question in this context is how hybrid instruments are treated in the tax treaty between the source state and the residence state. It is the aim of this paper, to show how the yield on hybrid financial instruments can or must be qualified as either dividend or interest in the double tax treaties, irrespective of the treatment in contracting states. (author's abstract).

Author: Félix Daniel Martínez Laguna
Publisher: Kluwer Law International B.V.
ISBN: 9403510846
Category : Law
Languages : en
Pages : 685

View

Book Description
Hybrid Financial Instruments, Double Non-taxation and Linking Rules Félix Daniel Martínez Laguna Hybrid financial instruments (HFIs) are widespread ordinary financial instruments that combine debt and equity features in their terms and design and may lead to double non-taxation across borders. This important book provides a deeply informed and critical analysis and guide to the “linking rules” developed to combat double non-taxation stemming from HFIs within the framework of the Base Erosion and Profit Shifting project of the Organisation for Economic Co-operation and Development (OECD) and the anti-avoidance initiatives of the European Union (EU). These complex rules have now become essential in international taxation. The book deals incisively with crucial theoretical and practical issues as the following: Economic and legal reasons for financing business activity through debt instruments, equity instruments and/or HFIs. Qualification of financial instruments from different perspectives such as economics, corporate finance, corporate law, financial accounting law, regulatory law and tax law and their interrelation. The concept of double non-taxation as a mere outcome of parallel exercises of sovereignty by different states and the role it plays within the international debate. The concepts of tax planning, tax avoidance and the misleading concept of aggressive tax planning within a tax competition international scenario and their relation with HFIs. Comprehensive policy, legal and technical detail and explanation of the linking rules proposed by the OECD (i.e., BEPS Project Action 2) and the EU (e.g., Anti-Tax Avoidance Directive). The (in)compatibility of linking rules with existing tax treaty rules and EU primary law. The author refers throughout to relevant model convention provisions, EU case law and a vast number of references of official documentation and literature. With its detailed attention to the concept and legal nature of HFIs and double non-taxation, the critical and comprehensive analysis of the linking rules developed by the OECD and the EU, this provocative book allows to reconsider the legality of these linking rules and will quickly become a much-used problem-solving resource for policymakers, tax practitioners, tax authorities and tax academics. This book allows to rethink whether linking rules relate to a solution or create actual legal issues.

Author: Jakob Bundgaard
Publisher: Kluwer Law International B.V.
ISBN: 9041183183
Category : Law
Languages : en
Pages : 498

View

Book Description
Financial innovation allows companies and other entities that wish to raise capital to choose from a myriad of possible instruments that can be tailored to meet the specific business needs of the issuer and investor. However, such instruments put increasing pressure on a question that is fundamental to the tax and financial systems of a country – the distinction between debt and equity. Focusing on hybrid financial instruments (HFIs) – which lie somewhere along the debt-equity continuum, but where exactly depends on the terms of the instrument as well as on applicable laws – this book analyses their treatment under both domestic law and tax treaties. Key jurisdictions, including the EU, some of its Member States, and the United States, are covered. Advocating for a broader scope of application of HFIs as part of the financing of companies in Europe alongside traditional sources of debt and equity financing, the book addresses such issues and topics as the following: • problems associated with the debt-equity distinction in international tax law; • cross-border tax arbitrage and linking rules; • drivers behind the use and design of HFIs; • tax law impact of perpetual and super maturity debt instruments, profit participating loans, convertible bonds, mandatory convertible bonds, contingent convertibles, preference shares and warrant loans on HFIs; • financial accounting treatment; • administrative guidance; • influence of the TFEU on Member States’ approaches to classification of HFIs; • interpretation of the Parent-Subsidiary Directive by the European Court of Justice; • applicability of the OECD Model Tax Convention; and • implications of the OECD Base Erosion and Profit Shifting (BEPS) project. Throughout this book, the analysis draws upon preparatory works, case law, and legal theory in English, German, and the Scandinavian languages. In conclusion, the author considers tax policy issues, and identifies and outlines possible high-level solutions. Actual or potential users of HFIs will greatly appreciate the clarity and insight offered here into the capacity and tax implications of HFIs. The book not only examines whether existing legislation is sufficient to handle the issues raised by international HFIs, but also provides an in-depth analysis of the interaction between corporate financing and tax law in the light of today’s financial innovation. Corporate executives and their counsel will find it indispensable in the international taxation landscape that is currently coming into view, and academics and policymakers will hugely augment their understanding of a complex and constantly changing area of tax law.

Author: Sven-Eric Bärsch
Publisher: Springer Science & Business Media
ISBN: 3642324576
Category : Business & Economics
Languages : en
Pages : 406

View

Book Description
Despite the enormous diversity and complexity of financial instruments, the current taxation of hybrid financial instruments and the remuneration derived therefrom are characterized by a neat division into dividend-generating equity and interest-generating debt as well as by a coexistence of source- and residence-based taxation. This book provides a comparative analysis of the classification of hybrid financial instruments in the national tax rules currently applied by Australia, Germany, Italy and the Netherlands as well as in the relevant tax treaties and EU Directives. Moreover, based on selected hybrid financial instruments, mismatches in these tax classifications, which lead to tax planning opportunities and risks and thus are in conflict with the single tax principle, are identified. To address these issues, the author provides reform options that are in line with the dichotomous debt-equity framework, as he/she suggests the coordination of either tax classifications or tax treatments.

Author: R. Tomazela Santos
Publisher:
ISBN:
Category :
Languages : en
Pages :

View

Book Description
In this article, the author examines the tax treatment of dividends, interest and income arising from hybrid financial instruments under tax treaties based on the OECD Model.

Author: Francisco Alfredo Garcia Prats
Publisher:
ISBN:
Category :
Languages : en
Pages : 32

View

Book Description
The article deals with the interesting issue of the tax treaty qualification problems arising in hybrid financial instruments and structures. The need to fit the great diversity of instruments and legal, economic and accounting trends attached to them into the closed range of treaty income categories forces to analyze the basic elements of the tax treaty definitions of those categories of income, their mutual relationship, the role of the Commentaries and the effects derived from integration between the tax treaty requirements and the tax regime and qualifications of the income arising from the hybrid financial instrument. Despite the limited effects associated to the qualification of income arising from the hybrid financial instruments, the article further analyzes the effects derived from the interaction of the legal and qualification regimes of the income in the 'source' and the 'residence' contracting States, to verify what type of interaction and consequences derived and, according to those consequences, what type of measures can be applied to prevent undesired tax treaty results. In particular, the issue of the legitimate use of tax arbitrage schemes is considered and also the counteracting measures foreseen to prevent this usage and also its compatibility with tax treaty requirements.

Author: Eva Eberhartinger
Publisher:
ISBN:
Category :
Languages : en
Pages : 0

View

Book Description
The neat division of company finance into equity and debt does not in reality do justice to the enormous diversity of financial instruments available. A wide variety of instruments incorporate elements of both equity and debt. Usually, these financial instruments are referred to as hybrid instruments, or mezzanine finance. Although hybrid instruments may be issued for a variety of non-tax reasons, taxation issues have a considerable impact on management's financing decisions with respect to hybrid instruments. Tax treatment of hybrid instruments varies among coutries. This may cause severe distortions to most countries efforts to ensure single taxation of the yield. The purpose of this paper is to test the effectiveness of existing measures of international tax coordination (Double Taxation Conventions, EU Directives) in the field of cross-border intragroup finance. In order to do so, the paper provides a comprehensive survey of the possible fiscal consequences of intra-group cross-border hybrid finance on the basis of a formal analysis of the relevant provisions in national, international and European tax law. The paper demonstrates that despite the various measures to prevent double taxation and ensure single taxation of remuneration of equity and debt within groups of companies, the use of hybrid instruments can still generate cases of double taxation as well as cases of double non-taxation (white income). This is a major issue for tax planning, because it implies that an enterprise with operations in a given group of countries can choose instruments that result in double non-taxation. Similarly, an enterprise with given financial needs can choose appropriate countries to establish subsidiaries so as to optimise or even entirely eliminate taxes on the payments received. For national and international legislators, this is important because it shows that existing systems for the taxation of dividends and interest on hybrid finance in many cases fail to ensure single taxation of the income received.

Author: F.D. Martínez Laguna
Publisher:
ISBN:
Category :
Languages : en
Pages :

View

Book Description
Attention has been paid to double non-taxation resulting from contractual hybrid financial instruments, which are instruments that share debt and equity features. This article focuses on a specific Institutional Hybrid Financial Instrument instead. Institutional Hybrid Financial Instruments are equity instruments that could equally lead to conflicts of qualification and double non-taxation considering the deductibility from a tax perspective according to a tax policy decision. The analysis deals with the application of the Spanish exemption method to Brazilian Juros sobre o Capital Próprio from a domestic law and tax treaty perspective. Moreover, the implementation of linking rules and its implications regarding hybrid financial instruments are also considered.

Author: Ewald Aschauer
Publisher:
ISBN:
Category :
Languages : en
Pages : 0

View

Book Description
Hybrid financial instruments are neither typical equity nor typical debt and often lead to classification conflicts, especially in cross-border-transactions. The use of hybrid financial instruments for intra-group financing offers the chance of possible double-non taxation. However a parent company that wishes to finance its foreign subsidiary via hybrid instruments faces uncertainties in multiple ways. The chance of double non-taxation is connected to the risk of misclassification and double taxation. The paper analyses the influence of the existence or non-existence of a double tax con-vention on the benefits of using hybrid finance. We therefore have modeled the influence of uncertainty with respect to tax law to these financial decision using probability trees. We find that the existence of a double tax convention does not necessarily reduce the expected total tax burden. In many cases, the expected tax burden is even higher.

Author: Kevin Holmes
Publisher: IBFD
ISBN: 9087220235
Category : Double taxation
Languages : en
Pages : 433

View

Book Description
Explains the concepts that underlie international tax law and double tax treaties and provides an insight into how international tax policy, law and practice operate to ultimately impose tax on international business and investment.