Browsing by Author "Jauhiainen, Viljami"

This paper assesses whether, and to what extent, the OECD's recent initiative on Base Erosion and Profit Shifting (BEPS) is likely to affect holding company structures commonly used by Finnish tax planners. Building on the OECD’s previous “harmful tax planning” initiatives released around the millennium, the BEPS initiative is a political instrument aiming to curb cross-border tax avoidance by multinational enterprises (MNEs) through 15 specific action points targeting such tax-related areas as CFC rules, treaty shopping, hybrid financing, interest deductions, permanent establishment (PE) avoidance, transfer pricing (TP), and exchange of tax information. Since its release in 2013, the BEPS initiative has received a great deal of political support by governments and lots of attention by diverse interest groups. Many commentaries on and analyses of the initiative, mostly by tax consultant firms, have already been released, but despite the attention, no academic research on the subject has yet been conducted from a Finnish perspective. This paper attempts to fill that gap. The importance of the research is obvious for both governments and MNEs, since tax planning is an economically significant field for both of these stakeholders, and thus any impact on the scope of possible tax planning structures is worth our attention. Methodologically, I have tackled the research problem by focusing on both political and legal factors. Surveying a wide range of expert commentaries, analyses and political declarations, I have first analysed the political momentum behind the BEPS initiative as a whole and the likelihood of each specific action point to be enacted in domestic legislation or through international treaties affecting tax planning. I have also looked at the BEPS initiative in a historical context of the OECD’s earlier post-millennium initiatives, assessing how the former’s global reception differs, or is likely to differ, from that of the latter. After the political analysis, the focus of the paper shifts to actual Finnish holding company structures presented in Finnish guidebooks and training material on tax-efficient corporate structures. In this part of the paper, I assess the likelihood of five specific commonly used Finnish holding company structures to be affected by the BEPS action points. The findings of this paper suggest that the BEPS initiative is almost certain to have an impact on holding company structures in some areas; that in others, political potential is considerable but lots of technical and problems still remain; and that many BEPS action points are either not at all relevant to holding companies or unlikely to affect them for other reasons. Politically, the OECD’s most potent proposals are those on transfer pricing (action points 8 to 10) and tax information exchange (action points 11 to 13), although the latter will only affect holding company structures indirectly. Another action that seems likely to be enacted in legislation is the BEPS action point 2 on hybrid mismatches, mainly because of a recent EU proposal against tax avoidance relying on hybrid financing. However, the findings of this paper suggest that even though some other actions, particularly action 4 on interest-stripping and action point 6 on treaty shopping, enjoy a lot of political support, there are still significant unsolved political and technical problems on these fronts. Finally, this paper’s analysis on specific Finnish holding company structures suggests that the Finnish structures most likely to be affected by the OECD’s proposals are those relying on tax rate shopping (“capitalisation on tax rate differences”) and hybrid mismatches (“re-characterisation of income”). In particular, the former is likely to be affected by the OECD’s current thinking on transfer pricing and its “important people” doctrine, while the latter has a fair change of being affected, for example, by the OECD’s proposal against hybrid mismatches, at least if the EU’s current efforts in this area are successful.