Starting with the concept of tax avoidance, this paper analyzes the motives of tax avoidance, the means of abusing tax agreements in tax avoidance methods and its preventive measures.
First, the concept and motivation of international tax avoidance
International tax avoidance refers to the non-illegal behavior of taxpayers to make proper financial arrangements and tax planning by using some loopholes or permitted methods in relevant national tax laws or international tax agreements to reduce their overall tax burden. ①
International tax avoidance by transnational taxpayers has its internal motivation and external conditions. The intrinsic motivation is that every multinational operator wants to maximize profits by reducing or exempting taxpayers' obligations. Its external conditions are mainly the differences of tax systems in different countries, which are mainly manifested in the following aspects: first, the provisions of tax obligations in different countries are not the same; Second, the differences in tax scope and tax rate among countries; Third, the degree and way of taxation vary from country to country; Fourth, countries avoid international double taxation in different ways.
It is precisely because of the above internal and external reasons that international tax avoidance is possible. In practice, the traditional international tax avoidance methods mainly include the following: 1, tax avoidance through the transnational flow of taxpayers; 2. Cross-border mobile tax avoidance through taxation objects includes three forms: transnational affiliated enterprises avoid taxes through transfer pricing and unreasonable allocation of costs and expenses; Transnational taxpayers use tax havens to avoid taxes; Multinational investors deliberately weaken their stock investments to avoid taxes. However, in today's international tax practice, there is a relatively new international tax avoidance method-abusing tax treaties to avoid tax.
Second, abuse tax treaties to avoid taxes.
Abuse of tax treaties is a special form of international tax avoidance, which means that transnational taxpayers try to obtain or use the resident status of intermediary agencies and "actively" rely on the resident jurisdiction of one country to enjoy the treatment determined by tax treaties, thus reducing the limited tax liability in another non-resident country. This is a deliberate evasion of territorial jurisdiction, and its harm and adverse effects are greater than those of general international tax avoidance. It violates the principle of reciprocity in international tax treaties and is not conducive to encouraging countries to sign more tax treaties. At present, countries around the world mainly strengthen the anti-abuse ability of agreements by adding preventive clauses to them.
(1) Abuse of tax treaties for tax avoidance.
There is no doubt that international tax agreements are the basis of this problem. International tax agreement is a written agreement between sovereign countries to deal with the tax distribution relationship between them. After World War II, with the increasingly frequent cross-border economic exchanges, the number of tax treaties signed between countries, especially bilateral tax treaties, is increasing and the content is expanding. In bilateral tax treaties, the contracting parties usually provide some tax incentives to the residents of the other contracting party to solve the problem of double taxation. Its purpose is to encourage economic exchanges between residents of the State party. In international tax treaties, the most important issue is to confirm the permanent establishment, which leads to the problem of abusing tax treaties to avoid tax. According to international practice, a country's taxation of business income of its non-residents is based on the establishment of a permanent establishment in its own country, so the concept and scope of a permanent establishment become the key factor, and the provisions of various tax treaties in this regard are inconsistent, which leads to the possibility of abuse of tax treaties. For example, company A in country A wants to sell its products in country B through independent agent B, and in order to accept orders without delay, B needs to master some of the spot. According to the provisions of the tax agreement between Party A and Party B, an independent agent who can accept orders regularly and has inventory will constitute a permanent establishment. Therefore, country B can collect income tax according to the provisions of the domestic tax law on the profits made by company A in selling products in country B. It is also assumed that the above provisions are not made in the tax agreement signed between country B and country C. Therefore, in order to avoid bearing the tax burden of country B, company A can entrust company B to sell products in country B through its subsidiary in country C.
However, the abuse of tax treaties to avoid tax is still the most common problem in the field of international investment. Let's explain the above example here. Suppose that the tax treaty between country B and country C stipulates that both countries tax each other's investment income from their own countries at a low tax rate of only 5%. Suppose that the tax rate agreed in the tax treaty between country A and country B is 15%. For example, company A of country A plans to set up a subsidiary in country B and conduct business activities in country B. In this case, company A can make such an arrangement: instead of directly investing in country B, it can invest in country B through its subsidiary in country C, the so-called "pipeline company", so that it can enjoy a low tax rate of 5% by using the tax treaty between countries B and C, although company A is not the beneficiary set by the tax treaty between the two countries.
Because of this, tax havens have become the most ideal places for many multinational taxpayers to set up pipeline companies. For example, many multinational companies set up pipeline companies in the Netherlands, mainly because the Netherlands is tax-free for dividends received by its residents from abroad and exempt from withholding tax for dividends, interest and royalties paid by its residents. The Netherlands has an extensive network of bilateral tax treaties, and all investment income paid to Dutch residents can enjoy preferential foreign withholding tax rates. Therefore, some American authors believe that the most obvious abuse of tax treaties signed by the United States lies in the use of tax treaties and tax havens signed by the United States by non-agreement beneficiaries.
(2) Preventive measures to prevent the abuse of tax treaties to avoid tax.
Obviously, the abuse of tax treaties to avoid taxes will cause many adverse effects. One of the purposes of signing a tax agreement between the two countries is to enable residents of the other country to obtain corresponding rights and interests. If the residents of a third country take advantage of the tax treaty by setting up a pipeline company in a contracting state, the third country will benefit from it, which violates the principle of reciprocity in the tax treaty. The tax rights and interests of both parties will also be affected. In addition, if the residents of the third country can benefit from the tax agreements signed by other countries, the enthusiasm of the third country to sign taxes with other countries will be greatly reduced, which is not conducive to the development of international tax cooperation. Therefore, since the early 1980s, many countries have treated the abuse of tax treaties as an important issue and taken measures to prevent it.
1, unilateral preventive measures
At present, the domestic tax laws of most countries still adopt general anti-tax avoidance clauses or anti-abuse tax treaty clauses to prevent them. For example, English law relies on the principle that substance is higher than form to deal with such problems. If the tax authorities believe that the transaction is for the benefit of the tax treaty, rather than for normal commercial purposes, they can refuse the application of all parties concerned.
1962, Switzerland promulgated a law prohibiting tax associations from abusing their rights and interests. However, this law is not for the benefit of Switzerland, but for the benefit of its treaty partners. Its purpose is to prevent the abuse of tax agreements signed by Switzerland with other countries by setting up holding companies in Switzerland. For example, in the tax agreement signed between Switzerland and Germany, Article 23 stipulates that if a resident of a third country controls most of the shares of a Swiss company, the investment income paid by the resident company of that country to a Swiss company cannot benefit from the reduction of German withholding tax.
The provisions of the United States are more detailed than those of Switzerland, and its first model tax treaty (1976) contains provisions on investment companies and holding companies. In the second model tax treaty of 198 1, the provisions of anti-abuse tax treaties are extended to natural persons.
2. Precautionary measures in bilateral tax treaties
With the increasing abuse of tax treaties to avoid tax, more and more countries pay more attention to introducing anti-abuse clauses when signing new bilateral tax treaties. For signed tax treaties, the original loopholes can be plugged by signing the protocol.
Judging from the bilateral tax treaties signed by countries all over the world, the measures to prevent the abuse of tax treaties can be summarized as follows: ⑥.
(1), channel approach. This method mainly deals with the establishment of catheter companies. It refers to limiting the proportion of dividends, interests and royalties paid by residents of any contracting state to residents of third countries in their total income, and those who exceed the proportion shall not enjoy preferential treatment in tax treaties. In tax practice, a large amount of fees charged by some third-country residents from their pipeline companies located in contracting countries are actually investment income. Through this arrangement, residents of third countries can enjoy preferential treatment through agreement and finally make a profit. The tax burden of its pipeline companies is reduced because a large number of expenses offset taxable income, and the channel rules can block the channels of the above investment income of third-country residents to a certain extent, thus preventing the abuse of tax treaties to avoid tax.
(2) perspective method. This is a precautionary measure in early tax treaties. Under this method, the preferential treatment provided by a contracting state in a tax treaty is only applicable to those companies whose shares must be held by residents of another contracting state. That is to say, to judge whether a company enjoys the preferential treatment of a tax treaty, it is no longer only dependent on the single superficial standard of whether the company is a resident of another contracting state, but further analyzes whether its shareholders are residents of another contracting state, taking dividend clauses as an example. The contracting state of which the dividend paying company is a resident will only accept the dividend limited tax rate if the dividend recipient is a resident of the other contracting state and is the beneficial owner. Therefore, if a resident of a third country tries to set up a pipeline company in a contracting state to convert dividend income from another contracting state, he cannot enjoy preferential tax rates.
(3) avoidance mode. Because the common practice of abusing tax treaties is to set up pipeline companies in countries with preferential tax systems, most countries avoid signing tax treaties with countries that are considered as tax havens. Because of this, some well-known tax havens, such as Panama and Monaco, have no or only a few tax treaties, and some countries that have signed tax treaties with tax havens also require renegotiation in order to avoid damaging their tax interests. For example, when the United States renegotiated its tax treaty with tax haven countries in the 1980s, it strongly demanded the inclusion of stricter anti-abuse clauses. The main content of this clause is that a citizen can enjoy the preferential treatment of the agreement only if he proves that he meets the following conditions, that is, he is not mainly interested in obtaining the benefits of the agreement, is not controlled by residents outside the contracting state, and his shares are publicly traded in a stock exchange recognized by the contracting state.
(4) Good intentions. It means that the tax authorities of both contracting States have the right to investigate the real motives of third-country companies for production and operation in either contracting state. If both parties believe that the main purpose of the company becoming a resident of a contracting state is to obtain the benefits of the tax treaty between the two parties, they can cancel the preferential treatment of the company through consultation and impose corresponding sanctions. This approach is a powerful deterrent to those who want to abuse tax treaties.
(5) Exclusion method. It means that although a country has signed a tax treaty with another country, it expressly stipulates that some low-tax companies in another country enjoy special preferential treatment and exclude them from the beneficiaries of preferential rights in the tax treaty.
With the increasing frequency of international economic exchanges, the struggle between international tax avoidance and anti-tax avoidance has attracted more and more attention from all countries. Some multinational taxpayers use various ingenious means to avoid taxes, which makes the economic harm brought by international tax avoidance more and more obvious. At the same time, various anti-tax avoidance measures emerge one after another. At present, the essence of these measures is to strictly enforce the system and plug the loopholes. However, with the continuous advancement of this struggle, the legislation and measures against international tax avoidance in various countries will continue to mature and improve.