Base erosion in the form of profit shifting has become an increasing concern internationally as well as in South Africa. A significant type of base erosion in South Africa is in the form of excessive interest deductions where income is effectively shifted to a no-tax or low-tax jurisdiction. One of the key developments affecting the South African tax laws was the introduction of provisions that target base erosion and profit shifting. Included in these provisions is section 23M, which limits the deduction of interest paid to persons in whose hands the interest received is not subject to tax in South Africa. It was, however, identified that section 23M may target the same interest risks that the new section 31 thin capitalisation provisions address. Section 23M was said to be the enactment of thin capitalisation. Although one of the purposes of tax treaties is to encourage international trade and investment, there is also discriminatory taxation, which runs counter to that purpose and therefore the prevention of such discrimination is important when dealing with tax treaties. The Organisation for Economic Cooperation and Development’s (OECD) Model Tax Convention contains a handful of special criteria in article 24, which must not lead to different or less favourable treatment with regard to taxation. It was found that the non-discrimination article, in particular articles 24(4) and 24(5), may prevent the application of a thin capitalisation regime if the provisions are in contrast with the OECD non-discrimination provisions. Article 24(4) and article 24(5), however, contain an exception that the non-discrimination provisions would not be applicable provided that the thin capitalisation regimes are compatible with the arm’s length principles of article 9. If section 23M was therefore found to be an arm’s length transaction, the article 24(4) and (5) non-discrimination provisions would without further consideration, not be applicable. It was, however, found that section 23M does not consider the factors that should be considered when an arm’s length transaction is applicable, but merely applies the same formula to each company regardless of the size of the company or the industry sector. As a result of this, it appears as if section 23M is arbitrary in nature and therefore would not represent an arm’s length transaction. The exception would not be applicable and would therefore increase the potential non-compliance with the non-discrimination provision. The objective of this study was to determine whether any aspect of section 23M would be contrary to the OECD guidelines relevant to thin capitalisation and in particular the non-discrimination provisions. It was, however, found that although it appears as if section 23M’s primary focus is on cross-border transactions, the provisions do not directly discriminate on the basis of residence. As a result of the discrimination being indirect discrimination and the fact that the cause of section 23M being applicable is not foreign ownership, but rather due to the creditor not being subject to tax, it was concluded that the OECD non-discrimination provisions would not be applicable to section 23M. / MCom (South African and International Tax), North-West University, Potchefstroom Campus, 2015

Base erosion in the form of profit shifting has become an increasing concern internationally as well as in South Africa. A significant type of base erosion in South Africa is in the form of excessive interest deductions where income is effectively shifted to a no-tax or low-tax jurisdiction. One of the key developments affecting the South African tax laws was the introduction of provisions that target base erosion and profit shifting. Included in these provisions is section 23M, which limits the deduction of interest paid to persons in whose hands the interest received is not subject to tax in South Africa. It was, however, identified that section 23M may target the same interest risks that the new section 31 thin capitalisation provisions address. Section 23M was said to be the enactment of thin capitalisation. Although one of the purposes of tax treaties is to encourage international trade and investment, there is also discriminatory taxation, which runs counter to that purpose and therefore the prevention of such discrimination is important when dealing with tax treaties. The Organisation for Economic Cooperation and Development’s (OECD) Model Tax Convention contains a handful of special criteria in article 24, which must not lead to different or less favourable treatment with regard to taxation. It was found that the non-discrimination article, in particular articles 24(4) and 24(5), may prevent the application of a thin capitalisation regime if the provisions are in contrast with the OECD non-discrimination provisions. Article 24(4) and article 24(5), however, contain an exception that the non-discrimination provisions would not be applicable provided that the thin capitalisation regimes are compatible with the arm’s length principles of article 9. If section 23M was therefore found to be an arm’s length transaction, the article 24(4) and (5) non-discrimination provisions would without further consideration, not be applicable. It was, however, found that section 23M does not consider the factors that should be considered when an arm’s length transaction is applicable, but merely applies the same formula to each company regardless of the size of the company or the industry sector. As a result of this, it appears as if section 23M is arbitrary in nature and therefore would not represent an arm’s length transaction. The exception would not be applicable and would therefore increase the potential non-compliance with the non-discrimination provision. The objective of this study was to determine whether any aspect of section 23M would be contrary to the OECD guidelines relevant to thin capitalisation and in particular the non-discrimination provisions. It was, however, found that although it appears as if section 23M’s primary focus is on cross-border transactions, the provisions do not directly discriminate on the basis of residence. As a result of the discrimination being indirect discrimination and the fact that the cause of section 23M being applicable is not foreign ownership, but rather due to the creditor not being subject to tax, it was concluded that the OECD non-discrimination provisions would not be applicable to section 23M. / MCom (South African and International Tax), North-West University, Potchefstroom Campus, 2015

A research report submitted to the Faculty of Commerce, Law and Management, University of the Witwatersrand, Johannesburg, in partial fulfilment of the requirements for the degree of Master of Commerce (specialising in Taxation) Johannesburg, 2014 / Base erosion and profit shifting (BEPS) is a key concern in international tax. In 2010 the Organization for Economic Co-operation and Development (OECD) was tasked with the study of BEPS. In 2013 the OECD released the study report “Addressing base erosion and profit shifting” emphasising BEPS and the risk for the world’s economies and tax bases. The OECD has been focused on BEPS due to several reasons, namely; increase in globalisation, an ever-changing digital economic environment, mismatches of different countries’ tax legislation and the ease with which intellectual property can be transferred. They has released several documents detailing the risk of BEPS as well as an action plan outlining their aim for the transformation of local and international tax. According to the OECD corporate income taxes, as a percentage of gross domestic product (GDP) is a possible indication of base erosion. In South Africa, the corporate income tax rate as a percentage of GDP has decreased from 7.2 % in 20081 to 5% in 20132. Is this a possible indication of base erosion or profit shifting taking place? Protecting South Africa’s tax base is paramount for future growth of the country and the economy. It is therefore important to identify whether BEPS is a real risk and to determine whether South Africa has adequate legislation in place to protect its tax base. Keywords: Base erosion and profit shifting, BEPS, Organisation for Economic Co-operation and Development, OECD, international tax, transfer pricing, thin capitalisation, treaty abuse, treaty shopping

The aim of this thesis is to provide a description of the phenomenon of tax havens in relation to the Czech Republic. The thesis begins with description of theoretical background of this topic including the description of main sectors used for international tax optimalization. Among the areas of the optimization methods, which are described in this thesis, belongs dividends, royalty payments, interest income. The thesis presents an impact of tax haven existence to Czech economy. The impact on public budget is shown and counted on the model example of fictive international company. As a reaction of losses caused by profit shifting to more favourable jurisdictions international organizations are coming up with initiatives to reduce the possibilities of tax planning. The thesis is concluded with an overview which Czech republic should accept to reduce profit shifting to other jurisdictions.

Corruption, Tax Abuse, and Financial Secrecy PhD Dissertation, Miroslav Palanský, IES CUNI, 2020 Abstract This dissertation is composed of three papers that focus on different aspects of the relationship between the public sector and individuals who do not comply with the norms and regulations set by the government. I classify the ways in which individuals do so into two categories - corruption and tax abuse. Corruption, defined as the abuse of entrusted power for private gain, results in individuals obtaining more benefits from the public sector than is intended. Tax abuse, on the other hand, is defined as contributing less to the public sector than is intended. The last chapter of the dissertation focuses on financial secrecy, which I argue is the key facilitator of the two channels. In Chapter 2, I show that companies that donate money to Czech political parties subsequently report abnormally high profits, pointing to preferential treatment that these firms enjoy as a result of their political connections: I conservatively estimate that the connected firms outperform their non-connected but otherwise similar competitors by 8 to 12% following the establishment of the connection, which is a higher effect than found previously for more developed economies. Importantly, however, I find that the effect...

Transfer pricing compliance related issues continue to pose challenges to leaders of multinational entities (MNEs) and tax regulators. MNE leaders strive to mitigate the risks of non-compliance violations and double taxation, while tax regulators seek to minimize profit shifting and revenue losses. This multiple case study explored strategies for managing transfer pricing risks against the backdrop of various risks MNE leaders face for non-compliance violations. The cost contribution agreement theory served as the conceptual framework for this study. Data were collected from organizational documents and semistructured interviews conducted with 6 finance executives representing 2 multinational entities in the midwest and southwest regions of the United States who have implemented successful strategies to manage transfer pricing risks. Data were analyzed using Yin's multiple-step thematic analysis process. Following the thematic data analysis 5 themes emerged, including commitment to tax compliance, tax minimization, advance pricing agreement (APA), comparable uncontrolled price method (CUP), and cost plus method (CPM). MNE leaders favor commitment to tax compliance as an effective strategy as penalties for non-compliance increases risks to business functionality. The findings of this study may help business leaders to follow compliance procedures and adopt risk mitigation strategies, while also informing regulators to update tax regulations to reflect current economic realities. The findings of this study could result in positive social change through an enhanced governmental revenue that stimulates economic growth, improves productivity, and promotes technological innovations.

The aim of this thesis is to explore the firm-specific determinants of the demand for tax haven operations by Czech firms. Our objective is to better understand the firms' incentives for tax haven use, and furthermore whether there exists cross-haven heterogeneity in those incentives. The thesis examines the firms' tax haven investment behaviour by analysing firm-level data for 15,530 Czech firms for year 2013. To the extent of our knowledge, this has been the first research of its kind devoted to Czech firms. The evidence suggests that larger, more profitable firms with larger international presence are most likely to use tax havens. The analysis also indicates that higher firm indebtedness is associated with greater likelihood of establishing tax haven operations. This would suggest Czech firms engage in profit shifting through the use of debt financing. Furthermore, service firms were found to be more likely to use tax havens than manufacturing firms. This contrasts with previous research where R&D intensity was a leading indicator of tax haven use. Additionally, we found significant cross-haven heterogeneity in the determinants, particularly in the sector-specific characteristics. In our sample, service firms favoured Cyprus and the Netherlands, while manufacturing firms preferred Luxembourg...

iv Abstract The thesis focuses on base erosion and profit shifting (BEPS) and resulting corporate income tax gains or losses. I first estimated profit shifting semi-elasticity using database of firm-level financial data. Subsequently I used these estimates to calculate corporate income tax gains or losses for individual countries. I estimate several models to see how much the semi-elasticity depends on specification and what affects it. The evidence suggests that companies do shift profits to countries with lower tax rate. The estimated overall profit shifting semi-elasticity ranges from 1.524 to 3.695 for different specifications of the benchmark model. Semi-elasticity of individual countries increases with financial secrecy score. Using statutory tax rate yields stronger results than using country-level effective tax rates calculated from the financial data. The estimated effect on government revenue ranges from 12% loss to 23% gain of corporate income tax revenues. In the sample of 53 countries with sufficient number of observations this translates to overall loss 48 billion US dollars. JEL Classification F23, F68, G38, H25, H26, H87 Keywords base erosion, profit shifting, corporate income tax, financial secrecy Author's e-mail michal.petrous@gmail.com Supervisor's e-mail jansky@fsv.cuni.cz

This study aimed to assess the determinants and deterrents of profit shifting, which can occur as a result of corporate income tax competition, with a view to aid in collecting sufficient tax revenue to meet public spending requirements. The study theoretically and empirically analysed the effectiveness of the introduction of the South African transfer pricing regulations on deterring the occurrence of profit shifting in South Africa using annual financial information of South African parented multinational enterprises for the period 2010 – 2017. The study established that the implementation of transfer pricing regulations resulted in a reduction in profit shifting that became increasingly more prominent as the rules became stricter. Based on the findings of the study, it is recommended that the South Africa government should allocate sufficient resources to ensure that the transfer pricing regulations are being adhered with an aim to reduce profit shifting from South Africa. / Economics / M. Com. (Economics)

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