Corporate Tax Law: Structure, Policy and Practice (Cambridge Tax Law Series)

Many corporate tax systems lack structure. Focusing on structural defects and how they are addressed in practice, this comprehensive and comparative analysis of corporate tax systems uses a conceptual framework to illustrate and analyse the many difficult issues corporations pose. This framework is enhanced by the examination of a large body of legal rules and practical considerations which demonstrate how corporate tax systems work in practice. While adopting a broad comparative approach, the analysis also drills down into the detail of influential corporate tax systems in order to illustrate the major issues they face and the options available to them. Contents Preface Postscript Table of cases Table of statutes List Of Abbreviations General German statutes UK statutes US statutes Introduction Approach and focus What is a 'corporation’ and why is it important? The 'corporate tax system’ Scope and structure of the book Chapter 1 Taxation of corporate income when derived 1.1 Identifying and classifying corporations 1.1.1 Identifying corporations 1.1.1.1 Definition Corporations Unincorporated entities Exclusions Foreign entities 1.1.1.2 Extensions 1.1.2 Classifying corporations 1.1.2.1 Based on relations 1.1.2.2 Based on situs: resident / non-resident 1.1.2.3 Based on activities: size and character 1.1.3 Exploring relations with owners and controllers 1.1.3.1 Nature of ownership and control 1.1.3.2 Degrees of ownership and control 1.1.3.3 Common ownership and control of corporations 1.1.4 Responses to concentrated ownership and control 1.1.4.1 Non-intervention: separate entity approach 1.1.4.2 Erosion of identity Collapse of separate identity: consolidation Within a separate entity approach: transfer of tax attributes Hybrid approaches Problems with minority owners Attribution to all owners Attribution to controllers only 1.1.4.3 Reinforcement of identity: independent entity approach 1.1.5 Classifying corporations by their owners and controllers 1.1.5.1 Controlled corporations Control by an individual Test of control Attribution of rights Control by a corporation Test of control Attribution of rights Sibling corporations Control by a single person Control by a group of persons 1.1.5.2 Closely held corporations Form of threshold Type of participation Attribution of participations Type of participator Level of participation Type of corporation 1.1.5.3 Associated corporations 1.2 Corporate tax base issues 1.2.1 General rules Schedular vs. global Should the corporate tax base follow financial accounts? Relationship with accounting in practice 1.2.2 Reinforcement of corporate identity: transfer pricing Arm's length pricing Relevant relationship Attribution of rights Corresponding adjustments and subvention payments 1.2.3 Erosion of identity: corporate groups 1.2.3.1 Transaction deferral Deferral mechanism What is a group? 1.2.3.2 Loss relief Losses of an independent corporation Use in year in which incurred Carry-back Carry-forward Group loss relief mechanism Pure consolidation Partial consolidation Loss transfer Group contribution What is a group? Minority shareholders 1.2.3.3 Other areas 1.2.4 Erosion of identity: other related corporations Control by an individual Closely held corporations 1.2.5 Interface with personal income tax Interface through events Special rules for individuals: focus on simplified tax base 1.3 Tax treatment 1.3.1 Selecting the tax subject Corporate taxation: in search of a philosophy Options for tax subject 1.3.2 Taxing the corporation 1.3.2.1 Factors in selecting a corporate tax rate Interfacing issues Philosophical issues Same rates as individuals Temporary surrogate Competition 1.3.2.2 Options in selecting a corporate tax rate Main rate Progressive rates Differentiation Anti-erosion: alternative minimum tax Anti-deferral: tax on excessive retention 1.3.3 Taxing owners and controllers 1.3.3.1 Factors and options for allocation Partnership method By reference to value of shares Capital gains with deferral charge 1.3.3.2 Partnership method 1.3.3.3 Personal services income 2 Taxation of corporate income when distributed 2.1 Classifying corporate rights 2.1.1 Identification of membership rights with corporate profits 2.1.2 Hybrid instruments 2.1.2.1 Debt instruments 2.1.2.2 Preference shares 2.1.3 Excessive debt 2.1.4 Amalgamation and fragmentation 2.1.4.1 Amalgamation 2.1.4.2 Fragmentation 2.1.4.3 Third-party intermediation 2.2 Identifying distributions 2.2.1 Fundamental features of dividends 2.2.1.1 Allocation 2.2.1.2 Quantification 2.2.1.3 Timing 2.2.1.4 Dual character 2.2.2 Intercepting corporate profits: hidden profit distributions 2.2.2.1 Transfers of assets Shareholder level Corporate level 2.2.2.2 Assumption or forgiveness of liability 2.2.2.3 Loans and use of assets 2.2.2.4 Provision of services 2.3 Dual nature of corporate income 2.3.1 Economic double taxation: the classical system 2.3.1.1 The charge Shareholder taxation Corporate distributions tax Withholding and dual taxation 2.3.1.2 Expenses in deriving dividends 2.3.2 Should corporate income be taxed twice? 2.3.2.1 Corporate vs. unincorporated sectors 2.3.2.2 Dividends vs. other returns 2.3.2.3 Distribution vs. retention 2.4 Dividend relief 2.4.1 Options and factors in selecting dividend relief 2.4.1.1 Types 2.4.1.2 Corporation and shareholder tax bases 2.4.1.3 Preference income 2.4.1.4 Extent of relief 2.4.1.5 Dividend streaming What is dividend streaming? Why engage in dividend streaming? Options for dividend streaming 2.4.2 Corporate-level dividend relief 2.4.2.1 Dividend deduction system Preference income Extent of relief Dividend streaming 2.4.2.2 Split-rate system Preference income Extent of relief Dividend streaming 2.4.2.3 Corporation tax credit system Preference income Extent of relief Dividend streaming 2.4.3 Shareholder-level dividend relief 2.4.3.1 Dividend exclusion system Expenses in deriving dividends Preference income Extent of relief Dividend streaming 2.4.3.2 Shareholder differentiation system Expenses in deriving dividends Preference income Extent of relief Dividend streaming 2.4.3.3 Dividend tax credit system Expenses in deriving dividends Preference income Extent of relief Dividend streaming 2.5 Reconciling the corporation and shareholder taxes 2.5.1 Recording corporate tax treatment 2.5.1.1 Recording share capital 2.5.1.2 Recording profits Corporate profits with tax treatment Corporation tax Taxable income 2.5.2 Allocation of profits as retained or distributed: ordering rule 2.5.2.1 Returns of capital 2.5.2.2 Different types of profits 3 Taxation of corporate income 3.1 Resident corporations 3.1.1 Foreign income / resident shareholders: scenario 2 3.1.1.1 Foreign tax relief 3.1.1.2 Classical system 3.1.1.3 Dividend relief at the corporate level 3.1.1.4 Dividend relief at the shareholder level 3.1.2 Domestic income / non-resident shareholders: scenario 3 3.1.2.1 Classical system 3.1.2.2 Dividend relief at the corporate level 3.1.2.3 Dividend exclusion and shareholder differentiation systems 3.1.2.4 Dividend tax credit and imputation systems 3.1.3 Foreign income / non-resident shareholders: scenario 4 3.2 Non-resident corporations 3.2.1 Domestic income / non-resident shareholders: scenario 5 3.2.1.1 Corporate income when derived Corporate tax base Tax treatment 3.2.1.2 Corporate income when repatriated or distributed 3.2.2 Foreign income / resident shareholders: scenario 6 3.2.2.1 Corporate income when derived: CFC and PFIF rules 3.2.2.2 Identification and taxation of distributions 3.2.2.3 Dividend relief: underlying foreign tax relief Corporate-level dividend relief systems Shareholder-level dividend relief systems Switching forms of dividend relief No-dividend relief: classical treatment 3.2.3 Domestic income / resident shareholders: scenario 7 3.3 Extent of relief: whose corporate tax system? 4 Creating share interests 4.1 Issue of shares 4.1.1 In return for cash 4.1.2 In return for non-business assets 4.1.2.1 From an individual 4.1.2.2 From another corporation 4.2 Transfer of a business: incorporation 5 Transferring share interests 5.1 Shareholder-level consequences 5.1.1 Fungibles: identifying shares 5.1.2 Factors in determining tax treatment Double taxation of retained profits Stripping effect of dividends Timing: whose tax rate? Unrealised corporate gains: the problem of enveloping 5.1.3 Options for tax treatment of gains on disposal of shares 5.1.3.1 Consistency between taxation of dividends and capital gains on shares Dividend exclusion Shareholder differentiation Dividend tax credit 5.1.3.2 Integration of taxation of dividends and capital gains on shares 5.1.3.3 Specific relief of capital gains on shares 5.1.3.4 Concessional capital gains taxation 5.1.3.5 Full taxation 5.1.4 International issues Shares held by non-residents Shares held in non-resident corporations 5.2 Corporate-level consequences 5.2.1 Defining a sufficient change 5.2.1.1 Of ownership Threshold issues Test period Small shareholdings Indirect change without direct change Direct change without indirect change 5.2.1.2 Of business / activity 5.2.2 Limitations on indirect transfer of gains and losses 5.2.2.1 Rules for realised losses One rule or multiple rules Knife-edge or graduated approach Year of change Carry-back of losses 5.2.2.2 Extending to unrealised gains and losses: the core issues Two-step tax arbitrage Scoping the potential for tax arbitrage and counteracting measures Removing the corporate tax attribute Removing the ability to offset the tax attribute 5.2.2.3 Change of ownership of loss corporation Limitations on carry-forward of unrealised losses Consolidation Transfer the loss to a profit Transfer a profit to the loss 5.2.2.4 Change of ownership of profit corporation Consolidation Transfer the profit to a loss or vice versa 5.2.3 Limitations on carry-forward of other corporate tax attributes 5.2.4 Leaving a corporate group 5.2.4.1 Deferred transactions 5.2.4.2 Carried-forward losses and other tax attributes 5.3 Sale of shares versus sale of corporate activity Issues for the seller Competing interests of the purchaser 6 Terminating share interests 6.1 Partial share termination 6.1.1 Returns of capital 6.1.2 Cancellation of capital 6.2 Share termination only: redemptions and share buy-backs 6.2.1 Share redemptions 6.2.2 Share buy-backs 6.3 Corporate termination: liquidations and related proceedings 6.3.1 Corporate consequences Calculation of corporate income Change of control In-kind distributions to shareholders 6.3.2 Shareholder consequences 6.3.2.1 Insolvent corporations 6.3.2.2 Solvent corporations Disposal-only treatment Dividend and disposal treatment 7 Varying share interests 7.1 Within a corporation 7.1.1 Substitution Scope of substitution Triggering the substitution: options and convertible notes 7.1.2 Splitting: focus on bonus shares Bonus shares and the capitalisation of profits Proportionate bonus share issues Disproportionate bonus share issues 7.1.3 Consolidation 7.2 More than one corporation 7.2.1 Merger 7.2.1.1 Threshold for relief 7.2.1.2 Consequences for the shareholder 7.2.1.3 Consequences for the merged corporation 7.2.1.4 Consequences for the merging corporation and survival of tax attributes 7.2.2 Division 7.2.2.1 Threshold for relief 7.2.2.2 Consequences for the shareholder 7.2.2.3 Consequences for the distributing corporation 7.2.2.4 Consequences for the distributed corporation and survival of tax attributes 8 Dividend and capital stripping and value shifting 8.1 Dividends into capital: just the disposal 8.1.1 Disposal of dividends 8.1.2 Sales cum-dividend 8.2 Capital re-characterised: value shift then disposal 8.2.1 Direct value shift 8.2.2 Indirect value shift 8.2.2.1 By distribution 8.2.2.2 By corporate gift 8.3 Disposal, value shift, disposal: stock lending, repos and the full strip 8.3.1 Stock lending and share repurchase agreements 8.3.2 Full strip References Index Structure Is Something That Many Corporate Tax Systems Lack. Focusing On Structural Defects And How They Are Addressed In Practice, This Comprehensive And Comparative Analysis Of Corporate Tax Systems Uses A Conceptual Framework To Illustrate And Analyse The Many Difficult Issues Corporations Pose. This Framework Is Enhanced By The Examination Of A Large Body Of Legal Rules And Practical Considerations Which Demonstrate How Corporate Tax Systems Work In Practice. While Adopting A Broad Comparative Approach, The Analysis Also Drills Down Into The Detail Of Influential Corporate Tax Systems In Order To Illustrate The Major Issues They Face And The Options Available To Them--unedited Summary From Book Cover. Taxation Of Corporate Income When Derived -- Taxation Of Corporate Income When Distributed -- Taxation Of Corporate Income : International Aspects -- Creating Share Interests -- Transferring Share Interests -- Terminating Share Interests -- Varying Share Interests -- Dividend And Capital Stripping And Value Shifting. Peter Harris. Includes Bibliographical References (pages 587-592) And Index. Focusing on structural defects and how they are addressed in practice, this comprehensive and comparative analysis of corporate tax systems will challenge the most deep-thinking academics and policymakers, and should be considered a necessity by anyone engaging with corporate taxation.