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Posted on May 1st, 2014, by

Discussing the problem of changes of international tax legislation related to a consolidated tax regime which presuppose a single tax return for multinational corporate groups, it should be noted that the attempts of its implementation have been made in different countries of the world. However, each regulation creates loopholes for taxpayers making the governments to seek for effective measures to fight tax-avoidances and evasion in this respect.

Rao et al. (2009) provide a brief analysis of corporate group tax consolidation regime which has already been applied in many countries. They emphasize that there are considerable differences in tax legislation of these countries and thus, the system works differently in each country.

Maisto (2008) states that the problem related to the taxation of corporations is linked to tax rates to be different for individual payers and corporations (often lower to attract more investments) which often lead to the problem of tax avoidance. The problem of multijurisdictional context of taxation for multinational corporations remains one of the major concerns. In this respect, a universal approach to the definition of corporate group should be established within the international tax legislation (Maisto, 2008).

Lister (2012) emphasizes that consolidated or joint returns are more beneficial for holding companies.

Mallacco (2010) discusses positive and negative consequences of group tax based on the principle of consolidated accounts stressing that it will have less negative than positive outcomes for business. He names the need of much cost for arranging the system and its inflexibility (meaning that the process is irrevocable) among the disadvantages of the system. The loos of future tax deductions and reduced use of tax losses can also be significant arguments against tax consolidation for a multinational corporate group. However, he mentions ease of restructuring and assets move within the group, better utilisation of franking credits and utilisation of tax loses among the advantages of the system for corporations.

Ting (2010) discusses Australian experience of consolidated tax system for corporate groups and its outcomes. The author explains that implementing the system causes quite many problems for the government and become irreversible process. In case a government accepts the system and makes relevant changes in the legislation the whole tax legislation should be reconsidered and changed not avoid contradictions between the new law and previous tax legislation which can be rather problematic for governments.  The process of tax calculation can often cause results which are far from reality and it creates loopholes for taxpayers (Ting, 2010). The question of the regime being acceptable and a good model to follow for other countries is left open.

ISLA Associated LTD (2012) provides a number of measures helping to deal with the problem of tax haven jurisdictions including double tax treaties which presupposes paying home tax calculated as per national rates minus your allowed foreign tax credit if your enterprise is located in a tax beneficial area. Transfer pricing is another international regulation designed to deal with attempts of tax avoidance by multinational groups. Regulations concerning controlled foreign corporation are also popular in many states. However, criteria and methods of defining the corporation located in one jurisdiction but having control and management based in other jurisdictions differ in various countries. ”˜Blacklisting’ tax havens has become a common measure in many states fighting with tax avoidance and it presupposes rather strict tax measures for enterprises locates in blacklisted areas.

Castle (2011) discusses the suggestion of European Union to introduce common consolidated corporate tax and emphasizes that the issue has been the matter of concern for a long time. Still many countries have already adopted their own consolidated tax regimes and it becomes possible to discuss implementation of the regime on general basis. However, the author stresses that not all the countries are ready to introduce such changes while they are likely to lose more if corporations move their financial activities to those who have joined the regime.

Taylor (2012) claims that the states that have already adopted the system of consolidated corporate tax consider it to be a good basis for further economic growth and encourage other states to join the regime. The author emphasizes other states to be under their pressure.

The EU Unit (2012) provide the analysis of Common Consolidated Corporate Tax Base suggested by EU and supposes that a transition period may be necessary before the regime becomes compulsory while he emphasizes that the system is beneficial for all state governments. The main condition is the regime to be accepted throughout the EU.

Aujean (2011) notes:

“The CCCTB rules would include a general anti-abuse rule, supplemented by measures designed to curb specific types of abusive practices. These measures would include limitations on the deductibility of interest paid to associated enterprises resident for tax purposes in non-EU low-tax countries that lack a standard information exchange with the Member State of the payer”.

It is necessary to change the international tax system in accordance to with the system of common consolidated corporate tax. The experience of states that have already tested the system and use it on regular basis may become very helpful in dealing with coming problems and difficulties. Besides the above mentioned benefits for the state governments, the most important point in the whole issue is that implementing the regime on international basis will make cooperation between the states easier and help them to manage the problem of tax-avoidance more efficiently.

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