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Corporate Tax Law

Corporate Tax Law Structure, Policy and Practice

Name: Corporate Tax Law
Brand: Cambridge University Press
SKU: 9781107033535
Price: 1828.45 HKD
Availability: OutOfStock
Author: Peter Harris
ISBN: 9781107033535

By Peter Harris

Cambridge University Press March 2013

Specifications

ISBN-13: 9781107033535
Publisher: Cambridge University Press
Publication: March 2013
Format: Hardback , 650 pages
Jurisdiction: International ? Countri(es) for reference only

Details

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.

• Provides a one-stop shop for anyone wanting to get to grips with corporate tax law

• Highly integrated structural analysis encourages the reader to think laterally and furthers a deeper understanding of the topics

• Focus on the tax laws of four significant economies makes this a useful tool for both academics and practitioners

Preface	xiv
Table of cases	xvi
Table of statutes	xx
List of abbreviations	l
Introduction	1
Approach and focus	1
What is a ‘corporation’ and why is it important?	4
The ‘corporate tax system’	8
Scope and structure of the book	12
1 Taxation of corporate income when derived	17
1.1 Identifying and classifying corporations	19
1.1.1 Identifying corporations	22
1.1.1.1 Definition	22
Corporations	23
Unincorporated entities	24
Exclusions	26
Foreign entities	29
1.1.1.2 Extensions	32
1.1.2 Classifying corporations	34
1.1.2.1 Based on relations	34
1.1.2.2 Based on situs: resident / non-resident	35
1.1.2.3 Based on activities: size and character	37
1.1.3 Exploring relations with owners and controllers	38
1.1.3.1 Nature of ownership and control	38
1.1.3.2 Degrees of ownership and control	39
1.1.3.3 Common ownership and control of corporations	40
1.1.4 Responses to concentrated ownership and control	42
1.1.4.1 Non-intervention: separate entity approach	43
1.1.4.2 Erosion of identity	46
Collapse of separate identity: consolidation	46
Within a separate entity approach: transfer of tax attributes	48
Hybrid approaches	49
Problems with minority owners	49
Attribution to all owners	50
Attribution to controllers only	51
1.1.4.3 Reinforcement of identity: independent entity approach	53
1.1.5 Classifying corporations by their owners and controllers	54
1.1.5.1 Controlled corporations	55
Control by an individual	56
Test of control	56
Attribution of rights	58
Control by a corporation	60
Test of control	61
Attribution of rights	63
Sibling corporations	64
Control by a single person	64
Control by a group of persons	65
1.1.5.2 Closely held corporations	67
Form of threshold	69
Type of participation	70
Attribution of participations	71
Type of participator	75
Level of participation	75
Type of corporation	75
1.1.5.3 Associated corporations	76
1.2 Corporate tax base issues	78
1.2.1 General rules	79
Schedular vs. global	79
Should the corporate tax base follow financial accounts?	86
Relationship with accounting in practice	88
1.2.2 Reinforcement of corporate identity: transfer pricing	93
Arm's length pricing	93
Relevant relationship	97
Attribution of rights	100
Corresponding adjustments and subvention payments	102
1.2.3 Erosion of identity: corporate groups	103
1.2.3.1 Transaction deferral	104
Deferral mechanism	105
What is a group?	109
1.2.3.2 Loss relief	112
Losses of an independent corporation	113
Use in year in which incurred	113
Carry-back	114
Carry-forward	115
Group loss relief mechanism	118
Pure consolidation	119
Partial consolidation	119
Loss transfer	120
Group contribution	124
What is a group?	125
Minority shareholders	128
1.2.3.3 Other areas	130
1.2.4 Erosion of identity: other related corporations	131
Control by the individual	131
Closely held corporations	133
1.2.5 Interface with personal income tax	136
Interface through events	136
Special rules for individuals: focus on simplified tax base	138
1.3 Tax treatment	142
1.3.1 Selecting the tax subject	144
Corporate taxation: in search of a philosophy	144
Options for tax subject	148
1.3.2 Taxing the corporation	150
1.3.2.1 Factors in selecting a corporate tax rate	151
Interfacing issues	151
Philosophical issues	153
Same rates as individuals	153
Temporary surrogate	154
Competition	157
1.3.2.2 Options in selecting a corporate tax rate	159
Main rate	160
Progressive rates	161
Differentiation	165
Anti-erosion: alternative minimum tax	166
Anti-deferral: tax on excessive retention	167
1.3.3 Taxing owners and controllers	169
1.3.3.1 Factors and options for allocation	170
Partnership method	170
By reference to value of shares	172
Capital gains with deferral charge	174
1.3.3.2 Partnership method	175
1.3.3.3 Personal services income	176
2 Taxation of corporate income when distributed	181
2.1 Classifying corporate rights	185
2.1.1 Identification of membership rights with corporate profits	188
2.1.2 Hybrid instruments	191
2.1.2.1 Debt instruments	192
2.1.2.2 Preference shares	197
2.1.3 Excessive debt	198
2.1.4 Amalgamation and fragmentation	204
2.1.4.1 Amalgamation	204
2.1.4.2 Fragmentation	207
2.1.4.3 Third-party intermediation	207
2.2 Identifying distributions	208
2.2.1 Fundamental features of dividends	209
2.2.1.1 Allocation	209
2.2.1.2 Quantification	211
2.2.1.3 Timing	211
2.2.1.4 Dual character	212
2.2.2 Intercepting corporate profits: hidden profit distributions	215
2.2.2.1 Transfers of assets	216
Shareholder level	217
Corporate level	221
2.2.2.2 Assumption or forgiveness of liability	224
2.2.2.3 Loans and use of assets	225
2.2.2.4 Provision of services	228
2.3 Dual nature of corporate income	229
2.3.1 Economic double taxation: the classical system	230
2.3.1.1 The charge	231
Shareholder taxation	231
Corporate distributions tax	233
Withholding and dual taxation	234
2.3.1.2 Expenses in deriving dividends	235
2.3.2 Should corporate income be taxed twice?	239
2.3.2.1 Corporate vs. unincorporated sectors	241
2.3.2.2 Dividends vs. other returns	243
2.3.2.3 Distribution vs. retention	248
2.4 Dividend relief	251
2.4.1 Options and factors in selecting dividend relief	251
2.4.1.1 Types	252
2.4.1.2 Corporation and shareholder tax bases	254
2.4.1.3 Preference income	256
2.4.1.4 Extent of relief	257
2.4.1.5 Dividend streaming	258
What is dividend streaming?	259
Why engage in dividend streaming?	260
Options for dividend streaming	262
2.4.2 Corporate-level dividend relief	262
2.4.2.1 Dividend deduction system	263
Preference income	264
Extent of relief	266
Dividend streaming	267
2.4.2.2 Split-rate system	270
Preference income	270
Extent of relief	271
Dividend streaming	272
2.4.2.3 Corporation tax credit system	273
Preference income	275
Extent of relief	275
Dividend streaming	276
2.4.3 Shareholder-level dividend relief	277
2.4.3.1 Dividend exclusion system	277
Expenses in deriving dividends	281
Preference income	284
Extent of relief	285
Dividend streaming	286
2.4.3.2 Shareholder differentiation system	288
Expenses in deriving dividends	292
Preference income	294
Extent of relief	295
Dividend streaming	297
2.4.3.3 Dividend tax credit system	298
Expenses in deriving dividends	301
Preference income	302
Extent of relief	305
Dividend streaming	308
2.5 Reconciling the corporation and shareholder taxes	311
2.5.1 Recording corporate tax treatment	314
2.5.1.1 Recording share capital	315
2.5.1.2 Recording profits	316
Corporate profits with tax treatment	317
Corporation tax	319
Taxable income	321
2.5.2 Allocation of profits as retained or distributed: ordering rule	322
2.5.2.1 Returns of capital	322
2.5.2.2 Different types of profits	325
3 Taxation of corporate income: international aspects	327
3.1 Resident corporations	330
3.1.1 Foreign income / resident shareholders: scenario 2	330
3.1.1.1 Foreign tax relief	331
3.1.1.2 Classical system	333
3.1.1.3 Dividend relief at the corporate level	334
3.1.1.4 Dividend relief at the shareholder level	336
3.1.2 Domestic income / non-resident shareholders: scenario 3	341
3.1.2.1 Classical system	341
3.1.2.2 Dividend relief at the corporate level	342
3.1.2.3 Dividend exclusion and shareholder differentiation systems	344
3.1.2.4 Dividend tax credit and imputation systems	347
3.1.3 Foreign income / non-resident shareholders: scenario 4	354
3.2 Non-resident corporations	356
3.2.1 Domestic income / non-resident shareholders: scenario 5	356
3.2.1.1 Corporate income when derived	357
Corporate tax base	357
Tax treatment	361
3.2.1.2 Corporate income when repatriated or distributed	362
3.2.2 Foreign income /resident shareholders: scenario 6	367
3.2.2.1 Corporate income when derived: CFC and PFIF rules	368
3.2.2.2 Identification and taxation of distributions	372
3.2.2.3 Dividend relief: underlying foreign tax relief	375
Corporate-level dividend relief systems	375
Shareholder-level dividend relief systems	375
Switching forms of dividend relief	378
No-dividend relief: classical treatment	379
3.2.3 Domestic income / resident shareholders: scenario 7	380
3.3 Extent of relief: whose corporate tax system?	382
4 Creating share interests	386
4.1 Issue of shares	388
4.1.1 In return for cash	388
4.1.2 In return for non-business assets	391
4.1.2.1 From an individual	392
4.1.2.2 From another corporation	395
4.2 Transfer of a business: incorporation	396
5 Transferring share interests	405
5.1 Shareholder-level consequences	407
5.1.1 Fungibles: identifying shares	408
5.1.2 Factors in determining tax treatment	410
Double taxation of retained profits	410
Stripping effect of dividends	412
Timing: whose tax rate?	414
Unrealised corporate gains: the problem of enveloping	416
5.1.3 Options for tax treatment of gains on disposal of shares	419
5.1.3.1 Consistency between taxation of dividends and capital gains on shares	420
Dividend exclusion	421
Shareholder differentiation	425
Dividend tax credit	427
5.1.3.2 Integration of taxation of dividends and capital gains on shares	427
5.1.3.3 Specific relief of capital gains on shares	431
5.1.3.4 Concessional capital gains taxation	432
5.1.3.5 Full taxation	435
5.1.4 International issues	437
Shares held by non-residents	437
Shares held in non-resident corporations	439
5.2 Corporate-level consequences	439
5.2.1 Defining a sufficient change	440
5.2.1.1 Of ownership	443
Threshold issues	443
Test period	446
Small shareholdings	447
Indirect change without direct change	448
Direct change without indirect change	451
5.2.1.2 Of business / activity	453
5.2.2 Limitations on indirect transfer of gains and losses	458
5.2.2.1 Rules for realised losses	459
One rule or multiple rules	459
Knife-edge or graduated approach	460
Year of change	462
Carry-back of losses	463
5.2.2.2 Extending to unrealised gains and losses: the core issues	463
Two-step tax arbitrage	463
Scoping the potential for tax arbitrage and counteracting measures	466
Removing the corporate tax attribute	467
Removing the ability to offset the tax attribute	468
5.2.2.3 Change of ownership of loss corporation	469
Limitations on carry-forward of unrealised losses	470
Consolidation	472
Transfer the loss to a profit	474
Transfer a profit to the loss	477
5.2.2.4 Change of ownership of profit corporation	478
Consolidation	479
Transfer the profit to a loss or vice versa	482
5.2.3 Limitations on carry-forward of other corporate tax attributes	483
5.2.4 Leaving a corporate group	485
5.2.4.1 Deferred transactions	486
5.2.4.2 Carried-forward losses and other tax attributes	488
5.3 Sale of shares versus sale of corporate activity	489
Issues for the seller	490
Competing interests of the purchaser	492
6 Terminating share interests	494
6.1 Partial share termination	495
6.1.1 Returns of capital	497
6.1.2 Cancellation of capital	500
6.2 Share termination only: redemptions and share buy-backs	502
6.2.1 Share redemptions	503
6.2.2 Share buy-backs	506
6.3 Corporate termination: liquidations and related proceedings	508
6.3.1 Corporate consequences	509
Calculation of corporate income	510
Change of control	511
In-kind distributions to shareholders	514
6.3.2 Shareholder consequences	515
6.3.2.1 Insolvent corporations	516
6.3.2.2 Solvent corporations	517
Disposal-only treatment	517
Dividend and disposal treatment	519
7 Varying share interests	522
7.1 Within a corporation	524
7.1.1 Substitution	524
Scope of substitution	524
Triggering the substitution: options and convertible notes	527
7.1.2 Splitting: focus on bonus shares	528
Bonus shares and the capitalisation of profits	530
Proportionate bonus share issues	532
Disproportionate bonus share issues	535
7.1.3 Consolidation	537
7.2 More than one corporation	537
7.2.1 Merger	538
7.2.1.1 Threshold for relief	539
7.2.1.2 Consequences for the shareholder	543
7.2.1.3 Consequences for the merged corporation	546
7.2.1.4 Consequences for the merging corporation and survival of tax attributes	550
7.2.2 Division	552
7.2.2.1 Threshold for relief	553
7.2.2.2 Consequences for the shareholder	557
7.2.2.3 Consequences for the distributing corporation	560
7.2.2.4 Consequences for the distributed corporation and survival of tax attributes	562
8 Dividend and capital stripping and value shifting	564
8.1 Dividends into capital: just the disposal	566
8.1.1 Disposal of dividends	567
8.1.2 Sales cum-dividend	569
8.2 Capital re-characterised: value shift then disposal	572
8.2.1 Direct value shift	573
8.2.2 Indirect value shift	576
8.2.2.1 By distribution	577
8.2.2.2 By corporate gift	579
8.3 Disposal, value shift, disposal: stock lending, repos and the full strip	581
8.3.1 Stock lending and share repurchase agreements	581
8.3.2 Full strip	583
References	587
Index	593