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Corporate Tax Law

Corporate Tax Law Structure, Policy and Practice

  • Author:
  • Publisher: Cambridge University Press
  • ISBN: 9781107033535
  • Published In: March 2013
  • Format: Hardback , 650 pages
  • Jurisdiction: International ? Disclaimer:
    Countri(es) stated herein are used as reference only
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  • Description 
  • Contents 
  • Author 
  • 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
  • Peter Harris
    University of Cambridge

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