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 |