International Tax Planning in the Age of ICT

The increased use of information and communication technologies (ICT) leads to new ways of doing business internationally. Nowadays, firm-specific intangible assets as well as services often constitute the most important factors for the creation of value. Besides, geographic distances tend to be less relevant. The main objective of international tax planning consists of minimising the effective tax rate of the whole company or group. In this paper, it is examined for several instruments of international tax planning whether new chances of minimising the effective tax rate emerge with the use of ICT and to what extent new risks occur. The analysis comprises the (re)location of a company?s residence, the (re)allocation of functions and risks, the implementation of a transfer pricing system, the choice of the form and location of investments abroad as well as hybrid forms of co-operation. For each instrument, both current and non-current tax issues are considered. We conclude that, due to ICT, it is easier to make use of the international tax differential by choosing the optimal location and form of investment and by allocating functions and risks. Thus, companies can pay more attention to the tax-optimal choice between international locations and the importance of this instrument to reduce the effective tax rate is further strengthened by the use of ICT. --International Company Taxation,Tax Planning,Information and Communication Technologies,Electronic Commerce

The Impact of ICT on Profit Allocation within Multinational Groups: Arm's Length Pricing or Formula Apportionment?

The use of information and communication technologies (ICT) within multinational groups leads to a rising number of intragroup cross-border transactions. At the same time, transactions and the organisational structures of affiliated groups become more and more specific and, thus, less comparable. The importance of human capital and of mobile factors of production, such as intangible assets, increases. The objective of this paper is to give an insight into the principal issues of profit allocation within multinational groups resulting from these economic changes. It is examined whether the traditional transaction methods based on the arm?s length principle can be upheld and to what extent the alternative method of formula apportionment is more suitable. The tax principles of inter-nation equity and feasibility are used to evaluate the different methods of profit allocation. We conclude that, in the light of the two demanded principles, formula apportionment is more appropriate than the arm?s length principle as regards the changed economic structures by use of ICT. As formula apportionment constitutes a suitable alternative especially in the European Union, the proposals made by the European Commission are considered to be a good starting point. --International Company Taxation,Profit Allocation,Transfer Pricing,Arm?s Length Principle,Formula Apportionment,Inter-Nation Equity

ICT and international corporate taxation: tax attributes and scope of taxation

In this paper, an outline of the consequences of the increased use of ICT on international corporate taxation, namely on the tax attributes and the scope of taxation, is given. It is argued that the concept of capital export neutrality shall prevail, as it is deemed to be the most appropriate to the changed economic structure. With regard to the tax attributes in the source state, an enlargement of the notion of a permanent establishment in order to shift tax revenues to the source state is not recommendable. Concerning the tax attributes in the residence state, it is shown in how far problems might arise and which alternatives might constitute a solution. As regards the scope of taxation, we recommend that international corporate taxation shall be based on taxation according to the residence principle. --International Corporate Taxation,Efficiency,Electronic Commerce,Information and Communication Technologies