The CFC Rule Under GloBE : Definition, Rule Order And Strategic Responses
Under the OECD Model Rules, Controlled Foreign Corporation (CFC) taxes take a prominent place. Because they take priority over the rules incorporated in GloBE and, at the same time, are allocated to the CFC jurisdiction, Covered Taxes paid under CFC rules are generally preferred over other Covered Taxes, and the CFC regime might even favored over an Income Inclusion Rule (IIR) or Undertaxed Payments Rule (UTPR). This might eventually lead to a proliferation of CFC regimes. Nonetheless, jurisdictions benefit from designing their CFC regimes along the lines of the OECD Model Rules. This begs the question to what extent a domestic tax regime could be modelled on the OECD Model Rules for it to still classify as a CFC regime and not as an (inconsistent) implementation of the Global Anti-Base Erosion (GloBE) rules. Moreover, this question should also be approached from a normative perspective: where should one draw the line? After the benefit of a classification as CFC regime is illustrated in part one, the second part of this paper will show that the answer to these questions depends on what is to be understood under an IIR: is this concept reserved for rules that are a consistent implementation of the IIR? Or does this also encompass inconsistent implementations? In case of the latter, the subsequent question is when a tax regime stops being a CFC rule and starts being an inconsistent implementation. In any case, it is advisable to (at least) exclude any inconsistent implementation from the classification as CFC regime. The third part of this paper analyses the rule order under GloBE, and more specifically the interaction between CFC regimes and Qualified Domestic Top-Up Taxes (QDMTT). While unclear to some extent, it seems that CFC regimes take priority over the QDMTT. This might exacerbate the higher-mentioned proliferation of CFC tax regimes as it would also mean that a jurisdiction could jump in front of QDMTTs. Finally, the last part contemplates an argument made elsewhere that states that a prioritized application of the QDMTT should be considered to protect the primary taxing right of source jurisdictions, especially developing countries, while retaining the benefit of the substance based carve-out. While the aim of this proposal is commendable and should definitely be considered by the Inclusive Framework (IF), a complete prioritization of the QDMTT over CFC rules tends to be too generic in my opinion
Year of publication: |
2022
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Authors: | Bettens, Dieter |
Publisher: |
[S.l.] : SSRN |
Saved in:
freely available
Extent: | 1 Online-Ressource (43 p) |
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Type of publication: | Book / Working Paper |
Language: | English |
Notes: | Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments December 8, 2022 erstellt |
Other identifiers: | 10.2139/ssrn.4297267 [DOI] |
Source: | ECONIS - Online Catalogue of the ZBW |
Persistent link: https://www.econbiz.de/10014258762
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