Abstract (German)

Most developed countries tax residents on their world-wide income and, to obviate double taxation, grant a credit for taxes paid on foreign source income. A major exception to such treatment arises when a resident taxpayer earns income indirectly through a controlled foreign corporation. The resident taxpayer and the foreign corporation may constitute a single economic unit but for tax law purposes they are treated as separate taxable entities. The result is that domestic tax on foreign income of the corporation is postponed to the time the income is distributed. If foreign tax rates are lower than domestic rates, as in the case of a tax haven, the deferral of domestic tax can be very beneficial.<P>
In order to protect the domestic tax base, a variety of measures has been invoked, to avoid the effectiveness of those tax havens. Well known is the so called CFC-legislation (Controlled Foreign Company), which differ widely. Common goal of all CFC-legislations is nevertheless the implementation of measures to tax shareholders of CFCs pro rata share on the undistributed income of those corporations. Problems within this context not only arise from the issue of double tax treaties to assign the right to tax, but also from constitutional and EC law.

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Abstract (English)

Most developed countries tax residents on their world-wide income and, to obviate double taxation, grant a credit for taxes paid on foreign source income. A major exception to such treatment arises when a resident taxpayer earns income indirectly through a controlled foreign corporation. The resident taxpayer and the foreign corporation may constitute a single economic unit but for tax law purposes they are treated as separate taxable entities. The result is that domestic tax on foreign income of the corporation is postponed to the time the income is distributed. If foreign tax rates are lower than domestic rates, as in the case of a tax haven, the deferral of domestic tax can be very beneficial.<P>
In order to protect the domestic tax base, a variety of measures has been invoked, to avoid the effectiveness of those tax havens. Well known is the so called CFC-legislation (Controlled Foreign Company), which differ widely. Common goal of all CFC-legislations is nevertheless the implementation of measures to tax shareholders of CFCs pro rata share on the undistributed income of those corporations. Problems within this context not only arise from the issue of double tax treaties to assign the right to tax, but also from constitutional and EC law.

Partners

• Commission of the European Communities - European Union

Classification

• 5206 Financial law (Details)

Expertise

• International Tax Law
• CFC