National Tax Regulations

Thin capitalisation means that subsidiaries are financed by loans from parent companies whereby the equity is very low. One can shift taxable interest income to tax havens with this kind of financing. Thin capitalisation rules revealed that although support for a co-ordinated approach has increased, some EC and OECD member states still remain reluctant to go down this path.

Transfer Pricing is known as the value for products and services within a group of companies to avoid gain shifting from one country to another. On the other hand each business unit will invoice at least their costs (cost allocation) even if their productivity is not very efficient.

Controlled Foreign Company (CFC) legislation can be defined in national laws. CFC rules are a necessary part of any capital exporting country's international tax system. Such rules are necessary to prevent resident multinational corporations from easily deferring or avoiding residence country tax by earning income through foreign corporations established in low-tax countries. CFC legislation is a typical tool to neutralise capital exports under the principle of CEN. The undistributed income or taxes of a foreign company are fully or partly attributed to national residents if they have a certain relation to the foreign company; generally it is a certain interest in the foreign entity. In summary, the CFC problem for countries that tax on a worldwide basis is abuse of the deferral of residence country tax, whereas for countries that tax on a territorial basis, the problem is abuse of the exemption for foreign source income from residence country tax.

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