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The Relationship between Taxation, Accounting and Legal Forms

How tax and accounting rules may influence the choice of the legal form in enterprise groups and multinational firms – analysed on the basis of the ATAD CFC taxation
  • Thomas Kollruss EMAIL logo
Published/Copyright: March 9, 2021
Accounting, Economics, and Law: A Convivium
From the journal Accounting, Economics, and Law: A Convivium Volume 15 Issue 2

Abstract

Legal frameworks have an enormous influence on the concrete choice of legal form, especially in (multinational) groups of companies. For example, tax regulations and accounting standards directly influence the legal enterprise’s structure, including the shareholding structures. However, the tax burden must not be understood as a static or a fixed quantity determined in advance. This is because the design or choice of companies’ legal form can also be used as a tool to gain competitive advantages and optimise the tax burden or after-tax profit. Accordingly, the tax-optimising choice of legal form can be used as an instrument for tax planning and internal financing (reduction of tax payments and optimisation of the group tax rate). Therefore, for groups of companies and multinationals, the question that arises is how and within what limits can they make effective use of the cross-border tax rate differential, particularly through structuring their legal form. However, using cross-border tax advantages may be prevented by the controlled foreign corporation (CFC) taxation, called the Anti Tax Avoidance Directive (ATAD), which was introduced in all EU member states from 1 January 2019 onwards due to European law: Art. 7, 8 of Directive 2016/1164 to combat tax avoidance practices. In multinational companies, there is a tension between the tax-optimising choice of legal form, including the structuring of shareholdings, and CFC taxation. It is important to identify the CFC taxation requirements according to ATAD or the respective member state of residence and to avoid these requirements when structuring individual circumstances or investments. An important finding here is that the factual prerequisites for CFC taxation under ATAD are not aligned with the accounting rules, especially controlling interest and control participation. Finally, from an overall perspective, tax-optimised corporate groups’ structure or the legal architecture is not a static variable but an evolving system composed of tax-optimised sub-systems or subgroup structures. This connection between the choice of legal form, shareholding structure and the legal system, tax planning, and tax optimisation in multinational companies is analysed and evaluated based on the Austrian CFC taxation (Sec. 10a CITA) and the German CFC taxation (Sec. 7 FTTA). Furthermore, the implications for companies and society, and the legislator, are highlighted. The article also deals with the relationship between law and tax planning.

Keywords: legal form; ownership structure; multinational enterprises; international taxation; accounting; tax avoidance; CFC taxation; controlled foreign corporation; tax neutrality
JEL Classification: H26; H25; H87; K34; F23; M41
Corresponding author: Thomas Kollruss, Berlin, Germany, E-mail:

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Published Online: 2021-03-09

© 2021 CONVIVIUM, association loi de 1901

Articles in the same Issue

  1. Frontmatter
  2. Tax Enforcement and Dispute Resolution: National and International Challenges
  3. Conceptualising the Behaviour of MNEs, Tax Authorities and Tax Consultants in Respect of Transfer Pricing Practices – A Three-Layer Analysis
  4. Will Proclaimed Changes to Multinationals’ Taxation Have an Actual Effect and What Will Really Change for Africa?
  5. Collection of Taxes from Ultimate Beneficiaries: Russian Regulatory Model
  6. Transfer Pricing Audit Challenges and Dispute Resolution Effectiveness in Developing Countries with Specific Focus on Zimbabwe
  7. International Tax Avoidance and the Controlled Foreign Company (CFC) rule
  8. Legal Form or Unfair Substance? A Symposium Around the Controlled Foreign Company (CFC) Rule
  9. The Relationship between Taxation, Accounting and Legal Forms
  10. Why Tax Planning Without Considering Societal Interests is Unfounded
  11. The (Social) Tasks of Business Tax Research and the Binding Effect of the Statutory Tax Burden Decision
https://doi.org/10.1515/ael-2019-0076
Keywords for this article
legal form; ownership structure; multinational enterprises; international taxation; accounting; tax avoidance; CFC taxation; controlled foreign corporation; tax neutrality

Articles in the same Issue

  1. Frontmatter
  2. Tax Enforcement and Dispute Resolution: National and International Challenges
  3. Conceptualising the Behaviour of MNEs, Tax Authorities and Tax Consultants in Respect of Transfer Pricing Practices – A Three-Layer Analysis
  4. Will Proclaimed Changes to Multinationals’ Taxation Have an Actual Effect and What Will Really Change for Africa?
  5. Collection of Taxes from Ultimate Beneficiaries: Russian Regulatory Model
  6. Transfer Pricing Audit Challenges and Dispute Resolution Effectiveness in Developing Countries with Specific Focus on Zimbabwe
  7. International Tax Avoidance and the Controlled Foreign Company (CFC) rule
  8. Legal Form or Unfair Substance? A Symposium Around the Controlled Foreign Company (CFC) Rule
  9. The Relationship between Taxation, Accounting and Legal Forms
  10. Why Tax Planning Without Considering Societal Interests is Unfounded
  11. The (Social) Tasks of Business Tax Research and the Binding Effect of the Statutory Tax Burden Decision
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