International Company Taxation in the Era of Information and Communication Technologies (eBook)

Dr. Anne Schäfer promovierte bei Prof. Dr. Dr. h.c. mult. Otto H. Jacobs am Lehrstuhl für allgemeine Betriebswirtschaftslehre, Treuhandwesen und Betriebswirtschaftliche Steuerlehre II der Universität Mannheim. Sie ist in der Steuerabteilung einer internationalen Wirtschaftsprüfungsgesellschaft in Brüssel tätig.

Foreword 8
Acknowledgements 10
Overview of Contents 12
Table of Contents 14
List of Figures 20
List of Tables 20
Abbreviations 22
1. Introduction 25
1.1. Motivation 25
1.2. Aim of the Thesis and Subject Under Investigation 28
1.3. Approach and Organisation of tlie Thesis 31
2. Changes to Economic Structures Through ICT 33
2.1. Defining ICT 33
2.2. Theories on the Organisational Structure of Firms 34
2.3. The Impact of ICT on the Main Factors Influencing Doing Business Abroad 38
2.4. ICT- Induced Changes in the Organisational Structures of Companies and Markets 42
2.5. Summary 54
3. Fundamental Concepts of International Taxation 55
3.1. The Tax Framework for International Company Taxation 55
3.2. Jurisdiction to Tax 57
3.3. Allocation of Profits 61
3.4. Methods to Avoid Double Taxation 68
4. International Tax Planning in the Era of ICT 71
4.1. Theory of the International Tax Planning of Companies 71
4.2. The Impact of ICT on International Tax Planning 76
4.3. Implications for the Allocation of the International Tax Base Between Different Jurisdictions 97
4.4. Implications for a Systematic Analysis 101
5. Normative Criteria for Optimal Taxation 102
5.1. Equity 102
5.2. Efficiency and Neutrality 105
5.3. Feasibility 109
6. Application of International Tax Law to the Changed Organisational Structures 111
6.1. Taxation in the Residence Country: Localisation of a Company's Residence According to the Place of Management 111
6.2. Tax Attributes in the Source Country: Defining a Permanent Establishment 119
6.3. Profit Allocation 137
6.4. Taxation According to the Source Principle or the Residence Principle 150
7. Reforming International Taxation 156
7.1. Reforming the Criteria to Determine a Company's Residence 156
7.2. A Reform of the Permanent Establishment Definition 165
7.3. Reforming the Allocation of the Taxable Base 181
7.4. Source Principle Versus Residence Principle 213
8. Summary 215
References 221
Laws, Jurisprudence, Directives and Other Documents 251

1. Introduction (p. 1)

1.1. Motivation

In the last few years, Information and Communication Technologies (ICT) have spread increasing speed in both private and business sectors. For example, in 2002, 64,9% of private households and 83,9% of businesses in Germany used the Internet. The ICT sector contributed close to 10% of OECD business GDP in 2001 and employed over 6% of business employment. In 2002, ICT goods represented 14% of total trade.

The implementation of ICT is leading to noticeable changes within the organisational structure of the economy, such as in the market organisation and in the internal organisation of enterprises. Market transactions carried out by enterprises can be processed either completely or in part by ICT, thus creating digital markets. It is possible to participate in these markets from all over the world and the geographic distances between the participants become rather irrelevant. With respect to the internal organisation of a company, the implementation of ICT can lead to regional decentralisation, since the process of producing goods and services makes use of production factors situated in various locations. Also, organisational decentralisation can be observed within the enterprise, as a modularisation of the value added chain takes place.

In addition, the application of ICT entails the creation of hybrid forms of enterprise co-operation, such as virtual organisations. Thus, the companies boundaries are becoming blurred. To summarise, due to the utilisation of ICT, economic activities are becoming more mobile and international. In general, international tax law is applied to the underlying organisational structures of the economy.

Given the manifold ICT-induced economic changes outlined above, the question is raised whether and to what extent these changes have an impact on the applicability of current international tax law. The main developments influencing international taxation are, above all, the increasing regional independence and mobility of companies and their production factors as well as the increasing importance of firm-specific intangible assets and services. In addition, the data required for taxation may not always be available.

When applying international company tax law to the underlying economic structure, the tax law in general has to be consistent with the economic structure in question in order to arrive at a reasonable taxation. The tax system is considered to be reasonable when it meets various normative criteria for optimal taxation. For example, the tax system must provide efficiency and neutrality. equity between different taxpayers and between different jurisdictions as well as feasibility in practice.

However, since the use of ICT has an impact on the organisational structures of the economy, the current tax system may not always be in line with these modified business structures. Contrary to the often mobile, geographically independent and international activities of companies, the tax system is intended to be applied rather to traditional economic activities. Thus, the economic assumptions underlying tax law can differ from the real economic circumstances.For example, tax law is in part based on the assumption of immobile business activities, such as in the case of the definition of a permanent establishment or the place of effective management.