Fiscal and non fiscal barriers in international marketing pdf

From a government perspective, however, competing through rate-cutting and base-broadening measures has a significant weakness. While a lowering of taxes has the potential to draw in mobile capital from other countries; it also reduces taxes on immobile capital, which is neither at risk of migrating to other countries nor can be attracted from them.

This might be the reason why countries are moving towards smart tax competition, which comprises instruments that specifically target non-resident mobile capital while leaving the countries domestic immobile tax base unaffected.

Fiscal barriers are defensive measures designed to counter the effects of tax competition by other countries. While hardly any measure can completely prevent companies from avoiding taxes, they at least impede their ability to do so.

Moreover, designing barriers that provide complete protection against tax avoidance might not be desirable from a fiscal perspective, as stricter rules often entail substantial administrative costs for governments and compliance costs for companies. The level of adoption of the recommendations provides valuable insights into the positioning of countries. Transfer pricing, next to financing structures, represents the most important channel through which MNE conduct profit shifting.

According to a study by Heckemeyer and Overesch , non-financial inter-company transactions account for roughly two-thirds of overall BEPS activity. The principle behind profit shifting via transfer prices is simple. Given that value chains of MNE are typically spread across multiple countries, transactions between individual entities of the group take place on an ongoing basis.

Intermediate goods and services, which form the basis for these transactions, can take varied forms, reaching from simple physical goods and basic services e. There is direct evidence from studies of US MNE that, intragroup goods and services that are sold to high-tax low-tax entities are priced higher lower.

Multiple methods exist that attempt to reproduce the pricing mechanism of such third-party transactions. At the core of the problem lies the information asymmetry between MNE and tax authorities. Based on this information, tax authorities can assess the pricing and, if needed, make corrections i.

When doing so, tax authorities usually follow a substance-over-form approach, meaning that economic reality, rather than formal arrangements between entities forms the basis for the assessment. For instance, tax authorities might disregard agreements and related payments in which entities of a group assume substantial risk and charge premia for it , even though they are neither able to control the risk nor to assume financial responsibility for it e.

Similarly, tax authorities might not accept it, if the right to all future profits from an intangible asset are transferred to another entity, especially if the latter was not involved in the production of the asset or takes part in its ongoing improvement. If tax authorities find a transfer pricing arrangement to be not reflective of economic reality, there are two consequences.

When doing so, tax authorities might use the latitude that existing regulations provide them with — which can be substantial, especially in the case of hard to value goods and services —, to set the new price in a way that significantly increases tax liability for the company.

Secondly, additional penalties might apply. With regards to the positioning of countries, the analysis of their compliance with the recommendations of the OECD BEPS project provides valuable information. Please refer to Appendix 2 for a detailed overview. This might also explain why some countries have refrained from introducing extensive transfer pricing rules so far. Financing structures and interest payments within MNE is the second most important channel through which companies conduct profit shifting.

These low-tax entities then extend loans to group members in high-tax countries, which are often thinly capitalized, i. Through interest payments, which are paid in return for the loans, profits are drawn away from the high-tax towards the low-tax entities. Therefore, countries have enacted so-called thin-capitalization legislations. Please refer to Appendix 3 for a detailed overview. The principle behind this legislation is to put a limit on the deductibility of interest which is paid to entities of the same group.

Thin-capitalization rules disallow the deduction of interest payments for tax purposes if they exceed a predefined limit. The way in which this allowable limit is determined depends on the kind of thin-capitalization rules that are employed. Of the analyzed 30 countries, ten do not have any thin-capitalization legislation. Among the ones which do, two broad approaches can be distinguished. Ten, predominantly Eastern European, countries operate what can be referred to as thin-capitalization legislation, in the stricter sense of the word.

Seven countries deploy limitation on interest rules, whereby the allowable amount of net interest i. This way, the rule is implicitly setting a limit on the allowable level of debt. Notable in this context is that this kind of thin-capitalization legislation, which is also in line with the recommendations of the OECD, is a rather recent model. Germany and Italy pioneered its adoption in and were followed by Spain , Portugal , Finland , Greece and Slovakia Next to these two broad approaches, a few countries have developed differing models.

In case the legislation is triggered, the allowable interest is capped at the higher value that is determined through the debt-to-equity and the EBITDA threshold.

For Switzerland, no general statement can be made with regards to thin capitalization rules, since tax laws differ across cantons. For interest, which is not deductible in a given year, regulations typically allow for a carry forward to subsequent tax periods.

Moreover, several countries provide certain exceptions. Moreover, some countries exempt certain types of businesses e. One mean of achieving this is to relocate mobile capital to low-tax jurisdictions and have taxable profits accrue there. Two of the most common methods are the pooling of funds, which then produces passive interest income on loans that are extended, and the relocation of intangible assets which produces passive income i.

Also, participations in other companies, which produce dividend income, can be utilized in this context. Given the mobile nature of income from dividends, interest and royalties they lend themselves to tax planning structures. In recognition of this fact, governments typically take a source-based approach for such types of income if they are generated within their territories but accrue to foreign residents.

Thereby, the tax is imposed in the form of a withholding tax WHT. Since the government is usually not aware of the exact economic circumstances of the recipient, who resides outside the area of its jurisdiction, a simplifying approach is taken. The lack of deductibility of actual expenses is thereby accounted for through a lowering of the overall tax rate. While countries stipulate the rate of WHT on outgoing payments in their national tax laws, most of the withholding rates applicable to payments between countries are governed by DTT.

For royalties, however, the convention assigns the right of taxation to the residence state of the owner of the intellectual property Art. Switzerland and the EU have also agreed on the mutual elimination of WHT on the basis of bilateral treaties.

While this step towards a harmonization of tax systems among EU member states seems to be conducive to a more efficient tax system — or at least not harmful to it —, it produced an unintended side-effect. While the Directive eliminates WHT on payments between member states, it does not govern the tax rates on outbound relations, i. This has significant implications with regards to tax avoidance by MNE and tax competition among member states. The following example demonstrates how MNE can exploit the existing regulation to minimize tax liabilities on interest payments, using conduit loans: MNE X possesses substantial funds in the offshore tax haven A.

X then extends a loan to subsidiary Y, which in turn lends it on to subsidiary Z. Y then passes on the proceeds to X, in a transfer which is subject only to the very favorable withholding tax rates of the DTT between A and B.

Thus, MNE X has significantly reduced its tax liability by using a conduit loan. Moreover, the above model can also be applied to similar conduit structures for income from dividends or royalties. Maybe even more important, however, are its implications for tax competition among EU member states. The above example shows that, given the absence of internal barriers i. Countries have an incentive to be this entry point because, as long as withholding tax rates on outgoing payments are positive, they benefit from the additional tax base from mobile income that is funneled through them.

As countries compete for the position as an entry point, however, they will, at least in theory, gradually lower their withholding tax rates down to the level where taxation of income has reached the same level as that of tax havens, which is typically zero. Given this competitive scenario, the complete elimination of WHT between EU member states seems suboptimal.

An optimal solution could only be achieved through complete harmonization which is including external barriers. As a second-best scenario, countries should be able to freely set withholding tax rates also with regards to other EU members, so that they can defend themselves against such conduit structures.

Nevertheless, for interest and royalty payments, the tax avoidance scheme outlined above still seems possible. Please refer to Appendix 4 for a detailed overview. The highest scores, indicating the highest level of defensiveness i.

MNE often use subsidiaries in low-tax countries as hosts for shifted profits, which can lead to the accumulation of vast amounts of funds. A particularly striking example, which provides valuable insights that hold true also with respect to European companies, is given by US MNE.

Nature of international marketing? How do you overcome barriers to marketing planning? What are the problems in international marketing of services? Fiscal and non fiscal barriers in international marketing? Define international marketing? Marketing of banking services? Why marketing of services is difficult than marketing of goods? What is the Scope of international marketing? How has internet facilitated international marketing of goods and services? When was Just Marketing International created?

What is Just Marketing International's population? What is the population of Just Marketing International? When was International Marketing Review created? Describe the Concept of international marketing? Explain the nature scope and importance of international marketing? Define marketing distinguish product marketing and services markrting with suitable example? What does services marketing mean? Difference between international marketing and international business? Will a regular Marketing Degree work in the field of International Marketing?

What career path did Gutierrez follow? Need of secondary research in international marketing? Meaning and scope of international marketing? What is Fiscal Policy? Fiscal policy involves. Non -stable economy can harm and slow the development and growing rate of a nation.

There are many tools to stabilize the economy and reduce the frequency and the altitude of economic fluctuations. Among these tools are the fiscal policy and monetary policy. This report discusses the fiscal policy and why the governments use this too to stabilize the economy and encounter the economic fluctuations. National Capitals.

People You Should Know. Sports Trivia. Loading flashcards What are the two key themes to remember in relation to fiscal barriers? Incrementalism Establishment of the Union is an ongoing process.

Art 26 - ensuring functioning of internal market Art 28 - applies to dom products and to imported products Pragmatism Art Remove physical and other controls to ensure the functioning of the internal market.

What are the two key articles for fiscal barriers? Art 30 - for when crossing a border Art - for when product has already crossed a border. Capolongo is the authority on this difference. What is the effect of Art 30? Prohibits customs duties and prohibits charges having equivalent effect to customs duties Art 30 is directly effective Van Gend and has a broad scope.

There are no exceptions Art treasures. Court looks at the effect of a charge, not its purpose, in order to det whether it is a fiscal barrier or not Art treasures. What is a charge of equivalent effect? Statistical Data Levy So can rely on art 30 in an uncompromising manner, doesn't matter what you call the measure, or what it is for.

A CEE will be illegal regardless of whether it is: Exacted in the state's benefit Non-dicrim or non-protective in effect Diamantarbeides Whether the product in question competes with any dom product or not.

Give two examples of a CEE. When it is a charge for a service rendered Statistical Data Levy Court didn't accept the Italian gift's argument that it was a charge for statistical data which would provide a benefit to the economy as a whole So it is fine to charge for a service if the benefit is specific to that trader, but can't blanket charge for a service, as this would be charging for crossing a border.

There are three ways round art What are they? When is a charge not a CEE? Services and inspections 1. When it relates to a system of internal dues Cf. Bresciani - charged for guaranteeing the cleanliness of fruit and veg when crossed border - was a CEE since a general charge not of specific benefit to a trader 2. Where constitutes a payment for a service Has to be of direct benefit to a trader, can't be general Statistical Data Levy, Bresciani.

Can't be mandatory either. It is connected with an inspection which is obligatory so required by Community or International law , provided it doesn't exceed the cost of the inspection proportionality Bauhuis v Netherlands - vet and public health inspections req by EU law Cadsky - public health inspection - can charge if required by EU law. What is Art about? It will be genuine if it related to a system of internal dues and applies irrespective of the product's origin Levy on reprographic machinery Reason: fiscal neutrality.

If applies to all products in the same way then it is okay. What must you look at to see if a tax is discriminatory or not? Why do you have to look at this? First distinguish between similar and non-similar products.

Art doesn't talk about discrimination so we need to use this distinction. Test to see if similar: Does it meet the same needs subjective Does it have similar characteristics? Spirits case. Examples of similar products and art ? Com v Denmark fruit and grape wines These were similar Cf. John walker and Sons Fruit wine and whiskey weren't similar. If they are similar products what do you have to determine about the taxation measure?

If it is discriminatory. Can be directly or indirectly discrim. Direct - penalises product because of its origin Bobie German beer case.