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Abstract:
The divide between debt and equity belongs to the focal points of national and international tax law. Under domestic individual income tax law, it is crucial for the distinction between a creditor-debtor relationship and a full partnership of taxpayers jointly carrying on a business. Under domestic corporate income tax law, it is decisive for the application of a two-layer taxation of corporate profits and dividends. Under international income tax law, the allocation of taxing rights and the application of withholding taxation follows largely the distinction between debt and equity. Against this background, this article analyses on a comparative basis the major features of debt and equity under corporate law, accounting law and tax law in six jurisdictions (Austria, France, Germany, Switzerland, United Kingdom, United States). It becomes clear that the debt-equity divide is shaped differently for purposes of individual income taxation, corporate income taxation and international income taxation. While individual or corporate income taxation largely looks at the similarities between a full partner or a full shareholder on the one hand and the holder of a hybrid debt instruments on the other hand, international tax rules tend to include all sorts of profit-dependent payments under the rules for corporate profits and dividends. It remains to be seen whether the dependency of payments on contingent profits (or other proprietary elements of a business entity like turnover) forms a convincing rationale for the existing distinctions between debt and equity in the international tax arena or whether tax policy should opt for full or near equal treatment of these financial instruments.

Debt, equity, business tax, international tax, corporate law, corporate tax

Abstract:
European Company Law requires both closely-held and listed companies to disclose their financial situation (annual accounts) to the general public. The European Court of Justice has recently decided that also competitors of a company are in the position to enforce this obligation. This gives rise to the question how the effects of disclosure in the capital market (towards investors and creditors) and the effects of disclosure in the product market can be aligned. In order to give a full account of the framework, both the legal rules on disclosure under EC law and the basic economic concepts on the interaction of product and capital markets are laid out. A decisive role is played by "competitive costs", i.e. the costs resulting from a disadvantage in the product market. The harmful effect of these competitive costs has also a major impact on the financial market because it prevents companies from deliberately disclosing sensitive data to existing and potential investors and creditors. Taking a closer look one finds out that there exist three basic situations where the efficiency aims in the product market and in the financial market clash: The access of competitors, suppliers or customers to "innovative" data, the abuse of a dominant market position in the course of "predatory pricing" and the mutual exchange of sensitive data in an oligopolistic setting.

An economic analysis of the interaction between product and financial markets leads several policy proposals: a first insight would be not to extend mandatory disclosure to non-incorporated market participants; a second step should be to dismantle full mandatory disclosure for closely-held companies, and a third step should be to provide specific rules for the above mentioned cases of "innovative" data, "predatory pricing" and "mutual information".

European company law, competitive costs, capital and product markets, disclosure, innovative data, predatory pricing, mutual information, financial markets, mandatory disclosure, closely-held companies

Abstract:
One of the standard requirements of company law is the restriction of distributions to shareholders in order to protect the legitimate interests of the company's creditors. As lawful dividends don't have to be paid back when the company runs into losses at a later stage, we need a measuring rod in order to decide on the availability of funds for distribution. The traditional balance sheet test is running into criticism due to the rigidity of the old rules and the conflicts between the philosophy of IAS/IFRS and the concept of creditor protection. Newly offered devices like the solvency test aim at giving a better view of the business prospects of the company but they suffer from a limited time horizon and a wide range of discretion for directors. This makes them particularly problematic when long-term obligations have to be addressed. In the end, a combination of balance sheet test and solvency test seems to be a reasonable solution.

company law reform, distributions, dividends, accounting law, creditor protection, legal capital, balance sheet, solvency test

Abstract:
The topic of "book-tax-conformity" is widely discussed both in different countries and at the international level. While in the UK and the US there is a growing tendency to strengthen the linkage between financial and tax income measurement, other countries - like Germany - tend to loosen the former dependence of tax accounting from commercial rules. Within the European Community, the International Accounting Standards/International Financial Reporting Standards are thought to form a "starting point" for a Common Consolidated Tax Base, and in the context of international transfer pricing conflicts a common set of financial accounting rules could prove helpful.

Against this background the article tries to address the question whether financial and tax accounting could go together in the future. At the outset it comes to the conclusion that there are no fundamental differences between the logic of tax income measurement and commercial investor information or creditor protection lying at the heart of financial accounting standards. The biggest difference concerns liquidity because investor information (opposite to tax returns) does not oblige the enterprise to pay money. Therefore the application of the "fair value principle" as enshrined in modern accounting standards is only feasible in the context of tax accounting if capital markets ensure that the taxpayer is able to raise money transaction-cost free when unrealised appreciations are shown in the income statement. This is exactly what IAS/IFRS are meant to bring about.

Another topic concerns the impact of book-tax-conformity on the behaviour of political institutions (tax legislation, standard setting bodies) and of individual managers when preparing their accounts. It is said that the different aims of tax and financial accounting lead to "pollution" of the legislative process and to distortions of individual accounting decisions. On the other hand it can be argued that binding together tax and financial accounts leads to moderate conflict-solving rules which prevents politicians and managers to take extreme positions. In the end, it may also serve as an instrument to fight tax shelters. At the international stage, a common set of financial accounting rules could substantially lower compliance costs and transfer pricing risks.

Abstract:
This article argues that in analysing the efficiency of the German legal capital rules, it is helpful to distinguish carefully between three different aspects: the question of whether the law should impose a minimum legal capital requirement, the relevance of provisions in the articles of incorporation pertaining to the legal capital of the company as a collective offer to the company's creditors, and the role of legal capital rules in limiting distributions prior to the company's insolvency. The existence of a minimum legal capital requirement, while it may not be particularly burdensome to serious-minded entrepreneurs, does not do much to help creditors. The second aspect, namely, the role of provisions in the articles of incorporation pertaining to the legal capital of the company as a collective offer to the company's creditors, is far more important. It explains why the traditional system of capital protection constitutes an efficient contractual instrument facilitating the entrepreneurial activities of companies. Most importantly, however, legal capital rules are the most efficient way of limiting distributions prior to the company's insolvency, providing less room for manipulation than the ad hoc solvency tests used in Anglo-American legal systems.

legal capital, informational asymmetry, collective offer, minimum capital requirement, solvency test, Überseering, Inspire Art, Centros, SLIM, High Level Group, capital maintenance, limited liability, Companies Bill 2002