Cross-Border Hybrid Finance and Tax Planning: Does International Tax Coordination Work?

INTERNATIONAL TAX COORDINATION: AN INTERDISCIPLINARY PERSPECTIVE ON VIRTUES AND PITFALLS, M. Zagler, p. 115, Routledge, 2010

Posted: 7 Jul 2010

See all articles by Ewald Aschauer

Ewald Aschauer

Johannes Kepler University Linz - Department of Auditing, Accounting and International Accounting

Eva Eberhartinger

Vienna University of Economics and Business

Wolfgang Panny

Vienna University of Economics and Business

Date Written: July 6, 2010

Abstract

Hybrid financial instruments are neither typical equity nor typical debt and often lead to classification conflicts, especially in cross-border-transactions. The use of hybrid financial instruments for intra-group financing offers the chance of possible double-non taxation. However a parent company that wishes to finance its foreign subsidiary via hybrid instruments faces uncertainties in multiple ways. The chance of double non-taxation is connected to the risk of misclassification and double taxation. The paper analyses the influence of the existence or non-existence of a double tax con-vention on the benefits of using hybrid finance. We therefore have modeled the influence of uncertainty with respect to tax law to these financial decision using probability trees. We find that the existence of a double tax convention does not necessarily reduce the expected total tax burden. In many cases, the expected tax burden is even higher.

Keywords: tax, hybrid finance, double tax conventions

Suggested Citation

Aschauer, Ewald and Eberhartinger, Eva and Panny, Wolfgang, Cross-Border Hybrid Finance and Tax Planning: Does International Tax Coordination Work? (July 6, 2010). INTERNATIONAL TAX COORDINATION: AN INTERDISCIPLINARY PERSPECTIVE ON VIRTUES AND PITFALLS, M. Zagler, p. 115, Routledge, 2010, Available at SSRN: https://ssrn.com/abstract=1635158

Ewald Aschauer

Johannes Kepler University Linz - Department of Auditing, Accounting and International Accounting ( email )

Altenbergerstr. 69
A-4040 Linz, 4040
Austria

Eva Eberhartinger (Contact Author)

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna 1020
Austria

HOME PAGE: http://www.wu.ac.at

Wolfgang Panny

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
1,195
PlumX Metrics