Cross-Border Intra-Group Hybrid Finance and International Taxation

WU International Taxation Research Paper Series No. 2012-01

SFB International Tax Coordination Discussion Paper No. 33

43 Pages Posted: 12 Feb 2013

See all articles by Eva Eberhartinger

Eva Eberhartinger

Vienna University of Economics and Business

Erich Pummerer

University of Innsbruck - Department of Accounting, Auditing and Taxation

Andreas Florian Göritzer

CONFIDA Klagenfurt Steuerberatungsgesellschaft mbH

Date Written: July 6, 2010

Abstract

In intra‐group finance hybrid instruments allow for tailor‐made form of finance. Hence hybrid finance is often used for international tax planning in multinational groups.

Due to a lack of international tax harmonization or tax coordination qualification conflict can arise. A specific hybrid instrument is classified as debt in one country, and as equity in the other country. This may lead to double taxation. In the reverse case, double non‐taxation can arise. Against this legal background one might expect that cross‐border hybrid intra‐group finance is advantageous in comparison to classical debt finance in case of double‐non‐taxation while it can be expected to be disadvantageous in the case of double taxation of the yield. Previous studies do not include qualification conflicts. Thus the question arises how qualification conflicts are affecting an intra‐group finance decision.

We examine effects of such qualification conflicts, resulting from the use of cross‐border, intra‐group hybrid finance, on the tax‐advantageousness as compared to classical debt finance. The analysis is based on a binomial simulation model including economic and legal uncertainty. We show that the results of our analysis under uncertainty vary significantly when compared to the more obvious results under economic and legal certainty.

Keywords: hybrid finance, cross‐border intra‐group finance, qualification conflicts, simulation

JEL Classification: G32, H21, H25, H26, M41

Suggested Citation

Eberhartinger, Eva and Pummerer, Erich and Göritzer, Andreas Florian, Cross-Border Intra-Group Hybrid Finance and International Taxation (July 6, 2010). WU International Taxation Research Paper Series No. 2012-01 , SFB International Tax Coordination Discussion Paper No. 33, Available at SSRN: https://ssrn.com/abstract=2171635 or http://dx.doi.org/10.2139/ssrn.2171635

Eva Eberhartinger (Contact Author)

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna 1020
Austria

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

Erich Pummerer

University of Innsbruck - Department of Accounting, Auditing and Taxation ( email )

Universitätsstraße 15
Innsbruck, Innsbruck 6020
Austria
+43/512/507-7264 (Phone)

HOME PAGE: http://www.pummerer.at

Andreas Florian Göritzer

CONFIDA Klagenfurt Steuerberatungsgesellschaft mbH ( email )

Kardinalschütt 7
A‐9020 Klagenfurt
Austria

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