Debt and Equity in Domestic and International Tax Law — A Comparative Policy Analysis

Reprinted from British Tax Review (BTR), 2014, Nr. 2, p. 146 - 217. © Thomson Reuters (Professional) UK Limited and Contributors and Schön, Wolfgang /et.al.

Working Paper of the Max Planck Institute for Tax Law and Public Finance 2014-09

75 Pages Posted: 8 Jul 2014 Last revised: 14 Jul 2014

See all articles by Wolfgang Schoen

Wolfgang Schoen

Max Planck Institute for Tax Law and Public Finance, Department of Business and Tax Law

Andreas Bakrozis

Max Planck Institute for Tax Law and Public Finance

Johannes Becker

University of Cologne

Tobias A. Beuchert

Max Planck Institute for Tax Law and Public Finance

Martin Boer

University of Groningen - Faculty of Law; Max Planck Institute for Tax Law and Public Finance

Nadja Dwenger

Max Planck Institute for Tax Law and Public Finance

Andreas Gerten

Max Planck Institute for Tax Law and Public Finance

Maximilian Haag

Max Planck Institute for Tax Law and Public Finance

Sabine Heidenbauer

Vienna University, Institute for Austrian and International Taxlaw; Max Planck Institute for Tax Law and Public Finance

Carsten Hohmann

Max Planck Institute for Tax Law and Public Finance

Alexander Jehlin

Independent

Karin E.M. Dr. Kopp, LL.M. Berkeley

Max Planck Institute for Tax Law and Public Finance; Universität Hamburg - Interdisziplinäres Zentrum für Internationales Finanz und Steuerwesen (IIFS); Government of the Federal Republic of Germany - Bavarian Fiscal Authority, Tax Office Munich; Deutscher Juristinnenbund e.V.

Daniel Kornack

Max Planck Institute for Tax Law and Public Finance

Nadia Lagdali

Max Planck Institute for Tax Law and Public Finance

Christian Marquart

Freshfields Bruckhaus Deringer LLP

Lukas Mueller

University of St. Gallen; University of Zurich - Rechtswissenschaftliches Institut (School of Law)

Marta Castelon

Max Planck Institute for Tax Law and Public Finance

Christine Osterloh-Konrad

Max Planck Institute for Tax Law and Public Finance

Natalia Paxinou

Independent

Carlo Pohlhausen

HgCapital; Max Planck Institute for Tax Law and Public Finance

Philipp Redeker

Max Planck Institute for Tax Law and Public Finance

Erik Röder

Max Planck Institute for Tax Law and Public Finance

Astrid Roesener

Max Planck Institute for Tax Law and Public Finance; CMS Hasche Sigle

Date Written: June 2, 2014

Abstract

The demarcation between debt and equity is a long-standing core constituent of company and taxation law the world over. However, its sustainability for national and international taxation regimes is increasingly the subject of doubt. Domestic and international proposals for reform are directed towards either rendering the classification of financial instruments as equity or debt legally superfluous or robbing it of economic meaning. With the comprehensive comparative legal analysis in this article and the economic reasoning behind the distinction as background, a new structure for the relationship between debt and equity will be advanced. In doing so, the corporate and contract law background (including the flexibility) of each type of capital will be illuminated and the tax purpose of the relevant standards will be reviewed. It will become apparent that in income taxation, corporate taxation and international taxation law, a variety of legislative policy concerns influence the distinction between debt and equity and hence require differing demarcations. The resulting framework can also contribute to the current debate on “hybrid mismatches” with financial instruments.

Keywords: corporate law, business taxation, international tax law, debt equity distinction, comparative law, tax policy, comparative policy analysis

JEL Classification: F15, F23, H25, K34

Suggested Citation

Schön, Wolfgang and Bakrozis, Andreas and Becker, Johannes and Beuchert, Tobias A. and Boer, Martin and Dwenger, Nadja and Gerten, Andreas and Haag, Maximilian and Heidenbauer, Sabine and Hohmann, Carsten and Jehlin, Alexander and Kopp, Karin E. M. and Kornack, Daniel and Lagdali, Nadia and Marquart, Christian and Mueller, Lukas and Castelon, Marta and Osterloh-Konrad, Christine and Paxinou, Natalia and Pohlhausen, Carlo and Redeker, Philipp and Röder, Erik and Roesener, Astrid, Debt and Equity in Domestic and International Tax Law — A Comparative Policy Analysis (June 2, 2014). Reprinted from British Tax Review (BTR), 2014, Nr. 2, p. 146 - 217. © Thomson Reuters (Professional) UK Limited and Contributors and Schön, Wolfgang /et.al., Working Paper of the Max Planck Institute for Tax Law and Public Finance 2014-09, Available at SSRN: https://ssrn.com/abstract=2444683

Wolfgang Schön (Contact Author)

Max Planck Institute for Tax Law and Public Finance, Department of Business and Tax Law ( email )

Marstallplatz 1
Munich, 80539
Germany

Andreas Bakrozis

Max Planck Institute for Tax Law and Public Finance ( email )

Marstallplatz 1
Munich, 80539
Germany

Johannes Becker

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

Tobias A. Beuchert

Max Planck Institute for Tax Law and Public Finance ( email )

Marstallplatz 1
Munich, 80539
Germany

Martin Boer

University of Groningen - Faculty of Law ( email )

9700 AS Groningen
Netherlands

Max Planck Institute for Tax Law and Public Finance ( email )

Marstallplatz 1
Munich, 80539
Germany

Nadja Dwenger

Max Planck Institute for Tax Law and Public Finance ( email )

10117
Germany

HOME PAGE: http://www.tax.mpg.de/en/pub/public_economics/public_economics_people/dwenger_nadja.cfm

Andreas Gerten

Max Planck Institute for Tax Law and Public Finance ( email )

Marstallplatz 1
Munich, 80539
Germany

Maximilian Haag

Max Planck Institute for Tax Law and Public Finance ( email )

Marstallplatz 1
Munich, 80539
Germany

Sabine Heidenbauer

Vienna University, Institute for Austrian and International Taxlaw ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Max Planck Institute for Tax Law and Public Finance

Marstallplatz 1
Munich, 80539
Germany

Carsten Hohmann

Max Planck Institute for Tax Law and Public Finance ( email )

Marstallplatz 1
Munich, 80539
Germany

Alexander Jehlin

Independent ( email )

Karin E. M. Kopp

Max Planck Institute for Tax Law and Public Finance ( email )

Marstallplatz 1
Munich, Bayern 80539
Germany

Universität Hamburg - Interdisziplinäres Zentrum für Internationales Finanz und Steuerwesen (IIFS) ( email )

International Tax Institute
Sedanstraße 19
Hamburg, 20146
Germany

Government of the Federal Republic of Germany - Bavarian Fiscal Authority, Tax Office Munich ( email )

Munich
Germany

Deutscher Juristinnenbund e.V. ( email )

undesgeschäftsstelle
Anklamer Str. 38
Berlin, 10115
Germany

Daniel Kornack

Max Planck Institute for Tax Law and Public Finance ( email )

Marstallplatz 1
Munich, 80539
Germany

Nadia Lagdali

Max Planck Institute for Tax Law and Public Finance ( email )

Marstallplatz 1
Munich, 80539
Germany

Christian Marquart

Freshfields Bruckhaus Deringer LLP ( email )

Prannerstr. 10
Munich, 80333
Germany

HOME PAGE: http://www.freshfields.com/profiles/Christian_Marquart/?Region=germany&language=de&langid=2057

Lukas Mueller

University of St. Gallen ( email )

Varnbüelstrasse 19
St. Gallen, 9000
Switzerland

HOME PAGE: http://www.alexandria.unisg.ch/persons/Lukas_Mueller3

University of Zurich - Rechtswissenschaftliches Institut (School of Law) ( email )

Ramistrasse 74
CH-8001 Zurich
Switzerland

HOME PAGE: http://www.lexwiki.ch/author/lukas-mueller/

Marta Castelon

Max Planck Institute for Tax Law and Public Finance ( email )

Marstallplatz 1
Munich, 80539
Germany

Christine Osterloh-Konrad

Max Planck Institute for Tax Law and Public Finance ( email )

Marstallplatz 1
Munich, 80539
Germany

Natalia Paxinou

Independent ( email )

Carlo Pohlhausen

HgCapital ( email )

Salvatorstraβe 3
Munich, 80333
Germany

Max Planck Institute for Tax Law and Public Finance ( email )

Marstallplatz 1
Munich, 80539
Germany

Philipp Redeker

Max Planck Institute for Tax Law and Public Finance ( email )

Marstallplatz 1
Munich, 80539
Germany

Erik Röder

Max Planck Institute for Tax Law and Public Finance ( email )

Marstallplatz 1
Munich, 80539
Germany

Astrid Roesener

Max Planck Institute for Tax Law and Public Finance

Marstallplatz 1
Munich, 80539
Germany

CMS Hasche Sigle ( email )

Cologne
Germany

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