Open AccessThin Capitalization Rules in EU Member States
Author(s) -
Tatjana Ðukić
Publication year - 2014
Publication title -
central european public administration review
Language(s) - English
Resource type - Journals
eISSN - 2591-2259
pISSN - 2591-2240
DOI - 10.17573/cepar.v9i2.177
Subject(s) - capitalization , multinational corporation , revenue , profit (economics) , business , corporate tax , member states , tax avoidance , tax revenue , law and economics , economics , double taxation , public economics , accounting , international trade , european union , microeconomics , finance , philosophy , linguistics
Thin capitalization rules fit in the group of the specific anti-avoidance rules (SAAR) which are legalised by domestic tax laws. Anti-avoidance measures attempt to strike down unacceptable tax avoidance practices that have taken place with the increasing importance of multinational firms. In contrast to local firms, multinational corporations can shift profits to lower taxed foreign locations, leading to substantial losses in tax revenue. The article presents a systematic review of thin capitalization rules in EU 27, summing up four most common approaches of thin capitalization regulation. The analysis revealed that the majority of countries (15) legalised the fixed ratio approach, one quater (7) the subjective approach and only a few (3) legalised the hidden profit distribution. Two of them have improved thin-cap rules to so called earningstripping rule.