JAMES HAUSMAN TAX LAW & POLICY WORKSHOP
presents
Wolfgang Schön
Max Planck Institute for Tax Law and Public Finance
International Taxation of Risk
Wednesday, October 1, 2014
12:30 - 2:00
Solarium (room FA2), Falconer Hall
84 Queen's Park
The allocation of risk and of the income from risky investment and activities belongs to the central topics of international tax policy today. This fact is highlighted by the current BEPS initiative of G20 and OECD which casts doubt on the recognition of contractual risk allocation within multinational groups and its impact on profit allocation between separate entities within these groups. It is largely felt that “risk shifting” provides the basis for “profit shifting” by multinationals to the detriment of states and domestic competitors. This article tries to address the topic in a generalized fashion. Starting from the findings of economic research with respect to the interaction of risk and taxes in a domestic setting, it draws conclusions for the international situation. It analyses the fiscal interests of source states and residence states and points out that – while risk shifting is essentially tax‐neutral – there are three major areas of concern which have to be discussed: asymmetrical risk allocation (i.e. lack of balance between upside and downside potential), taxation of risk premiums and the tax treatment of “hidden intangibles”, i.e. the distinction between risky income and rents. Furthermore the article supports the relevance of ownership and funding for the allocation of risk and income and warns against overstating the notion of “control” and “real activities” when it comes to the recognition of risk. Finally, it should not be overlooked that states benefit from the lack of full loss‐compensation in their national tax systems which allows them to tax volatile profits while not giving full credit for volatile losses.
Wolfgang Schön is director of the Max Planck Institute for Tax Law and Public Finance, Department of Business and Tax Law in Munich. He is also an honorary professor at Munich University and vice president of the German Research Foundation. His main fields of research and teaching are domestic and international business taxation, in particular the interaction of European law, double taxation treaties, and domestic legislation. Methodologically, he focuses on interdisciplinary research, introducing concepts from economics but also from private law, corporate law, or constitutional law into taxation. Schön previously has served as vice president of the Max Planck Society from 2008 to 2014 and held positions as a full professor at Bonn University and Bielefeld University. He has been a visiting professor at Tilburg University (NL), Vienna Business University, and New York University School of Law. He is an International Research Fellow at the Oxford University Centre for Business Taxation and a member of the Board of Trustees of the International Bureau for Fiscal Documentation in Amsterdam. He is editor and co-editor of several international and national journals in corporate law and tax law.
For more workshop information, please contact Nadia Gulezko at n.gulezko@utoronto.ca
