Professor of International Law at the Faculty of Law, Lund University. Editor-in-Chief of the Nordic Journal of International Law

Associate Professor of Tax Law at the Faculty of Law, Lund University

The Use of OECD Commentaries as Interpretative Aids - The Static/Ambulatory–Approaches Debate Considered from the Perspective of International Law

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The article analyzes whether the investment in a private equity fund may create a permanent establishment (PE) for foreign investors. The analysis is divided into two main parts, as the question of creating a PE for the foreign investors is considered with respect to both the main PE rule and the agency PE rule. The amendments to the PE definition prescribed in the OECD/G20 BEPS report on Action 7, and incorporated into the 2017 version of the OECD Model with Commentary, are taken into consideration. It is concluded that the final outcome depends on the specific setup of the private equity fund at hand and that some degree of uncertainty may often remain. Moreover, the recent amendments to the PE definition do not appear to have reduced this uncertainty—rather the contrary.</abstract>

Permanent Establishment for Investors in Private Equity Funds—A Legal Analysis in Light of the Changes to the OECD Model (2017)

<abstract><title style='display:none'>Abstract</title> This paper examines the development of taxation in Sweden from 1862 to 2010. The examination includes six key aspects of the Swedish tax system, namely the taxation of labor income, capital income, wealth, inheritances and gifts, consumption and real estate. The importance of these taxes varied greatly over time and Sweden increasingly relied on broad-based taxes (such as income taxes and general consumption taxes) and taxes that were less visible to the public (such as payroll taxes and social security contributions). The tax-to-GDP ratio was initially low and relatively stable, but from the 1930s, the ratio increased sharply for nearly 50 years. Towards the end of the period, the tax-to-GDP ratio declined significantly.</abstract>

Swedish Taxation in a 150-year Perspective

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Recently welfare economists and international political economy scholars have increasingly discussed how the corporations seek profits by corroding policies that tackle tax avoidance and undermine public interest. This article contributes to these discussions on so-called regulatory captures in the global wealth chains by providing a comprehensive case study on anti-tax avoidance legislative processes in Finland. The author analyzes the statements that various stakeholders provided during several phases of enacting the interest deduction limitation rule that targets so-called thin capitalization arrangements. Because of this specific research material, the author is able to undertake a nuanced analysis in describing how and whose statements made the difference from the draft version of legislation to the final wording of the law. The evidence suggests corporate interest groups and tax advisory firms influenced the content of the rule as notable tax base eroding loopholes have been included in the Finnish anti-tax avoidance rule. The author also assesses remedies of regulatory captures.
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Who generated the loopholes? A case study of corporate tax advisors’ regulatory capture over anti-tax avoidance legislation in Finland

<abstract><title style='display:none'>Abstract</title>In the earlier related literature, consumption tax rate Laffer curve is found to be strictly increasing (see <xref ref-type="bibr" rid="j_ntaxj-2017-0004_ref_024_w2aab3b7c29b1b6b1ab2ac24Aa">Trabandt and Uhlig (2011)</xref>). In this paper, a general equilibrium macro model is augmented by introducing a substitute for private consumption in the form of home production. The introduction of home production brings about an additional margin of adjustment – an increase in consumption tax rate not only decreases labor supply and reduces the consumption tax base but also allows a substitution of market goods with home-produced goods. The main objective of this paper is to show that, after the introduction of home production, the consumption tax Laffer curve exhibits an inverse U-shape. Also the income tax Laffer curves are significantly altered. The result shown in this paper casts doubt on some of the earlier results in the literature.</abstract>

Laffer Curves and Home Production

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This is an introduction to the research papers that make out this Nordic Tax Journal special issue on inequality within the international tax regime. The special issue is an outcome of the discussions that took place at the (online) conference hosted by Copenhagen Business School in September 2020. In addition to introducing the papers of this special issue, this introduction also provides a contemporary guide to tax justice and tax fairness with an emphasis on theories and principles applicable to the international tax context as this was the overall theme of the conference.
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Introduction: A Contemporary Guide to Tax Justice and Tax Fairness

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South Korea introduced VAT in 1977 and the Sixth VAT Directive was enacted n the same year. In this article, the EU and Korean VAT systems are compared and analysed from a legal transplants perspective. The first research question pertains to whether there was any European influence on the Korean VAT Act at the time of its introduction, and, if so, how this influence was exerted. The second research question concerns the identification and explanation of similarities and differences between the two systems, both at the time of the introduction of Korean VAT and today. This leads to the third research question, whether the two VAT systems have moved towards or away from each other. The analysis has been carried out from a legal transplants’ perspective, which analyses whether, how and why such laws spread across the globe. The article ends with a final analysis and conclusions. Our conclusions are that there was a European influence on the Korean VAT Act by the time of its introduction, that many similarities are so close that they can hardly have occurred spontaneously, and that the two systems have drifted apart from each other.
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A Comparison between EU and South Korean VAT from a Legal Transplants Perspective<xref ref-type="fn" rid="j_ntaxj-2024-0001_fn_001">1</xref>

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The paper examines what happened to the profitability of foreign-acquired firms following acquisition in Norway in the period 1994–2005. Propensity score matching combined with a difference-in-difference estimator is used to show that the profitability of the firms acquired goes down significantly following the acquisition. Cost elements, driving the lower profitability of the foreign-acquired firms, are the elements that could reflect transfer price manipulations. Furthermore, the results indicate that despite deteriorating financial performance, there is no significant change in the operating efficiency, liquidity, or solvency of the acquired firms. This may indicate that the observed changes in profitability can be explained by profit shifting activities of the acquired firms.
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Firm performance following foreign acquisitions in Norway: Evidence of profit shifting?<xref ref-type="fn" rid="j_ntaxj-2023-0001_fn_010">**</xref>

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According to the Swedish government, the Swedish general anti-avoidance rule that was already in place when the Anti-Tax Avoidance Directive was adopted sufficiently implements the general anti-avoidance rule of the Anti-Tax Avoidance Directive. The implementation strategy chosen raises questions of European Union (EU) law compatibility, as there are clearly differences between them. It also raises questions concerning the extent to which EU law will affect the interpretation of the Swedish general anti-avoidance rule in the future. The purpose of this article is to discuss these questions.
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The Implementation in Sweden of the General Anti-Avoidance Rule of the Anti-Tax Avoidance Directive

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This article examines whether the Finnish controlled foreign corporation (CFC) regime fulfills its aim to effectively prevent the shifting of profit to foreign low-tax entities and what the effects of the most recent legal amendment were. In addition, the article addresses whether the Finnish CFC regime actualizes the principles of a good tax system.
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Changes to the Finnish CFC Regime: What Were the Effects?<xref ref-type="fn" rid="j_ntaxj-2022-0010_fn_145">**</xref>

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Tax policy is one way to promote sustainability, and this paper focuses on the role of taxation for SDG 8 on economic growth and decent work. Three basic values for sustainability are identified—equity and equality, environmental protection, and coherence. All these values are important for SDG 8, but they are not easily or naturally combined as there are intermittent tensions among the various values. Equal treatment is important for both efficiency and legitimacy. However, globalization calling for equal treatment across borders may be hard to implement as it requires international agreements. This, in turn, may violate the required local coherence if taxes are more aligned with other countries than with the local context. Environmental taxation will likely play an increasing role in steering economies in a more sustainable way. A crucial issue and a possible challenge is to do that in a way that does not hamper growth.
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Attaining decent work and economic growth — what role does taxation play?<xref ref-type="fn" rid="j_ntaxj-2023-0005_fn_001">**</xref>

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This study discusses the role and development of carbon pricing via taxation by using Finland as a case example of several issues with carbon taxation. Carbon taxation and carbon pricing face some major problems, mainly competitiveness and social issues. Although Finland was one of the first countries to adopt carbon-based energy taxation, these problems shaped the tax system in a way that could even be described as “avoiding carbon pricing”. This study provides new insights on how to develop carbon taxation and how to overcome major problems related to commonly known problems with carbon pricing.
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Carbon Pricing in Finland: Balancing policy goals

<abstract><title style='display:none'>Abstract</title> Society expects companies to take into account the economic, environmental, and social effects of their operations and activities. The concept of corporate social responsibility (CSR) refers to the operations or actions of companies that are above or independent of the limits or minimum requirements set by legislation. The economic purpose of a company and its responsibilities towards shareholders and debtors, first and foremost, is a natural starting point in reviewing the responsibilities. Also other stakeholders such as employers or public entities as tax collectors have economic requirements and expectations. Responsibility in the context of tax issues has become the topic of greater attention, with a number of stakeholder groups actively reviewing the approaches that companies take to their tax strategies and tax planning activities. In this article CSR is reviewed especially in the context of taxation. Does CSR have any significance and importance in the context of tax law and especially income taxation? Does CSR set limits on the tax planning of companies, or is there an obligation to pay any more taxes than what has to be paid according to the law and the tax treaties? While the concept of CSR is not a legal one, neither is the approach for these questions in this article only a legal one. Attitudes towards taxes are often contradictory. On the one hand, taxes are like any other costs for a company, but on the other hand, they are an economic contribution to the society in which the business is conducted. The phrase “aggressive tax planning”, as opposed to regular or “acceptable” tax planning, has been used on several occasions recently. Taking a purely technical approach to tax planning is unlikely to protect companies from charges of irresponsibility and associated reputational damage. Aggressive tax planning can be characterized, for instance, by an intensive use of legal and financial tools, establishments in foreign tax havens, unbalanced capital structures and transfer prices, or a disingenuous use of tax treaties. Still, aggressive tax planning is not a legal concept so there is no legal definition for it. Instead, the question is more or less about where to draw the line of moral acceptability, which runs on the inside of the tax planning area. From the CSR point of view, aggressive tax planning can be defined as actions taken by taxpayers which are in the line of requirements of tax law, but which do not meet the reasonable and justified expectations and requirements of the stakeholders. </abstract>

Corporate Social Responsibility, Taxation and Aggressive Tax Planning

<abstract><title style='display:none'>Abstract</title>Multinational corporations’ tax practices are hotly debated nowadays. Multinationals are accused of not paying their fair share of taxes. Apparently, acting within the limits set by law is not sufficient to qualify as morally responsible behavior anymore.This article offers ethical reflection on the current debate. The general public typically evaluates (aggressive) tax planning in moral terms rather than legal terms. Therefore, multinationals need to reflect on their tax planning strategy next to economic and legal terms also in ethical terms. This article addresses the relationship between society, morality and taxes. The concepts of tax planning, “aggressive tax planning”, “tax evasion” and “tax avoidance” are elaborated on to exemplify the difference between a purely legal and broader approach. In moral terms, aggressive tax planning may imply loss of integrity and trust which may entail certain costs for businesses, such as reputation damage. It will be argued that in order to improve corporate reputation and (moral) leadership, corporate social responsibility (CSR), endorsed by many corporations around the globe, is a helpful tool. Reflection on tax planning in the context of CSR - good tax governance - should foster a moral mind set and enhance accountability and transparency.</abstract>

Good Tax Governance: A Matter of Moral Responsibility and Transparency

<abstract><title style='display:none'>Abstract</title> This paper presents the general design of thin-capitalization rules and summarizes the economic effects of such rules as identified in theoretical models. We review empirical studies providing evidence on the experience with (German) thin-capitalization rules as well as on the adjustment of German multinationals to foreign thin-capitalization rules. Special emphasis is given to the development in Germany, because Germany went a long way in limiting interest deductibility by enacting a drastic change in its thin-capitalization rules in 2008, and because superb German data on multinational finance allows for testing several aspects consistently. We then discuss the experience of the Nordic countries with thin-capitalization rules. Briefly reviewing potential alternatives as well, we believe that the arm’s-length principle is administratively too costly and impracticable, whereas we argue that controlled-foreign-company rules might be another promising avenue for limiting internal debt shifting. Fundamental tax reforms towards a system with either "allowance for corporate equity" (ACE) or a "comprehensive business income tax" (CBIT) should also eliminate any thin-capitalization incentive.</abstract>

Eberhard Karls Universität Tübingen and No- CeT; Lehrstuhl für BWL, insb. International Business Taxation, Wirtschafts- und Sozialwissenschaftliche Fakultät, Eberhard Karls Universität Tübingen, Nauklerstr. 47, 72074 Tübingen

Norwegian School of Economics, NoCeT and CESifo; Norwegian School of Economics, Department of Accounting, Auditing and Law, Helleveien 30, 5045 Bergen, Norway

Debt Shifting and Thin-Capitalization Rules – German Experience and Alternative Approaches

<abstract><title style='display:none'>Abstract</title> We study the evolution of modern Swedish wealth taxation from its introduction in**1911 until it was abolished in 2007. The rules concerning valuation of assets, deductions/exemptions and tax schedules to characterize effective wealth tax schedules are described. These rules and schedules are used to calculate marginal and average wealth tax rates for three differently endowed owners of family firms and individual fortunes corresponding to a large, medium-sized and small firm. The overall trend in the direct wealth tax was rising until 1971 for owners of large and medium-sized firms and for individuals of equally-sized wealth consisting of non-corporate assets. Average direct wealth tax rates were low until 1934, except for 1913 when a progressive defense tax was levied. There were three major tax hikes: in 1934, when the wealth tax was more than doubled, in 1948 when tax rates were doubled again and in 1971 for owners of large firms and similarly sized non-corporate fortunes. Effective tax rates peaked in 1973 for owners of large firms and in 1983 for individuals with large non-corporate wealth. Reduction rules limited the wealth tax rates from 1934 for fortunes with high wealth/income ratios. The wealth tax on unlisted net business equity was abolished in 1991. Tax rates for wealthy individuals were decreased in 1991 and in 1992 and then remained at 0.5-1 percent through 2006, depending on whether the reduction rule was applicable. Tax rates for small-firm owners and small individual fortunes were substantially lower. Aggregate wealth tax revenues were rela-tively small; they never exceeded 0.4 percent of GDP in the postwar period and amounted to 0.16 percent of GDP in 2006. </abstract>

The Rise and Fall of Swedish Wealth Taxation

<abstract><title style='display:none'>Abstract</title> By the late 1960s, real effective taxation of income from individual firm ownership in Sweden approached 100 percent. A series of tax reforms has reversed this situation. This paper (1) elucidates the thinking behind the vision of creating a largely market-based system without wealthy capitalists and how that vision guided tax policy; (2) outlines and evaluates the changes in the tax code since the late 1970s, their empirical and intellectual basis, and their implications for the taxation of individual firm ownership; and (3) compares the size of the largest individual wealth holdings in the mid-1960s to their equivalents in the 2010s and discusses how the general public’s views have changed regarding sizeable income streams and wealth from business activity. Today, the tax code favors already wealthy individuals, while high labor income taxation combined with a high valuation of existing assets renders wealth accumulation difficult for persons with no initial wealth.</abstract>

Taxation of Swedish Firm Owners: The Great Reversal from the 1970s to the 2010s

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The tax gap between taxes that are “actually” paid and taxes that “ought” to have been paid by multinational corporate entities has become an area of huge public policy concern in the recent decades. This study reviews the impact of new legislation to reveal the tax gap created by the EU banks and financial institutions passed in 2013 and in particular of the quality of the resulting country-by-country reporting (CBCR) requirement for banks. Although resulting tax gap estimates are noted, they suffer due to significant problems in the published data; much of it is due to the quality of the regulation requiring its publication and implementation. The findings reveal a lack of understanding of the technical and structural weaknesses of accounting in a transnational context in the design of this regulation. CBCR is destined to fail in achieving its regulatory objectives in this context unless necessary reform of the regulation is undertaken.
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BEPS Policy Failure—The Case of EU Country-By-Country Reporting<xref ref-type="fn" rid="j_ntaxj-2019-0005_fn_001">1</xref>

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