Jurisdiction to tax corporate income pursuant to the presumptive benefit principle: a critical analysis of structural paradigms underlying corporate income taxation and proposals for reform

Abstract

The book is based on a PhD thesis that obtained the prestigious European Academic Tax Thesis Award 2018 granted by the European Commission and the European Association of Tax Law Professors.

"Jurisdiction to tax corporate income pursuant to the presumptive benefit principle" intends to demonstrate that the profit shifting phenomenon (i.e. the ability of companies to book their profits in jurisdictions other than those that host their economic activities) is real, severe, undesirable, and above all, the natural consequence of both the preservation of three fundamental paradigms that have historically underlain corporate income taxes and their precise legal configuration. In view of this, the book submits a number of proposals in relation to the aforementioned paradigms and in the light of the suggested “presumptive benefit principle” so as to counteract profit shifting risks and thus attain a more equitable allocation of taxing rights among States.

This book provides a disruptive discourse on tax sovereignty in the field of corporate income taxation that endeavors to escape from long-standing tax policy tendencies and prejudices while considering the challenges posed by a globalized (and increasingly digitalized) economy. In particular, the book offers an innovative perspective on certain deep-rooted paradigms historically underlying corporate income taxation: - tax treatment of related parties within a corporate group along with the arm’s-length standard; - corporate tax residence standards; and - definition of source for corporate income tax purposes, with a particular emphasis on the permanent establishment concept.

The book explores their respective origins, supposed tax policy rationales, structural problems and interactions; ultimately showing how the way tax jurisdiction is currently defined through them inherently tends to trigger profit shifting outcomes. In view of the conclusions of the study, the author suggests the use of a new version of the traditional benefit principle (the “presumptive benefit principle”) that would contribute to address the profit shifting phenomenon while serving as a practical guideline to achieve a more equitable allocation of taxing rights among jurisdictions. Finally, the book submits a number of proposals inspired by the aforementioned guideline that aspire to strike a balance between equity, effectiveness and technical feasibility. They include a new corporate tax residence test and, most notably, a proposal on a new remote-sales permanent establishment.

García Antón (book review):

“The outstanding book written by Eva Escribano has the extraordinary strength to comprise past, present and (foreseeable) future of international corporate taxation in less than 300 pages. Her analysis eschews the shallowness of our modern times to dissect the crumbling paradigms of international taxation and searches for new Tables of the Law"

"Few books in the international tax arena have the ability to fully fledged offer the reader a compelling explanation of the causes of the “evil” and at the same time propose solutions rooted in a historic principle, such as the presumptive benefit principle, that go beyond mere patchworks. Accordingly, I am sure that her book will become a “must” reading for scholars, policymakers, tax advisors and students, who approach our thrilling discipline for the first time".