What are the principles of international taxation? What type of tax avoidance strategies do multinationals use? And how could fair taxation be realised to crack down on corporate tax avoidance worldwide? Giving a guest lecture on “Combating Corporate Tax Avoidance” at the China-EU School of Law under its “China-EU Law Lecture Series” on 18 November 2015, Assistant Professor Stuart MacLennan gave an insightful overview of the global tax system addressing these questions.
Whilst using some examples, such as Rio Grande Ltd and Interknit Hosiery Company, Mr MacLennan explained that the avoidance of double taxation, the avoidance of non-taxation and fair taxation are the principles of international tax law.
Mr MacLennan examined the extent of tax avoidance by major companies and their strategies. Taking the case of large multinational companies, he explained how multinationals cut their taxes dramatically using the trick to put most of their foreign profits through two companies in Ireland –Europe's greatest tax haven – and the Netherlands to Bermuda or the Cayman Islands. This is called the “Double Irish with a Dutch sandwich”. The rules allow profit to be shifted away from where they are generated to another country with a lower tax rated. Other strategies are transfer pricing or relocating value-adding elements to a low tax jurisdiction
How could corporations be forced to pay taxes then? Mr MacLennan said many issues could be resolved by means ofdisaggregation rules, a strong force of attraction or tax base erosion. The principle of source taxation should remain a sound one.
Mr MacLennan is Assistant professor at the China-EU School of Law since 2014. He also teaches European Union Law and Contract Law at Trinity College Dublin and is an Arthur Cox Research Scholar who recently submitted his PhD thesis examining the effects of the internet upon international harmonisation of taxation laws. The “China-EU Law Lecture Series” is a lose series on recent Chinese-European or Chinese-global issues open to all students and staff at the China-EU School of Law. Mr MacLennan’s lecture was hosted by Assistant Professor Monika Prusinowska.
Article by Zhang Dandan (CESL master’s student from the 2015 intake)