Econometric analysis applied to international taxation: theory and practice

Abstract

Recent studies contradict the axiomatic assumption that CFC rules always lead to an effective increase in capital costs. Although the existence of correlative effects between the CFC rules and the artificial modulation of the investors’ decision-making behavior is undeniable, the orientation of this behavior has demonstrated specific (and complex) parameters in the econometric analysis, to the extent that a conjunction of variables, harmonized with different standards of CFC rules, in its different parameters, were considered: a) from a behaviorist point of view, this ratifies the conclusion that the CFC anti-avoidance legislation is effectively combative to the artificial diversion of profits abroad; b) it further demonstrates the potential readjustment of multinational financial engineering to the new limiting tax-rate parameters in low-tax jurisdictions (“tax trigger”); and finally c) it reveals that distinct CFC rules can generate equally distinct results, influencing the economic-rational behavior of agents with varying modulations and perspectives. In a plexus of 56 countries, with a significant bias of legitimacy to the existence of anti-deferral CFC-type rules, it was concluded that these rules inhibit passive income deviation structures, without, on the other hand, having a significant negative influence on productive investments. Validation of these causal correlations were based on modifying temporal parameters and specific variables.