International Tax Planning and Transfer Pricing Planning: Liechtenstein from a US perspective

Autor:Professor Dr. Rainer Zielke
Cargo del Autor:Professor in business economics at Østfold University College, Halden, Norway
Actualizado a:April 2017
 
EXTRACTO GRATUITO

Professor Dr Rainer Zielke[1]

Contenido
  • 1 Abstract tax planning
  • 2 Abstract transfer pricing planning
    • 2.1 Introduction
    • 2.2 The low tax country Liechtenstein in the OECD context
    • 2.3 Transfer pricing rules of Liechtenstein
      • 2.3.1 Country-per-Country (CbC) reporting
      • 2.3.2 Transfer Pricing
      • 2.3.3 4. Calculation of the case studies in international tax planning between Liechtenstein and the USA
      • 2.3.4 Design of the tables
      • 2.3.5 The treaty Liechtenstein-USA in brief
      • 2.3.6 BEPS Project progress
      • 2.3.7 Liechtenstein in brief
      • 2.3.8 The USA in brief
      • 2.3.9 Design of case studies
      • 2.3.10 Case study 1: Dividends from Liechtenstein to the US
      • 2.3.11 Case study 2: Interests from Liechtenstein to the US
      • 2.3.12 Case study 3: Royalties from Liechtenstein to the US
      • 2.3.13 Case study 4: Management and technical service fees from Liechtenstein to the US
      • 2.3.14 Case study 5: Capital gains with Liechtenstein as asset country to the US as seller country
      • 2.3.15 Case study 6: Dividends from the US to Liechtenstein
      • 2.3.16 Case study 7: Interests from the US to Liechtenstein
      • 2.3.17 Case study 8: Royalties from the US to Liechtenstein
      • 2.3.18 Case study 9: Management and technical service fees from the US to Liechtenstein
      • 2.3.19 Case study 10: Capital gains with the US as asset country and Liechtenstein as seller country
    • 2.4 Concluding remarks
  • 3 Notes
Abstract tax planning

Liechtenstein participates in a customs union with Switzerland and employs the Swiss franc as the national currency. The country imports about 85.00% of its energy. Liechtenstein has been a member of the European Economic Area (an organization serving as a bridge between the European Free Trade Association (EFTA) and the European Union) since May 1995. The government is working to harmonize its economic policies with those of an integrated Europe. Since 2002, Liechtenstein's rate of unemployment has doubled. In 2008, it stood at 1.5%. The gross domestic product (GDP) on a purchasing power parity basis is $5.028 billion, or $89,400 per capita, which is the second highest in the world. In Liechtenstein, corporate tax is levied at a flat rate of 12.50%, which is the lowest in Europe. There is no withholding tax on dividend, interest and royalty payments. Resident corporations carrying on activities in Liechtenstein are generally taxed on their worldwide income. However, dividends and capital gains from domestic and foreign participations are tax exempt irrespective of the capital percentage and the holding period. According to the OECD, Liechtenstein today deposited its instrument of ratification for the Convention on Mutual Administrative Assistance in Tax Matters ("the Convention"). By doing so, Liechtenstein underlines its commitment to fighting tax evasion and avoidance and takes another important step in implementing the Standard for Automatic Exchange of Financial Account Information in Tax Matters developed by the OECD and G20 countries as well as automatic exchange of Country-by-Country Reports under the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project. Liechtenstein committed to implement automatic exchange of financial account information in time to commence exchanges in 2017 and was amongst the first signatories of the CRS Multilateral Competent Authority Agreement (the "CRS MCAA") and the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports (the "CbC MCAA"), which are both based on Article 6 of the Convention. The Convention will enter into force for Liechtenstein on 1 December 2016. This chapter provides a survey on the actual tax law frame conditions in Iceland and provides practical support in international tax planning and transfer pricing planning between Liechtenstein and the US based on cross border case studies.

Abstract transfer pricing planning

Until 1 January 2017, Liechtenstein did not have specific transfer pricing rules apart from the rule that intra-group transactions are carried out at arm’s-length terms. [2] However, since the tax law amendments entered into force on 1 January 2017, all companies will be obligated to provide, upon request by the tax authorities (i.e. no periodical filing), documentation regarding the adequacy of transfer prices of transactions with related companies or PEs. Large companies have to prepare the transfer pricing documentation based on an internationally accepted standard. If a company exceeds at least two of the following three criteria, it qualifies as a large company (based on Liechtenstein company law): Total assets of CHF 25.9 million; Net revenue of CHF 51.8 million; Annual average of 250 full time employees. Small companies (i.e. not exceeding two of the above criteria) are not required to prepare transfer pricing documentation in accordance with an international accepted standard.

Introduction

International tax planning and transfer pricing planning between Liechtenstein, as one of the few countries in the world with more registered companies than citizens and which has developed and prosperous, highly industrialized free-enterprise economy and boasts a financial service sector as well as a living standard that compares favorably with those of the urban areas of Liechtenstein's much larger European neighbors, and the US as most important national economy of the world based on cross-border case studies is of central importance. In addition, the USA confirm with a population of 321 million inhabitants in 2017 3rd place of the most populous countries in the world (4.40% of the world population).

Liechtenstein participates in a customs union with Switzerland and employs the Swiss franc as the national currency. The country imports about 85.00% of its energy. Liechtenstein has been a member of the European Economic Area (an organization serving as a bridge between the European Free Trade Association (EFTA) and the European Union) since May 1995. The government is working to harmonize its economic policies with those of an integrated Europe. Since 2002, Liechtenstein's rate of unemployment has doubled. In 2008, it stood at 1.5%. The gross domestic product (GDP) on a purchasing power parity basis is $5.028 billion, or $89,400 per capita, which is the second highest in the world. In Liechtenstein, corporate tax is levied at a flat rate of 12.50%, which is the lowest in Europe. There is no withholding tax on dividend, interest and royalty payments. Resident corporations carrying on activities in Liechtenstein are generally taxed on their worldwide income. However, dividends and capital gains from domestic and foreign participations are tax exempt irrespective of the capital percentage and the holding period. Thus, Liechtenstein is a low tax country.

According to the OECD, [3] Liechtenstein today deposited its instrument of ratification for the Convention on Mutual Administrative Assistance in Tax Matters ("the Convention"). By doing so, Liechtenstein underlines its commitment to fighting tax evasion and avoidance and takes another important step in implementing the Standard for Automatic Exchange of Financial Account Information in Tax Matters developed by the OECD and G20 countries as well as automatic exchange of Country-by-Country Reports under the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project. Liechtenstein committed to implement automatic exchange of financial account information in time to commence exchanges in 2017 and was amongst the first signatories of the CRS Multilateral Competent Authority Agreement (the "CRS MCAA") and the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports (the "CbC MCAA"), which are both based on Article 6 of the Convention. The Convention will enter into force for Liechtenstein on 1 December 2016.

The pivotal question is therefore, how groups of affiliated companies with group companies in Liechtenstein and in the US can – before the background of anti-avoidance legislation and other tax law frame conditions – optimize their strategies of international tax planning based on cross-border case studies.

Therefore and first of all the low tax country Liechtenstein is to be reviewed in the OECD context (see section 2) – also with respect to the transfer pricing rules of Liechtenstein (see section 3), and constructive hereon 10 case studies in international tax planning between Liechtenstein and the US are to be calculated (see section 4). Finally the results of this survey are to be compiled in concluding remarks (see section 5), especially with respect to the deduction of strategies in international tax planning between Liechtenstein and the US.

This chapter had been written based on the following sources:

  • Orbitax[4], Orbitax Country Analysis Liechtenstein and USA, Orbitax Cross-Border Calculation Tools, Orbitax Transfer Pricing Tool,
  • the Liechtenstein Corporate Income Tax Act, [5]
  • the Liechtenstein tax reform 2017, [6]
  • Liechtenstein Transfer Pricing 2017, [7]
  • the US Internal Revenue Code, [8] and
  • the US tax reform 2017. [9]
The low tax country Liechtenstein in the OECD context

International tax planning and transfer pricing planning between Liechtenstein and the US based on cross-border case studies is of central importance. In Liechtenstein, corporate tax is levied at a flat rate of 12.50%, which is the lowest in Europe. There is no withholding tax on dividend, interest and royalty payments. Resident corporations carrying on activities in Liechtenstein are generally taxed on their worldwide income. However, dividends and capital gains from domestic and foreign participations are tax exempt irrespective of the capital percentage and the holding period. Thus, Liechtenstein is a low tax country.

Between OECD Member States, also Liechtenstein, that is no OECD Member country, the US, and other countries and also within the OECD there exists – also in 2016 – a considerable tax differential. Here from there results the incentive to international tax planning and to shift the...

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