“PLACE OF EFFECTIVE MANAGEMENT”

The true meaning of the “place of effective management”: A walk through the obscure concept

The true meaning of the “place of effective management”: A walk through the obscure concept

Abstract

Assuming that tax competition for profits is imperfect in sense that jurisdiction with lowest tax rate does not necessarily attract all shifted profits, we show that equilibrium may be either symmetric with all countries applying same tax rate tS or asymmetric with an endogenous fraction of countries applying the low tax rate tL and remaining countries applying the high tax rate in capital taxes across countries and for somewhat weak empirical evidence of convergence in capital tax rates (Slemrod, 2004). Our contribution thus compliments the number of earlier papers that attribute asymmetric outcomes in capital taxation to differences in country size (Bucovetsky, 1991), industrial clusters sustained by agglomeration forces and specialization in goods with different capital intensities

TABLE OF CONTENTS

Abstract2

1.Introduction4

1.1.Description of the concept4

1.2.The issue in question5

1.3.The content of the paper5

2.The Legal Person6

2.1.What is a company?7

3.Historical Overview9

3.1.The “central management and control” concept9

3.1.1. The origins and the purpose9

3.1.2. The development through time10

3.2.The “place of effective management” concept10

3.2.1.The origins and the purpose10

3.2.2. The development through time11

3.2.3.The Overlapping between the two concepts12

3.3.Alternative means14

3.3.1. Different interpretations by different jurisdictions14

3.3.2.Alternative concepts15

4.The Digital Communication Era16

4.1.The change of the status quo17

4.2.Steps taken to solve the problems18

4.3.Suggestions19

5.1.An overview of recent international case law21

6.Serving the Purpose?22

6.1.Is the current concept adequate?24

6.2.What can be done?25

Duties and liabilities of trustees28

Conflict of laws32

Continuing obstacles for trusts36

Offshore tax function42

7.Conclusion45

Reference47

1.Introduction

At first blush, this topic might seem to be ambitious or even radical but, in truth, offshore sector has been responsible for significant developments in trust law. Some of these innovations remain insular, peculiar to offshore business but many others have filtered through to onshore sector, or, at least, acted as catalysts for trust law reform. Indeed, in general, offshore sector makes the significant contribution to our legal system, introducing many important new legal concepts and clarifying and correcting several gaps in our legal framework. However, of many creative jurisprudential changes brought about by offshore sector, none are more dynamic than those of trust law. Simple reason is attractiveness of trust as the tool for offshore investment, and relative flexibility of trust concept itself, trust being an ingenious tool of equity created for just such rationales, to introduce flexibility into rigid legal systems and to enable accommodation of important business and societal goals.

1.1.Description of the concept

While most of theoretical literature on tax competition has focused on competition for mobile real capital, there is now ample empirical evidence that multinational firms also respond to tax differences by shifting profits between jurisdictions. Bartelsman and Beetsma, (2003) and Clausing, (2003) demonstrate that multinational firms manipulate transfer prices in order to minimize global tax costs whereas Desai et al., (2004), Huizinga et al. (2008) and the number of studies reviewed by Hines (1999) report results consistent with profit shifting through finance structures.

1.2.The issue in question

THE number of recent papers has contributed to emerging understanding that profit shifting fundamentally reshapes incentives underlying ...