Base erosion and profit shifting and Nominal annual rate: Difference between pages

From ACT Wiki
(Difference between pages)
Jump to navigationJump to search
imported>Doug Williamson
(Link with Diverted profits tax page.)
 
imported>Doug Williamson
(Layout.)
 
Line 1: Line 1:
(BEPS).
The rate of return - or cost of borrowing - ''per [[conventional year]]'' named or quoted in a market, under the quoting convention for the given market.


Tax payer action that reduces the taxable profit in a jurisdiction, either by recharacterising it or by shifting it to a jurisdiction where it will be taxed at a lower rate or not taxed at all. This is seen by tax authorities as potentially abusive, even if legal.
Market quotations are usually given per annum, and for this reason the term ''nominal rate'' is sometimes used interchangeably with nominal annual rate.


Action Plan on Base Erosion and Profit Shifting is a 2013 report from the Organisation for Economic Co-operation and Development ([[OECD]]). The outline Action Plan proposals were endorsed by the [[G20]] during their summit in St. Petersburg in 2013.


The OECD report notes:
Different conventional market bases for expressing nominal annual rates have arisen in different markets over time.
*  that modern business practices, the growing importance of the services and 'digital' components of the economy mean that many businesses are geographically distant from their customers and
*  "the increasing sophistication of tax planners in identifying and exploiting the legal arbitrage opportunities and the boundaries of acceptable tax planning".


Often this was originally for local or domestic convenience, but it can lead to difficulties of comparability between different markets.


These, the report says, provide multinational enterprises (MNEs) with more confidence in taking aggressive tax positions giving opportunities for the MNEs to greatly minimise their tax burden.  
For this reason it is essential to know and understand the basis on which any given nominal annual rate is being quoted.  


"The increasing BEPS relates chiefly to instances where the interaction of different tax rules leads to double non-taxation or less than single taxation. It also relates to arrangements that achieve no or low taxation by shifting profits away from the jurisdictions where the activities creating those profits take place."
It is always best to be explicit about [[day count conventions| conventions]] when dealing, rather than assuming and hoping for the best.




==See also==
==Illustration==


* [[Common Consolidated Corporate Tax Base]]
Most rates in wholesale financial markets are quoted as nominal annual rates.
* [[Corporation Tax]]
* [[Diverted profits tax]]
* [[Tax avoidance]]
* [[Transfer pricing]]
* [[Double taxation]]




===Other links===
<span style="color:#4B0082">'''Example 1: Overnight interest'''</span>
*  [http://dx.doi.org/10.1787/9789264202719-en Action Plan on Base Erosion and Profit Shifting, OECD Publishing, OECD 2013]


[[Category:Accounting,_tax_and_regulation]]
GBP overnight interest payable at the periodic rate of 0.014% per day, would conventionally be quoted on a nominal annual basis as:
 
= number of times the period fits into a conventional year x periodic rate
 
= 365 x 0.014%
 
= 5.11%.
 
 
==Other names for Nominal annual rates==
The nominal annual rate is sometimes also known as a 'quoted rate', 'market rate, or 'nominal rate'.
 
The nominal annual rate should not be confused with the [[effective annual rate]], which is usually different.
 
 
==Notation==
 
Nominal annual interest rates and yields are often denoted by 'R'.
 
This distinguishes them from periodic interest rates and yields (r), and from effective annual rates (EAR).
 
 
==Conversion==
 
Using the notation above:
 
R = nominal annual interest rate or yield
 
r = periodic interest rate or yield
 
n = number of times the period fits into a conventional year
 
 
====To convert from a periodic rate (r) to a nominal annual rate (R)====
 
R = r x n
 
 
<span style="color:#4B0082">'''Example 2: Calculating the nominal annual rate'''</span>
 
The periodic rate for GBP interest is 0.01% per day.
 
Calculate the nominal annual rate.
 
 
R = r x 365
 
= 0.01% x 365
 
= 3.65%
 
 
====To convert from a nominal annual rate (R) to a periodic rate (r)====
 
r = R / n
 
 
<span style="color:#4B0082">'''Example 3: Calculating periodic rate'''</span>
 
GBP interest is quoted at a nominal annual rate of 5.11% for daily interest calculation.
 
Calculate the periodic rate per day.
 
 
r = R / n
 
= 5.11% / 365
 
= 0.014%
 
 
== See also ==
* [[ACT/365 fixed]]
* [[Compound]]
* [[Continuously compounded rate of return]]
* [[Coupon rate]]
* [[Daily rate]]
* [[Day count conventions]]
* [[Effective annual rate]]
* [[Forward yield]]
* [[Money market]]
* [[Nominal]]
* [[Nominal annual yield]]
* [[Nominal rate]]
* [[Periodic discount rate]]
* [[Periodic rate of interest]]
* [[Periodic yield]]
* [[Quarterly rate]]
* [[Rate of return]]
* [[Semi-annual rate]]
 
[[Category:Manage_risks]]

Latest revision as of 21:16, 4 March 2022

The rate of return - or cost of borrowing - per conventional year named or quoted in a market, under the quoting convention for the given market.

Market quotations are usually given per annum, and for this reason the term nominal rate is sometimes used interchangeably with nominal annual rate.


Different conventional market bases for expressing nominal annual rates have arisen in different markets over time.

Often this was originally for local or domestic convenience, but it can lead to difficulties of comparability between different markets.

For this reason it is essential to know and understand the basis on which any given nominal annual rate is being quoted.

It is always best to be explicit about conventions when dealing, rather than assuming and hoping for the best.


Illustration

Most rates in wholesale financial markets are quoted as nominal annual rates.


Example 1: Overnight interest

GBP overnight interest payable at the periodic rate of 0.014% per day, would conventionally be quoted on a nominal annual basis as:

= number of times the period fits into a conventional year x periodic rate

= 365 x 0.014%

= 5.11%.


Other names for Nominal annual rates

The nominal annual rate is sometimes also known as a 'quoted rate', 'market rate, or 'nominal rate'.

The nominal annual rate should not be confused with the effective annual rate, which is usually different.


Notation

Nominal annual interest rates and yields are often denoted by 'R'.

This distinguishes them from periodic interest rates and yields (r), and from effective annual rates (EAR).


Conversion

Using the notation above:

R = nominal annual interest rate or yield

r = periodic interest rate or yield

n = number of times the period fits into a conventional year


To convert from a periodic rate (r) to a nominal annual rate (R)

R = r x n


Example 2: Calculating the nominal annual rate

The periodic rate for GBP interest is 0.01% per day.

Calculate the nominal annual rate.


R = r x 365

= 0.01% x 365

= 3.65%


To convert from a nominal annual rate (R) to a periodic rate (r)

r = R / n


Example 3: Calculating periodic rate

GBP interest is quoted at a nominal annual rate of 5.11% for daily interest calculation.

Calculate the periodic rate per day.


r = R / n

= 5.11% / 365

= 0.014%


See also

Retrieved from ‘https://wiki.treasurers.org/w/index.php?title=Base_erosion_and_profit_shifting&oldid=34476’