From ACT Wiki
A form of cross-border tax avoidance, or tax planning, which takes advantage of differences in tax between different jurisdictions.
- Tax arbitrage - legislation and principles
- "In the context of cross-border finance, the term arbitrage is used to describe the exploitation by multinational groups of asymmetries between different tax regimes (tax regimes do not always match each other equally), to achieve a reduction in the overall level of tax payable by the group.
- For example, tax regimes differ in how they define debt and equity.
- This presents opportunities to the adept tax planner who will typically seek a tax deduction for interest payable in a given jurisdiction and arrange for the corresponding receipt to arise in a jurisdiction where it will be taxed as something other than interest (perhaps as a dividend or capital proceeds) or not taxed at all (perhaps because it is seen as an intra-entity payment).
- Examination of the relevant double taxation agreement should show whether any mismatch is legitimate or not."
- HM Revenue & Customs - International Tax Manual.
- Business in Europe: Framework for Income Taxation
- Double taxation treaties
- Tax avoidance