John Vella

Are we heading towards a corporate tax system fit for the 21st century

The most significant problems with the existing system for taxing the profit of multinational companies stem from two related sources. First, the underlying “1920s compromise” for allocating the rights to tax profit between countries is both inappropriate and increasingly hard to implement in a modern economic setting. Second, because the system is based on taxing mobile activities, it invites countries to compete with each other to attract economic activity and to favour “domestic” companies. The OECD Base Erosion and Profit Shifting (BEPS) initiative essentially seeks to close loopholes rather than to re-examine these fundamental problems. As a consequence, it is unlikely to generate a stable long-run tax system. We briefly outline some more fundamental alternative reforms. (This abstract was borrowed from another version of this item.)

Can taxes tame the banks? Evidence from European bank levies

In the wake of the ?nancial crisis, a number of countries have introduced levies on bank borrowing with the aim of reducing risk in the ?nancial sector. This paper studies the behavioral responses to the bank levies and evaluates the policy. We ?nd that the levies induced banks to borrow less but also to hold more risky assets. The reduction in funding risk clearly dominates for banks with high capital ratios but is exactly o¤set by the increase in portfolio risk for banks with low capital ratios. This suggests that while the levies have reduced the total risk of relatively safe banks, they have done nothing to curb the risk of relatively risky banks, which presumably pose the greatest threat to ?nancial stability.

Departing from the Legal Substance of Transactions in the Corporate Field: The Ramsay Approach Beyond the Tax Sphere

Transactions designed to avoid statutory provisions bear the legal risk that courts deem them unsuccessful. As this legal risk is a function of the approach courts adopt towards them, identifying and understanding it fully is a sine qua non requirement, without which one simply cannot assess the risk ex ante. Confidence in the robustness of such transactions is based partly on the fact that UK courts characterise transactions according to their legal substance, ignoring factors such as economic substance. Courts have developed an approach in the tax field, the so-called “Ramsay Approach”, which can lead them to look beyond legal substance, but the view seems to be held in some quarters that it cannot be applied outside the tax field. It is argued here that, once its true nature is properly understood, this approach not only can but actually has been applied in a number of corporate law cases.