IBFD International Tax Glossary, 7th Edition

Why this book?

The IBFD International Tax Glossary is regarded as an authoritative resource for defining tax
and tax-related terms by its thousands of users all over the world.

With the addition of hundreds of completely new and revised definitions, a new appendix
outlining the various levels and locations of tax courts in 42 countries, as well as the expansion
of the multilingual list to include Chinese, Polish, Portuguese and Russian terms, in addition
to the existing Dutch, French, German and Spanish equivalents of English terms, this latest
edition continues to provide users with the broadest possible coverage of the language of
taxation.

Title: IBFD International Tax Glossary, 7th Edition

Author(s): Julie Rogers-Glabush
Date of publication: June 2015
ISBN: 978-90-8722-303-8
Type of publication: Print Book
Number of pages: 552
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 v

Introduction to the seventh edition

Since the 6th edition of the IBFD International Tax Glossary was published in
2009, there have been an unparalleled number of developments in the interna-
tional tax arena. Tax is not only one of the most complex areas of law, it is also
plagued by an unrivalled impetus to reinvent itself, the implication being that new
tax terms are constantly being introduced and existing terms are being redefined.
In particular, since the last edition, the tax world has had to respond to both the
economic crisis, as well as intensified international attempts to curb multinational
tax avoidance and offshore tax evasion. In this climate of constant flux, the tax
practitioner is in need of a clear resource to decipher the plethora of terminology
that emerges. In operating on an international level, one has to become familiar
not only with the terms of one’s own country, but also the common tax terms of
the major players on the world scene. The IBFD International Tax Glossary has
fulfilled this need for over 25 years and is now regarded as an authoritative re-
source of tax and tax-related terms by its users all over the world, including tax
professionals, academics, students, courts and tax administrations.

Although the Glossary was significantly expanded and updated in 2009, the una-
bated flow of new terms or revised meanings has made a further edition a neces-
sity. Although a work of this nature can never really be considered complete, this
latest tax lexicography captures the most relevant new and revised terms. Since
the process of revising the Glossary is not carried out in strict alphabetical order,
the user will find equally up-to-date entries at the beginning of the book as at the
end. This process has led to hundreds of new or substantially revised descriptions.

As in the previous edition, the current text contains a number of features designed
to make the Glossary of more practical value to users, including, in particular,
cross-references to key bibliographical sources for further research, as well as
specific country references to indicate circumstances in which a term or concept
is associated more particularly with one or more countries. The list of international
organizations, treaties and tax-related bodies (Appendix I) has also been exten-
sively revised and, where possible, website addresses have been added so as to aid
further research. This latest edition of the Glossary introduces a new feature,
Appendix II, which outlines the various levels and locations of tax courts in 42
countries. Appendix III (previously Appendix II) lists the business entities of
some 40 countries, in particular OECD Member countries, in the original lan-
guage, along with the English equivalent. Appendix IV (previously Appendix
III) contains a multilingual list of approximately 400 tax terms. Whereas pre-
viously it only contained Dutch, French, German and Spanish equivalents of
English terms, it has now been expanded to include Chinese, Polish, Portuguese
and Russian terms.

The immediate aim of the new edition is to provide a comprehensive and up-to-
date list of terms and expressions together with accurate and concise explanations.
In providing explanations a difficult line has been drawn between an explanation
of what a term means or how it is used, and writing a mini-treatise on a particular
legal rule. Details of specific tax rules are, therefore, generally given if they help
illustrate a particular meaning. The end result is intended to provide practitioners
with a practical guide to understanding complex or unusual terms and concepts,
while still giving students and researchers more detailed guidance on the princi-
vi

ples and theoretical aspects involved. The Glossary should, however, also be of
great value to those not involved in taxation on a day-to-day basis, but who need a
key to understanding a difficult subject matter.

Considerable amounts of material and differing points of view are represented in

the Glossary. Inevitably, the result is, to some extent, a compromise. It should be
noted that a degree of imbalance is inevitable given the predominance of the
English language and of the OECD in the development of international tax. The
large number of UK and US-related terms is a function of this heritage. Having
opted for an English-language approach, the intention is still to provide an “inter-
national” glossary that is not limited to the English-speaking countries. Therefore,
in defining a term, account has been taken, where possible, of similar concepts
used in non-English-speaking countries. This is also, to a limited extent, reflected
in the country usage references, as well as in the multilingual list of terms. Finally,
while international tax is a dynamic area, this does not mean that the past is no
longer relevant. In fact, an understanding of how terms were used in the past can
be of crucial relevance to both practitioners and researchers. Accordingly, histor-
ical terms have been retained with a view to expanding these in the future.

As in any work of this nature thanks are due, not least to all those who have
worked on previous editions and laid such a solid foundation on which to develop
the current edition. In particular, the extensive work of the previous editor, Barry
Larking, has greatly facilitated and contributed to the editing of this edition.
Further, the editor is indebted to Prof. Wim Wijnen for his comprehensive review
of and contributions to the 7th edition. A grateful word of thanks is also extended
to the help provided with the current edition by the research and production staff at
the IBFD, in particular Magdalena van Doorn-Olejnicka, who coordinated the
responses of the European Knowledge Group, as well as the VAT Team and
John Rienstra, who coordinated the terms from the North America Group.

Comments are welcomed on this new edition and may be sent to j.rogers@ibfd.org.

Julie Rogers-Glabush*

* Managing Editor of European Taxation; Editor of the IBFD International Tax

Glossary; IBFD Research Associate for Canada; tax lawyer, London, Ontario,
Canada.
Table of Contents

Introduction to the seventh edition v

Using the IBFD International Tax Glossary vii

List of tax terms A to Z 1

Appendix I
– International organizations, treaties and tax-related bodies 532

Appendix II
– Tax courts and their location 578

Appendix III
– Business entities 594

Appendix IV
– Multilingual list of tax terms 604
 B
B reorganization
See: Share exchange

Baby bond
Interest coupon that has been stripped from a corporate bond or debenture
and sold separately. Because the coupons do not themselves pay interest, but
instead mature on the coupon payment date, such coupons are treated as zero
bonds.
See also: Deep discount bond; Original issue discount; Stripped bond; Zero
coupon bond

Bachelor tax
Tax levied in addition to normal income tax on the income of a single person
and, sometimes, a married couple without children. In effect, a bachelor tax is
the opposite of child relief contained in the tax laws of other countries.

Back duty (e.g. UK)

Term used to refer to tax due for previous years that has been computed as the
result of a tax evasion investigation.

Back service
Term used for that portion of a pension obligation that arises as a result of
services provided in the past, either when the employer accepts or increases
pension obligations for his personnel or when the employer transfers pension
obligations – which he had previously accepted – to a pension fund/scheme or
insurance company. The back service portion may have income tax implica-
tions for the employer when the pension obligation is accepted and when it is
transferred.

Back taxes
Taxes that have been assessed for an earlier year or years, the payment of which
remains outstanding.
See also: Default; Delinquency

Back-to-back loan
Informal term to describe indirect lending arrangements under which funds are
lent through an intermediary that enters into separate but symmetrical loan
agreements with the lender, on the one hand, and the borrower, on the other.
May also describe more loose arrangements where, e.g. one party guarantees a
loan made by an unrelated financial institution to another party. The ultimate
lender and borrower are typically related parties, e.g. members of the same
corporate group. Back-to-back loans may be used in order to circumvent, e.g.
thin capitalization rules, or as a treaty shopping device to obtain the benefit
of more favourable withholding tax rates.
See also: Conduit company; Connected person; Multi-party financing
 37

Background advice memorandum (e.g. US)

[BAM]
Advice provided by the tax administration to tax officials providing a general
analysis of the law and the administration’s position with regard to that law.
See also: Field Service Advice; Technical advice memorandum

Backup withholding (e.g. US)

A system used in the United States that requires withholding taxes to be col-
lected from interest, dividends and certain other amounts paid to persons who
do not comply with the US self-reporting tax system. Backup withholding
applies to: (1) persons who fail to provide the payer with their taxpayer iden-
tification number (TIN); (2) persons with respect to whom the IRS has ad-
vised the payer that the TIN given by such persons is false; (3) persons with
respect to whom the payer has been notified by the IRS that such persons have
under-reported in the past the amount of payments received by them; and (4)
persons who fail to certify to the payer under penalties of perjury that they are
not subject to backup withholding.
See also: Qualified intermediary; Tax agent; Withholding agent; With-
holding tax

Backward shifting of tax

See: Shifting of tax

Bad debt
Debt that is unlikely to be paid (for example, because of the probable or actual
financial failure of the debtor). Bad debts are generally deductible for tax pur-
poses. Generally, a VAT refund is available where the supplier has accounted
for output VAT before receiving payment from his customer and the debt be-
comes bad (bad-debt relief).
See also: Allowance for doubtful accounts; Bankruptcy; Debt dumping;
Insolvency; Reserves

Badges of fraud
The term “badges of fraud” is used to identify situations where there is an
inference of fraudulent evasion leading to possible prosecution or the imposi-
tion of heavier penalties.
See also: Fraud; Offence, tax

Badges of trade (UK)

This refers to a number of specific factors that have been identified by the
courts as relevant in determining whether a trade is being carried on for tax
purposes. The badges of trade are of particular importance in determining
whether a transaction should be characterized as an adventure in the nature of
a trade.
The badges of trade include:
– the subject matter of the transaction;
– the length of the period of ownership;
– the frequency and number of similar transactions;
– supplementary work on the property;
38

– the circumstances leading to the sale; and

– motive.
Bib ref: Royal Commission on the Taxation of Profits and Income: final report
(HMSO 1955).
See also: Business; Trade or business

Bail-out stock
When preferred stock is issued as a stock dividend and is non-taxable, it is
referred to in some countries as bail-out stock, as it carries with it the potential
to convert dividend income into capital gains.

Balance sheet
Statement of the financial position of a business as of a particular date, specifi-
cally its assets and liabilities.
See also: Financial statement; Income statement; Liability provisions; Stat-
utory books and forms

Balance sheet adjustments

See: Asset intensity adjustments

Balanced allocation of taxing rights

One of the main justifications put forward by Member States and accepted by
the European Court of Justice to justify tax rules that provide for a different
treatment of comparable domestic and cross-border situations. As a separate
justification it first appeared in the ECJ decision in Marks and Spencer (Case
C-446/03).
Bib ref: UK: ECJ, 13 Dec. 2005, Case C-446/03, Marks & Spencer plc v. David
Halsey (Her Majesty’s Inspector of Taxes), ECJ Case Law IBFD.
See also: Discrimination; Justification; Proportionality; Restriction

Balancing adjustment (Australia)

See: Depreciation recapture

Balancing allowances and charges

See: Capital allowance

Balancing change (UK)

See: Depreciation recapture

Balancing payment
See: Buy in payment

BALRM
See: Basic arm’s length return method

BAM
See: Background advice memorandum

Bands
See: Brackets
 39

Bank forward contract

See: Foreign currency forward

Bank secrecy
Under the laws of certain countries banks are forbidden to disclose information
about their customers to third parties, including the tax authorities. Some
countries, however, do not treat the tax authorities as an “ordinary” third party
in cases of potential tax evasion, i.e. the tax authorities can compel the bank to
disclose information.
Bib ref: OECD, Taxation and the abuse of bank secrecy, in International tax
avoidance and evasion, Issues in Intl. Taxn., No. 1 (OECD 1987); OECD,
Improving access to bank information for tax purposes (OECD 2000); and
R.L. Doernberg, An Overview of Tax Information Exchange Agreements and
Bank Secrecy, 16 Tax Notes Intl. 13, pp. 1013-1022 (1998).
See also: Tax haven

Bankruptcy
Although the criteria for bankruptcy vary from country to country, bankruptcy
may be defined as a financial condition that exists when an individual, corpora-
tion or other entity is unable to pay its debts as they become due, or alterna-
tively, to pay debts in full. Bankruptcy may also exist on a balance sheet basis
if the liabilities of the debtor exceed its assets. In some countries, a person who
is bankrupt may voluntarily seek protection from his creditors by filing a peti-
tion in bankruptcy court, or he may be forced into bankruptcy involuntarily if a
petition is filed by any creditor. The function of a bankruptcy court is to dis-
tribute the assets of the debtor among various classes of creditors and discharge
the debtor from further liability. The tax authorities may have priority over
other creditors in this respect.
See also: Bad debt; Insolvency; Preferential debt for tax

BAPA
See: Bilateral advance pricing arrangement

Bare trust
See: Trust

Bargain sale or purchase (US)

A sale or purchase of property at below market value.
See also: Transfer pricing

Barred by limitation
See: Expiry of the tax claim

Barter
Transaction whereby goods or services are directly exchanged between two
suppliers without using money as the medium of exchange. Barter transactions
have the advantage of avoiding instability of currency values but create a pro-
blem regarding the correct valuation of the goods exchanged. For VAT pur-
poses, barter transactions are treated as two separate supplies made by the two
parties.
40

See also: Exchange of goods; Value

Base company
A company generally situated in a low- or no-tax country, typically a tax
haven, which is used to collect income that would otherwise accrue directly
to the taxpayer, thereby reducing taxes in the taxpayer’s home country. The
taxpayer is often able to enjoy the economic benefit of the income by, e.g. being
able to direct its disposition by the base company. Examples of base companies
might include a holding company, captive insurance company, or artiste
company. Certain types of conduit company may also be considered base
companies.
Many countries have introduced anti-avoidance measures targeted at the use
of base companies, e.g. by disallowing payments from the source country to
base companies as deductible expenses or by imposing taxation in the tax-
payer’s country of residence under controlled foreign company rules.
Bib ref: OECD, Double taxation conventions and the use of base companies, in
International tax avoidance and evasion, Issues in Intl. Taxn., No. 1 (OECD
1987), International Organizations’ Documentation IBFD.
See also: Anti-tax haven rules; Corporation shopping; Finance company;
Foreign base company income; Letter-box company; Profit shifting; Tax
shelter; Treaty shopping

Base cost
[Acquisition cost; Basis; Cost price]
Term generally referring to the cost of an asset for purposes of computing, e.g.
a subsequent gain or loss, or depreciation.
See also: Adjusted basis; Adjusted cost base; Appreciated property; Book
value; Inside basis; Taxable base

Base currency
For tax purposes, the currency with reference to which foreign exchange gain
and loss arises.
See also: Functional currency

Base erosion and profit shifting

Base erosion and profit shifting refers to tax planning strategies that exploit
gaps and mismatches in tax rules to make profits “disappear” for tax purposes
or to shift profits to locations where there is little or no real activity but the taxes
are low resulting in little or no overall corporate tax being paid.
See also: Avoidance; Base shifting; BEPS Action Plan; Profit shifting

Base erosion approach

A suggested approach to source-based taxation designed to resolve certain
problems associated with the taxation of electronic commerce income, in parti-
cular the perceived erosion of the source country’s tax base. The approach
advocates a modified permanent establishment definition with the source
state being permitted to withhold on any payments that were deductible or
included in the cost of goods sold for the source state purchaser.
 41

Bib ref: R.L. Doernberg, Electronic commerce and international tax sharing,
16 Tax Notes Intl. 13, pp. 1013-1022 (1998).
See also: Source principle of taxation

Base erosion rule

A rule that limits tax deductions or other benefits, including benefits under tax
treaties, to prevent reduction (erosion) of a taxpayer’s income (tax base) below
a threshold amount.
Bib ref: OECD, Addressing Base Erosion and Profit Shifting (OECD 2013),
International Organizations’ Documentation IBFD.
See also: Earnings stripping; Limitation on benefits provision

Base on base method

See: Accounts method

Base shifting
Popular term to describe arrangements under which future taxable profits arise
in a different, typically low-tax, jurisdiction by moving the profit-generating
base, such as assets, functions or risks, to the relevant jurisdiction.
Bib ref: OECD, Addressing Base Erosion and Profit Shifting (OECD 2013),
International Organizations’ Documentation IBFD; and OECD, Action Plan on
Base Erosion and Profit Shifting (2013), International Organizations’ Docu-
mentation IBFD.
See also: Profit shifting; Tax base shifting; Transfer pricing

Base stock
Minimum amount of inventory necessary to ensure the smooth operation of
the normal production process. Base stock may be valued so that its price is not
immediately reflected in taxable income. In some countries, this is achieved by
allowing the base stock to be valued under the LIFO system, or at a base price
that remains static. The effect of these valuation systems in practice is that
fluctuations in the price of the inventory do not influence the value of the
base stock, and therefore do not influence the profits of the company unless
the stock is no longer needed.
See also: Inventory valuation methods

Baseball arbitration
See: Arbitration; Final offer arbitration

Basel Capital Accord

See: BIS ratio

Basic arm’s length return method (e.g. US)

[BALRM]
A method used to determine an appropriate intercompany price for transfer
pricing purposes by assigning an estimated arm’s length rate of return to the
sale, licensing or transfer of intangible property of the company rather than
by using the comparable uncontrolled price method for the property trans-
ferred. The method was originally proposed in the US and, while it has not been
adopted in its transfer pricing rules, aspects of it have survived in the compar-
42

able profits method. The BALRM focuses on the returns realized on the assets
(or costs) used in performing each function performed by one of the related
parties, and it relies on the return of uncontrolled entities performing the same
functions at arm’s length.
See also: Arm’s length principle; Berry ratio; Commensurate with income
standard; Fourth methods; Functional analysis

Basic rate
The term basic rate is often used (either informally or, in some countries, e.g.
UK, formally) in the context of a progressive income tax system to refer to the
standard rate of income tax applicable to low incomes. The rate is generally
applicable to a particular (typically broad) band, or bracket, of taxable income.
While the basic rate is often the lowest income tax rate this is not necessarily the
case. A lower rate may be applicable to certain types of income.
Where VAT is imposed at multiple rates, the basic rate is generally referred to
as the “standard rate”; the other rates are referred to as “reduced” or “increased
rates”.
Compare: Maximum rate; Reduced rate
See also: Average rate of tax; Brackets; Effective rate of tax; Graduated
rate; Marginal rate; Progression; Schedular taxation; Slab system; Slice
system

Basic relief
Any tax relief that is available to all taxpayers regardless of marital or family
status or other personal circumstances.
See also: Lump-sum deduction; Lump-sum exempt amount; Standard tax
relief

Basic world tax code

The Basic World Tax Code and Commentary consists of texts of various draft
tax laws together with an explanatory commentary. Sponsored by the Harvard
University Tax Program the code was prepared primarily for the use of tax
policy makers and administrators in countries with developing economies or
in transition to a market economy.
Bib ref: W.M. Hussey & D.C. Lubick, Basic World Tax Code and Commen-
tary, 5 Tax Notes Intl. 23, pp. 1191-1298 (1992).

Basis
See: Base cost

Basis period
See: Assessment period

Basis swap
See: Swap

Baskets
See: Foreign tax credit baskets
 43

BCC
Abbreviation for Belgian coordination centre.

Bearer bond
See: Bearer securities

Bearer levy
Some countries impose a high withholding tax on interest and dividends
from bearer securities as a simple means of combating tax avoidance to
which these instruments are susceptible in view of the absence of a registered
owner. Other countries do not allow bearer securities.
See also: Coupon tax; Substitute inheritance and gift tax

Bearer securities
Stocks, bonds, etc. in which ownership can be transferred from one holder to
another without registration of the transaction by the issuing company, that is,
title passes with delivery. Therefore the person in possession of a bearer secur-
ity is the one entitled to payment – the holder of a bearer bond is entitled to the
interest upon presentation of the coupon, and the holder of bearer shares is
entitled to the dividend upon presentation of the dividend coupon. Bearer secu-
rities are freely negotiable.
Compare: Registered security
See also: Bearer levy; Coupon tax; Negotiable instrument; Quoted securi-
ties

Bed & breakfasting (e.g. UK)

[Crystallization (e.g. Canada)]
Transaction under which assets, typically shares, are sold and immediately
repurchased in order to generate a paper gain or loss without changing the
taxpayer’s economic position. The idea is that a gain can generally be sheltered,
e.g. through an annual exemption, while a current loss can be generated for set-
off elsewhere. A similar technique, known as a tax swap, involves selling and
buying assets, typically shares, with similar but not identical characteristics. In
many countries this kind of planning device is effectively prevented by anti-
avoidance legislation.
See also: Repo; Stop loss rules; Wash sale

Below par
See: Par value

Benami (e.g. Bangladesh; India; Pakistan; Sri Lanka)

Expression used to denote two kinds of transactions. It correctly refers to the
situation where there is a genuine transfer of title from one person to another,
but the transferee is merely an ostensible owner for a third party whose name
does not appear on the record. The transferee is more or less a trustee for the
third party. The expression Benami is also used, though incorrectly, in relation
to transactions where no title is intended to be transferred and the deed of
transfer is merely a sham. In such cases the transferor continues to be the
owner despite the transfer.
44

See also: Agent; Beneficial owner; Constructive ownership; Sham transac-

tion

Benchmarking
The term benchmarking is drawn from business economics where it is used to
describe the process of measuring a company’s products, services, organiza-
tion, etc. against its most efficient competitors in order to identify and follow
best practices. In a transfer pricing context the term is used to refer to the
process of comparing the conditions of a particular transaction between related
parties (the “controlled transaction”) with those applying between unrelated
parties in otherwise similar circumstances (the “uncontrolled transaction”).
In practice such comparisons are often carried out by means of dedicated data-
bases.
See also: Tested party

Beneficial occupation
The occupation of real property – land or buildings – either rent-free or at a rent
lower than an arm’s length rent. The value of the beneficial occupation, i.e. the
amount of rent saved, may be subject to income tax if it is connected with a
source of income, e.g. an employment. If it is not connected with a source of
income, the value of the beneficial occupation may be subject to gift tax. The
beneficial occupier may, in certain circumstances, be liable for property tax or
land tax.
See also: Annual value

Beneficial owner
The term beneficial owner is used in the domestic law of a limited number of
countries whose legal systems are based on common law. Its meaning has been
developed by the courts in these countries but differences exist as between
those countries and even within a particular country as to its exact scope.
Factors that have, at times, been considered by the courts as relevant features
include the right to enjoy the economic benefits of the underlying property, as
well as control over the disposition of that property. The term beneficial own-
ership is often used in contrast to legal ownership, where ownership rights are
split, the latter referring to the more formal attributes, such as registration, etc.
While the concept may be compared with similar concepts in civil law coun-
tries based on economic ownership, the latter may be distinguished in that the
related rights are typically contractual in nature while a beneficial owner may,
in general, also enforce his rights against third parties. Beneficial ownership is
often used in conjunction with the term equitable ownership. While the two
expressions appear to have similar meanings, it is not clear that they may al-
ways be used interchangeably.
In an international context the term is most commonly encountered in tax
treaties as one of the preconditions to treaty entitlement in respect of, e.g.
dividends, interest and royalties. It seems likely that the term was introduced
into tax treaties as an anti-avoidance measure. However, there is a lack of
consensus over whether the term has an autonomous “international tax law”
meaning or whether its meaning is to be derived solely from the domestic law
of the countries involved. Although an agent or nominee is generally excluded
from the concept of beneficial ownership, some consider these are only illus-
 45

trative examples, and maintain that the concept has a narrower meaning. For
example, it has been argued that a conduit company cannot be a beneficial
owner. It has also been suggested that beneficial ownership implies control
over the capital from which the income is derived and/or control over the dis-
position of the income itself. Another view focuses on whether the payment is
received for the recipient’s own benefit. In a wider sense it has been suggested
that the term should be interpreted in accordance with its function of excluding
entities interposed solely for the purpose of enjoying treaty benefits that would
otherwise not have been available.
Bib ref: C.P. du Toit, Beneficial Ownership of Royalties in Bilateral Tax Trea-
ties (IBFD 1999); J.D.B. Oliver et al., Beneficial Ownership, 54 Bull. Intl.
Taxn. 7, p. 310-325 (2000), Journals IBFD; C.P. du Toit, The Evolution of the
Term “Beneficial Ownership” in Relation to International Taxation over the
Past 45 Years, 64 Bull. Intl. Taxn. 10, p. 500-509 (2010), Journals IBFD; and
OECD, OECD Model Tax Convention: Revised Proposals Concerning the
Meaning of “Beneficial Owner” in Articles 10, 11 and 12: 19 October 2012
to 15 December 2012 (OECD 2012).

Beneficiary
See: Trust

Benefit principle
Principle that taxes should be levied in accordance with the use made or bene-
fits received from government goods and services. In other words, those who
benefit more from public goods and services should pay more tax. Since lower
income taxpayers tend to receive more state benefits than higher income tax-
payers, this principle may be considered to lead to a regressive tax system.
Although it may appear inconsistent with the ability to pay principle, the two
may arguably be reconciled.
See also: Benefit test; User charge; Valorization tax

Benefit test
In considering whether a company may be allowed to deduct, as an expense,
payments made to a related company in a multinational group on account of
expenses incurred by that related company in providing intra-group services,
many countries apply a “benefit test” by refusing a deduction unless a real
benefit has been conferred on the company claiming the deduction. A similar,
but somewhat elaborated approach, is taken by the OECD in determining
whether intra-group services have been rendered. Under this approach, the
question is whether the activity provides economic or commercial value and
this is determined by considering whether an independent enterprise in compar-
able circumstances would have been willing to pay for the activity (or would
have performed the activity itself).
Bib ref: OECD, Transfer Pricing Guidelines for Multinational Enterprises and
Tax Administrations (2010), International Organizations’ Documentation
IBFD.
See also: Cost-sharing arrangement; Duplicative services
46

Benefits in kind
Term that refers to earnings, usually from employment, other than in cash, as
part of compensation for services rendered (e.g. free or subsidized meals, ac-
commodation, company car, etc. which are a component of employment in-
come). The value of benefits in kind received from an employer must usually
be included in the employee’s taxable income, although, in certain systems, it
is the employer who is liable for tax. The valuation of benefits in kind varies
from country to country, e.g. cost to employer, market value, lump-sum esti-
mate.
See also: Fringe benefits; In kind; Meal vouchers; Remuneration

BEPS
See: Base erosion and profit shifting

BEPS Action Plan

The OECD’s Action Plan on base erosion and profit shifting (BEPS) was pub-
lished in July 2013 with a view to addressing perceived flaws in international
tax rules. The Action Plan was negotiated and drafted with the active participa-
tion of its member states, and contains 15 separate action points or work
streams. The Plan is squarely focused on addressing these issues in a coordi-
nated, comprehensive manner, and was endorsed by G20 leaders and finance
ministers.
Bib ref: OECD, Addressing Base Erosion and Profit Shifting (OECD 2013),
International Organizations’ Documentation IBFD; and OECD, Action Plan on
Base Erosion and Profit Shifting (2013), International Organizations’ Docu-
mentation IBFD.
See also: Avoidance; Base erosion and profit shifting

Bequest tax
See: Death duties

Berry ratio
Ratio used to establish an arm’s length profit. The method was formulated by
Dr Charles Berry, an economist, and was first used in a US transfer pricing
case. The Berry ratio is the ratio of a business’ gross income to operating costs.
See also: Fourth methods; Profit level indicators; Transfer pricing

Best judgement assessment

In some countries, the tax authorities are authorized to raise an assessment
according to their best judgement in certain circumstances. The conditions for
making a best judgement assessment are normally along the following lines:
– the taxpayer fails to file a required income tax return;
– the taxpayer fails to produce required accounts, documents, information or a
statement of assets and liabilities;
– the taxpayer, having filed a return, fails to appear at the tax authorities’ office
to produce documents or evidence; or
– the taxpayer fails to comply with a directive issued by the tax authorities
regarding an audit of his accounts.
Similar rules might apply to VAT assessments.
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