Exit taxes: serious obstacles for international business restructurings and movements of capital

These measures may entail significant double taxation, acceleration of tax claims and considerable compliance burdens for companies. Such corporate transfers of seat or assets have become progressively more common given the international mobility of capital.

As discussed in this paper, exit taxes generally seek in some manner to tax unrealized gains at the moment the company or assets leave the country. However, the fact that the former state has already taxed part of the gain does not automatically mean that the new state in which the realization actually takes place, will take account of such taxes by limiting its taxation right to the value accrued in its country or by granting a tax credit for the taxes paid in the former state. Tax treaties do not generally afford sufficient protection because they lack precise rules to deal with such situations.These measures may entail significant double taxation, acceleration of tax claims and considerable compliance burdens for companies. Such corporate transfers of seat or assets have become progressively more common given the international mobility of capital.

As discussed in this paper, exit taxes generally seek in some manner to tax unrealized gains at the moment the company or assets leave the country. However, the fact that the former state has already taxed part of the gain does not automatically mean that the new state in which the realization actually takes place, will take account of such taxes by limiting its taxation right to the value accrued in its country or by granting a tax credit for the taxes paid in the former state. Tax treaties do not generally afford sufficient protection because they lack precise rules to deal with such situations.

Ideally, states would find means to protect their tax bases without resorting to exit taxes. Where such taxes are enacted, ICC believes it is important, in the interests of avoiding excessive or double taxation and protecting the free movement of capital and the efficient functioning of enterprises, that certain safeguards be included.