The International Economic Double Taxation of Dividends: Its Handling in the Convention Between Ecuador and Spain

Authors

  • Marlon Manya Orellana Faculty of Law and Social Sciences. Universidad Nacional de Educación a Distancia (UNED). Madrid, Spain
  • Miryam C. González-Rabanal Department of Applied Economics and Public Management, Faculty of Law. Universidad Nacional de Educación a Distancia (UNED), Madrid, Spain

Keywords:

Dividends, Double Taxation Conventions (DTCs), Economic Double Taxation, Business Taxation

Abstract

This article analyzes the effects of the international economic double taxation of dividends. For this purpose, a conceptual distinction is made between legal and economic double taxation. The term “dividends” is defined and possible tactics that could be adopted when drafting double taxation agreements in order to resolve any potential issues, with specific reference to the case of Ecuador, are discussed.

It was necessary to conduct a thorough review of the doctrine and a comprehensive analysis of possible methods by which international economic double taxation could be avoided or corrected. The paper includes a study of the 1993 double taxation agreement between Ecuador and Spain, and a simulation exercise in which the effects of the agreement’s application are determined.

We find that that the existence of international economic double taxation affects businesses’ management policies, indebtedness, and location decisions, as they often look to invest in jurisdictions with lower levels of taxation. Moreover, it affects the evolution of foreign investments and, therefore, the development capacity of countries, especially the least developed ones.

References

Ahmad, N., & Xiao, W. (2013). End of double taxation: Is the policy better when announced? Journal of Policy Modeling, 35(6), 928-942. https://doi.org/10.1016/j.jpolmod.2012.12.004

Berner, R. B. (2003). Benefits from eliminating the double-taxation of dividends. (Forum on emerging issues). Business Economics, 38(1), 58-59.

Borrás Rodriguez, A. (1974). La doble imposición: Problemas jurídico-internacionales (Estudios de Hacienda Pública) [Double taxation: legal-international problems (Public Finance Studies)]. Madrid, Spain: Instituto de Estudios Fiscales.

Bustos Gisbert, A., & Pedraja Chaparro, F. M. (1999). La doble imposición de los dividendos: Un análisis comparado [The double taxation of dividends: a comparative análisis]. Hacienda Pública Española, 149, 55-70.

Calderón Carrero, J. (1997). La doble imposición internacional y los métodos para su eliminación [International double taxation and methods for its disposal], Madrid, Spain: Mc-Graw-Hill.

de Arespacochaga, J. (1998). Planificación fiscal internacional [International Tax Planning] (2nd ed.). Madrid, Spain: Marcial Pons.

Furman, J. (2008). The concept of neutrality in tax policy: Testimony before the U.S. senate committee on finance hearing on tax: Fundamentals in advance of reform. https://www.finance.senate.gov/imo/media/doc/041508jftest.pdf

Gale, W. (2016). About half of dividend payments do not face double taxation. Washington D.C.: The Tax Policy Center.

Gota Losada, A. (1988). Tratado del impuesto de sociedades [Corporation tax treaty] (Vol. 2). Madrid, Spain: Banco Exterior de España.

Jugurnath, B., Stewart, M., & Brooks, R. (2008). Dividend taxation and corporate investment: A comparative study between the classical system and imputation system of dividend taxation in the United States and Australia. Review of Quantitative Finance and Accounting, 31, 209-224. https://doi.org/10.1007/s11156-007-0073-4

Kao. L., & Chen, A. (2011). Dividend policy and elimination of double taxation of dividends. Asia-Pacific Journal of Financial Studies, 40(2), 261-284. https://doi.org/10.1111/j.2041-6156.2011.01038.x

Kleist, D. (2012). Methods for elimination of double taxation under double tax treaties – With particular reference to the application of double tax treaties in Sweden (The publication series of the Department of Law, School of business, economics and law, University of Gothenburg, Vol 11). Gothenburg, Sweden: University of Gothenburg.

Lamensch, M. (2009). The elimination of double taxation of dividends in the EU: Cobelfret means the end of Belgium’s final taxation. Intertax, 37(8-9), 473-482. https://doi.org/10.54648/taxi2009047

Litzenberger, R. H., & Van Horne, J. C. (1978). Elimination of the double taxation of dividends and corporate financial policy. The Journal of Finance, 33(3), 737-750. https://doi.org/10.1111/j.1540-6261.1978.tb02015.x

Marín Benitez, G. (2005). Fiscalidad de los dividendos transfronterizos en la Unión Europea: Sobre la adecuación de la normativa española al derecho comunitario [Taxation of cross-border dividends in the European Union: Adaptation of Spanish regulations to community law], Madrid, Spain: Departamento Tributario de Uría Menéndez.

Montaño Galarza, C. (2006). Manual de derecho tributario internacional (1st ed.) [International Tax Law Manual]. Quito, Ecuador: Corporación Editora Nacional.

Morck, R. (2005). How to eliminate pyramidal business groups: The double taxation of intercorporate dividends and other incisive uses of tax policy. Tax Policy and the Economy, 19, 135-179. https://doi.org/10.1086/tpe.19.20061898

Organisation for Economic Co-operation and Development. (2007). Manual on effective mutual agreement procedures (MEMAP). Paris, France: OECD Publishing.

Organisation for Economic Co-operation and Development. (2011). OECD international VAT guidelines on neutrality. Paris, France: OECD Publishing.

Organisation for Economic Co-operation and Development. (2017). Model tax convention on income and on capital: Condensed version 2017. Paris, France: OECD Publishing.

Organisation for Economic Co-operation and Development. (2019). Model tax convention on income and on capital 2017(Full version). Paris, France: OECD Publishing.

Pérez, J. (2012). Aspectos jurídicos y efectos fiscales de los dividendos [Legal aspects and tax effects of dividends]. In M. Becerra & L. Hernandez (Eds.), Derecho tributario [Tax law] (p.220). Mexico City, Mexico: Porrúa: Centro de Investigación e Informática Jurídica.

Poterba, J. M., & Summers. L. H. (1985). The economic effects of dividend taxation. In E. Altman & M. Subrahmanyam (Eds.), Recent advances in corporate finance (pp. 227-284). Homewood, IL: Richard D. Irwin Publishers.

República del Ecuador Asamblea Nacional [Republic of Ecuador National Assembly] (2008). Constitución de la República del Ecuador [Constitution of the Republic of Ecuador], modificación al Registro Oficial 449 de 20 de octubre 2008.

Salamanca, A. O. (1976). Los dividendos de las sociedades anónimas [Dividends from public limited companies]. Bogotá, Columbia: Pontificia Universidad Javeriana.

United Nations. (2013). Model double taxation convention between developed and developing countries. New York, NY: United Nations.

Vallejo Aristizábal, S. (2019). Conceptos básicos de fiscalidad internacional [Basic concepts of international taxation]. In C. Montaño Galarza, R. Carpio Rivera & P. Villegas Landázuri (Eds.), Tratado de fiscalidad internacional para el Ecuador [International tax treaty for Ecuador] (1st ed.). Quito, Ecuador: Universidad Andina Simón Bolívar & Ius et Historiare Ediciones.

Vega Borrego, F. A. (2002). La norma tributaria en materia de subcapitalización: Incidencia de los convenios de doble imposición y del derecho comunitario [The tax regulation on undercapitalisation: Incidence of double taxation agreements and community law]. Crónica Tributaria, 104, 89-126.

Volume 7.2 of JOTA - Orellana and González-Rabanal Cover

Downloads

Published

31-12-2022

How to Cite

Orellana, M. M., & González-Rabanal, M. C. (2022). The International Economic Double Taxation of Dividends: Its Handling in the Convention Between Ecuador and Spain. Journal of Tax Administration, 7(2), 105–123. Retrieved from https://journals.docuracy.co.uk/jota/article/view/25