>> Hi, and welcome to the second module of our course, Rethinking international tax law. During this module, we will study why and how countries levy tax from corporations. We will apply the knowledge that we learned during this module to the base case that I introduce during video three of the last module. So, as we progress through this module we can start creating an understanding of international tax planning structures based on the newly acquired knowledge about corporate taxes. In this first video, I want to focus on Corporate income tax. Which is also, depending on the country involved, referred to as Company income tax, or Corporation tax. Before we get started however, I would like to emphasize that taxes in general and corporate tax systems in particular differ greatly from country to country. I will not attempt to give you a comprehensive overview of all systems in this module's videos. Rather I will focus on the design elements that corporate tax systems around the world generally share. This is not to say that the specific features of each corporate tax system are not interesting, far from it. I think we can learn a lot about tax by studying the different approaches countries take to designing their tax systems. I feel this course because it has such an international audience. Is an excellent opportunity to gain a better understanding of these differences. For that reason we've opened a database in our course environment in which we ask you to share your local country features with the group. I hope you will contribute to this database so it'll become a reference guide for us all. Corporate income tax, is a tax that almost all countries impose on companies. Which are either incorporated or established in that country's jurisdiction. Or in foreign companies which have activities of some significance there. Countries have many reasons for imposing corporate income tax on companies. In this respect, I also refer to chapter 17.1 of the literature prescribed for this module for an in-depth look. In any case, two of the most important reasons for countries to impose tax on companies are the following. First, companies depend on the existence of a local economy in countries to operate a businesses. It is only fair that they should contribute to these economies that they take out of. You may remember that we saw Margaret Hodge using this argument in the first module video one. >> What really gets the UK ordinary punter out there who uses Google day in, day out. Is that they contribute towards your business. As economic activity for this. I use Google, all of us around the table use Google. They contribute to your profits and they see no proper, fair contribution from you to corporation tax. >> [CROSSTALK]. >> A second reason for imposing corporate income tax is that corporate income tax is necessary. To ensure that the system of personal income tax on individuals, which as we all know most countries also impose, remains operational. If there's no corporate income tax individuals would likely to be inclined to transfer the activities on which they are paying personal income tax to a company. Imagine a person, Mr. A, having a business in the country in which he lives, country A. For example, selling pens. If he makes the sales himself he will be subject to personal income tax on the profit he makes on those sales. Alternatively, he can transfer his business to a company of which he holds all the shares himself. In that way, he retains ownership of his business through the shareholding. If country A imposes no corporate income tax on the company, Mister A depending on the personal income tax system, in country A. Might be able to postpone or even avoid paying taxes without any real changes to his business. Taking these reasons into account you will understand that corporate income tax, is an essential building block for the tech system design of most countries. Although the exact rules of the corporate income tax, how is the tax calculated exactly? What is the tax rate, vary greatly? It's safe to say that almost all countries around the world impose some form of corporate income tax on companies in their jurisdictions. In the first module, I already introduced you to the concept of the company, which is a legal entity that can conclude contracts in its own name. Importantly, I note here that the other entity type that we encountered last module. The Partnership represented by the triangle. Is itself typically not subject to a tax in its jurisdiction. A Partnership is what we call a fiscally transparent or flow through entity. For corporate income tax purposes, a Partnership is disregarded. The partners of the partnership on the other hand, are typically subject to tax for their share In the partnership themselves. Will we talk about taxation in relation to partnerships in more detail during the next module of the course. For now, looking at our tax planning base case. We can see that, based on what we have learned so far. In any case, Parent company, Intermediate Sub 1, Intermediate Sub 2, will be subject to corporate income tax in countries A, B, and C respectively. Also, local activity or sub can be subject to corporate income tax in country D. It will be in any case if it is a local subsidiary, but also we learn during this video if the business activities of intermediate Sub 1 in Country D are significant in size. Looking at our base case now from a tax planning perspective,. If we are looking to save taxes a potential strategy could be to strive to avoid creating any taxable presence in Country D. In this respect, Intermediate Sub 1 would likely choose to limit its activities in D as much as possible. Please note that if the activities in Country D are performed as a legal entity, local sub, avoiding a taxable presence would not be possible. Under such circumstances, alternative strategies could be considered. We will look at what such alternative strategies might entail in the next video. In the next video we will look at the basics of corporate income tax systems, and note that deductible payments can reduce a companies tax liability.