Consolidated financial statements and global tax policy (OECD BEPS) insights from a multijurisdictional case study

This article addresses the relationship between consolidated financial statements and achievement of global tax policy objectives (OECD BEPS) against the background of a case study. Major instruments for preventing tax avoidance are strongly linked with consolidated financial statements. Irrespective of the accounting standard applied (IFRS, US GAAP, and German GAAP), a systematic gap in the group accounting regulations regarding the effective inclusion of entities without members and shareholdings in the consolidated financial statements can be shown. This applies to foundations that are set up as structured entities. The non-inclusion of such legal entities in the consolidated financial statements considerably jeopardises the information function and the core objectives of group accounting. Furthermore, the tax policy goals of the European Union (EU) or Organisation for Economic Co-operation and Development (OECD) to combat cross-border profit shifting and tax avoidance (BEPS) are negatively affected, as relevant instruments such as the interest limitation rule according to Art. 4 of the Anti-Tax Avoidance Directive (ATAD) are linked to the consolidated financial statements. In addition, the hybrid mismatch rule under Art. 9 ATAD is affected, as their scope of application relates to entities that are fully included in consolidated financial statements drawn up in accordance with the IFRS or the national financial reporting system. The same applies to CFC taxation under Art. 7 ATAD, which is based on the concept of control of the foreign entity (majority of the voting rights, capital interest or more than 50% of the profits). The effectiveness of the inclusion rules of the group accounting regulations has a significant international tax policy dimension and superior economic relevance. Thus, the study develops solutions to include structured foundations and entities without members in the consolidated financial statements. Furthermore, solutions for the further development of the OECD base erosion and profit shifting instruments connected to group accounting are presented to achieve global tax policy goals.