Tax arbitrage through closely held businesses: tax incentives and OECD policy responses
DOI:
https://doi.org/10.51302/rcyt.2026.25363Keywords:
tax arbitrage, business owners, taxation of business income, taxation of personal incomeAbstract
This paper analyses the phenomenon of tax arbitrage within OECD countries, with particular focus on the situation of business owners operating through closely held companies, drawing on the OECD Working Paper Tax arbitrage through closely held businesses: implications for OECD tax systems (2024), that examines the main tax «incentives» that encourage arbitrage behaviours –such as the choice of legal form for business activities, the substitution of labour income with capital income, and tax deferral through profit retention at the corporate level–, as well as the available empirical evidence regarding such behaviours. The paper also provides an overview of the measures adopted by OECD countries to combat these practices, which may negatively affect the progressivity, equity and revenue-raising capacity of the tax systems where the personal income tax constitutes a masterpiece.
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