The Formation of Companies for Tax Avoidance: The Relationship between UK Multinationals and International Double Taxation in the Interwar Period

Ryo Izawa

The purpose of this study is to explore the rise in the formation of subsidiaries to circumvent international double taxation on business income (double business income tax). It also clarifies how establishment of such companies affected the parent companies. Multinationals started to take tax avoidance seriously when double business income tax became a heavy burden caused initially by tax hikes for the First World War. As examples, this paper takes up two cases of UK multinationals, by using archival sources. First, Imperial Continental Gas Association set up a financial subsidiary to utilise a difference between dividend tax and interest tax rates in Belgium. In addition, it also converted branch offices in Belgium into Belgian subsidiaries in 1929. The reason was that the subsidiaries could not only circumvent UK income tax but also stockpiled their profits in Belgium. These strategies brought difficulties in communication and inevitably weakened the tight control from London office. Second, Unilever chose to hold dual parent companies in the UK and Netherlands in 1929. The company reorganized the corporate structure for maintenance of the dual headquarters in 1937 and allotted full asset of continental Europe to continental headquarters, fearing loss of monitoring of continental headquarters by London. 

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