Working Paper: NBER ID: w19081
Authors: T. Christopher Borek; Angelo Frattarelli; Oliver Hart
Abstract: Courts have articulated a number of legal tests to distinguish corporate transactions that have a legitimate business or economic purpose from those carried out largely, if not solely, for favorable tax treatment. We outline an approach to analyzing the economic substance of corporate transactions based on the property rights theory of the firm, and describe its application in two recent tax cases.
Keywords: tax shelters; economic substance doctrine; property rights theory; corporate transactions
JEL Codes: C24; D02; D23; G34; H25; K34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Corporate transaction does not result in a meaningful shift in residual control rights (G34) | Lacks economic substance (G33) |
| Lacks economic substance (G33) | Should not be respected for tax purposes (H24) |
| Control is a defining characteristic of ownership (H13) | Without a shift in control, the transaction's legitimacy is questioned (D23) |
| Courts' interpretations of economic substance have evolved (K30) | Control rights must change for a transaction to have economic substance (D23) |