Regulatory Arbitrage in the Intersection of Accounting Standards and Tax Laws: The Case of Synthetic Leases

Friedrich, Jan O.

doi:10.1515/ael-2020-0098

Cited by 6 publications

(1 citation statement)

References 67 publications

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“…Professional action also underpins the "regulatory arbitrage" that has been investigated in multiple regulatory contexts (Houston et al 2012). Professionals' use of regulatory arbitrage is responsible for the exploitation of tax and accounting systems (Ahrens et al 2022;Friedrich 2021), and the rise of shadow banking and financial vulnerabilities (Rixen 2013;Thiemann 2014a;Helgadóttir 2016), leading to calls for special resolution regimes in international finance (Ringe 2016;Marjosola 2021). Such arbitrage opportunities occur not only between firms and regulators, but also in the context of avoiding scrutiny from activist groups (Rao et al 2011).…”

Section: Introductionmentioning

confidence: 99%

Professional action in global wealth chains

Christensen

Seabrooke

Wigan

2020

Regulation & Governance

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This article provides a framework for explaining professional action in multi‐jurisdictional tax and finance environments, focusing on how relationships between clients, professionals, and regulators shape market structures. Given the complexity of tax and financial regulations within and across national systems, professionals experienced in accounting, financial, legal, and policy systems have opportunities to engage to increase information asymmetries rather than lower them. This article draws on the recent literature on Global Wealth Chains to theorize how professionals develop action profiles to exploit opportunity structures through information gaps. We develop a theoretical framework for understanding how professionals may intentionally, and as a matter of strategy, exploit information gaps in different socio‐economic contexts. We provide case vignettes of client‐professional‐regulator relationships in multi‐jurisdictional tax and finance management, highlighting how professional action shapes wealth chains and attempts at regulatory intervention. Our theoretical contribution is to link micro‐level interactions to macro‐level structures of wealth creation and protection in the transnational economic and legal order.

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Section: Introductionmentioning

confidence: 99%

Professional action in global wealth chains

Christensen

Seabrooke

Wigan

2020

Regulation & Governance

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Ambiguities in Accounting and their Impact on Regulatory Arbitrage

Kunkel

2020

Accounting, Economics, and Law: A Convivium

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The revision of the asset and liability definitions is at the core of the International Accounting Standards Board’s (IASB) efforts to reflect more truthfully the economic substance of the underlying business transactions. In the IASB’s revised Conceptual Framework (CF) from 2018, the board redefined assets and liabilities in terms of rights and obligations, thereby explicitly abstaining from a notion of indivisible balance sheet items. This alteration lays the conceptual foundation for carving out pieces of an item in accounting standards, enabling the removal of arbitrary bright line tests, and, eventually seeks to tackle regulatory arbitrage. Drawing upon 18 expert interviews as well as a document analysis, this study sheds light on the process that led to the anchoring of the rights and obligations model in the IASB’s CF. Using literature on ambiguities in accounting as a theoretical frame, this study goes on to show that removing ambiguities in the asset and liability definitions creates new ambiguities and additional discretionary leeway in turn. The paper argues that the perpetual cycle of ambiguity reduction and creation in accounting (Davis, 2000) also includes ambiguity shifting between the conceptual basis of financial reporting and accounting standards. By comparing the previous International Accounting Standard (IAS) 17: Leases, which followed a physicalist, ownership-based notion of assets, with the revised International Financial Reporting Standard (IFRS) 16, the paper demonstrates that the explicit anchoring of the rights and obligations approach does not fully solve the issue of regulatory arbitrage. Instead it shifts the playing field for structuring activities from the evasion of precise rules to the bending of interpretations.

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Regulatory Arbitrage: What’s Law Got To Do With It?

Langenbucher

2020

Accounting, Economics, and Law: A Convivium

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This paper explores regulatory arbitrage from a legal point of view. I start from the assumption that legislators will sometimes wish to prevent regulatory arbitrage and examine legal tools available to this end. To back up the underlying assumption, I present two perspectives on the phenomenon of regulatory arbitrage. One perspective stresses its competitive element, the other one focuses on instances of arbitrage as unwanted avoidance of a legal regime. It is suggested that from both perspectives we will find that – at least sometimes – regulatory arbitrage is unwanted. I move on to illustrate how EU and U.S. legislators have dealt with an example of unwanted arbitrage. The main part of the paper then deals with legal tools to suppress arbitrage. The main focus is on legislative drafting techniques such as choosing a narrow wording, a broad wording, anti-evasion rules or the concept of abuse. I conclude with a glance at problems of regulatory arbitrage in a corporate setting.

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Regulatory Arbitrage in the Intersection of Accounting Standards and Tax Laws: The Case of Synthetic Leases

Cited by 6 publications

References 67 publications

Professional action in global wealth chains

Professional action in global wealth chains

Ambiguities in Accounting and their Impact on Regulatory Arbitrage

Regulatory Arbitrage: What’s Law Got To Do With It?

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