Summary

During recent decades, several countries have amended their tax legislation with provisions under which taxes are levied on stockholders or shareholders of companies located in low-tax countries. In this case, taxes are imposed on income received by foreign umbrella companies despite the fact that such companies do not distribute profits between their stockholders or shareholders. The purpose of such provisions is to support other legislation preventing transactions with umbrella companies, to prevent the transfer of passive income into other non-resident companies and to support the capital export neutrality principle.
Taxation of foreign umbrella companies through their stockholders or shareholders is only applied in respect of companies in which residents of a specific country are sufficiently influential. Such persons are required to declare their holdings in the umbrella company. Persons who have major holdings are required to present documentation for the determination of taxable income.
Different countries apply either the residence or source principle of taxation.
The author concludes that introduction of the above-mentioned taxation principle into the Estonian tax system would create a fairer and more stable tax system but would also render the Estonian lax law much more complex.