International Tax Policy and Double Tax Treaties An introduction to principles and applications

Transcription

1 International Tax Policy and Double Tax Treaties An introduction to principles and applications TABLE OF CONTENTS About the author Preface Chapter 1: International tax policy International tax Objectives of international tax rules Taxation of inward investment capital import neutrality Taxation of inward investment other policy considerations Non-resident withholding taxes Taxation of outward investment capital export neutrality Taxation of outward investment other policy considerations Controlled foreign companies Active/passive income distinction Portfolio investments Review questions Chapter 2: Double taxation Source and residence tax jurisdictions Source jurisdiction Residence jurisdiction Juridical double taxation Source source conflict Residence residence conflict Source residence conflict Methods of relief from juridical double taxation Exemption methods Full exemption Exemption with progression Foreign tax credit methods Full credit Ordinary credit Deduction method Economic double taxation Exemption at the corporate level Exemption at the shareholder level Full integration of corporate profits and shareholder income Full imputation of corporate profits to shareholders Effect of non-resident shareholders Methods of elimination of economic double taxation in an international tax context

2 Review questions Chapter 3: Double tax treaties What is a double tax treaty? Purpose of double tax treaties Prevention of fiscal evasion History of double tax treaties Model bilateral conventions League of Nations OECD model double tax treaty Status of OECD and UN model double tax treaties Other models Multilateral double tax treaties Nordic Convention Other multilateral double tax treaties Review questions Chapter 4: Legal framework of double tax treaties International law Interpretation of double tax treaties Vienna Convention 1969 OECD model double tax treaty definitions Role and status of the OECD model DTA and commentary Practical observations Specific country practices Static vs ambulatory interpretation Domestic legal status of double tax treaties US savings clause Chapter 5: Structure of double tax treaties General framework Application articles Distributive rules Active income Passive income Other income Elimination of double taxation Prevention of tax avoidance and fiscal evasion Miscellaneous matters Schedular nature of distributive rules Ordering rules

3 Procedural aspects of double tax treaties Stages in the life of a double tax treaty Chapter 6: Treaty relief from juridical double taxation Unilateral and double tax treaty relief Art. 23 OECD model double tax treaty Art. 23A Exemption method Art. 23B Credit method Tax sparing credit relief Chapter 7: Personal and material scope of double tax treaties Personal scope Attribution of income Territorial scope Taxes covered Chapter 8: Residence Domestic law residence tests Individuals Companies Concept of residence in double tax treaties Dual resident tie-breaker rules Individuals Companies The global economy Chapter 9: Permanent establishments Application of domestic law Business profits Meaning of permanent establishment Basic-rule permanent establishment Examples of permanent establishments Construction permanent establishment Excluded activities Preparatory or auxiliary activities Dependent agents Independent agents Subsidiary companies The impact of e-commerce

4 Three internet scenarios Chapter 10: Business profits Application of domestic law Requirement of a permanent establishment in a source state Meaning of profits Meaning of enterprise Nexus with source state Allocation of profits to a permanent establishment Force of attraction Measurement of profit Arm s length pricing Deductible expenditure Agents Indirect method Purchasing offices Consistent methodology Subordination of Art. 7 International transportation Chapter 11: Associated enterprises Transfer pricing Arm s length principle Associated enterprises Compensating adjustments Chapter 12: Dividends What are dividends? Domestic law taxation of dividends OECD model double tax treaty Model double tax treaty definitions of dividends Participation and portfolio dividends Interaction with imputation systems Dividends received by a permanent establishment Prohibition on extra-territorial taxation of dividends Branch profits tax Beneficial ownership

5 Chapter 13: Interest Domestic law taxation of interest Meaning of interest Interest derived through a permanent establishment Where does interest arise? Interest payments between associated parties Chapter 14: Royalties Domestic law taxation of royalties Meaning of royalties Alienation of rights Know-how Royalties derived through a permanent establishment Royalty payments between associated parties Technical service fees and management fees Definition of technical service fees Technical services and know-how Mixed know-how and technical service contracts Chapter 15: Immovable property Domestic law taxation of income from immovable property Meaning of immovable property Immovable property of an enterprise Chapter 16: Capital gains Domestic law taxation of capital gains What is an alienation of property? Alienation of immovable property Shares in real property owning companies Alienation of movable property Ships and aircraft Other gains Summary table

6 Chapter 17: Personal services Income from employment Domestic law taxation of income from personal services Income from independent personal services Artistes and sportspersons Who is an artiste or sportsperson? What income is taxable in the source state? Artiste companies Directors fees Government service Academics Diplomats Chapter 18: Other distributive articles Pensions Domestic law taxation of pensions What is a pension? Students Other income Domestic law taxation of other income Other income received through a permanent establishment Taxation of capital Chapter 19: International tax avoidance General observation on tax avoidance Approaches to international tax avoidance Conduit companies Base companies Treaty shopping Hybrid entities Hybrid financial instruments

7 Counteracting measures to international tax avoidance Judicial doctrines Abuse of law Substance and form Domestic legislative remedies General anti-avoidance rules (GAAR) Specific anti-avoidance legislation Residence definition Controlled foreign company (CFC) rules Thin capitalization rules Transfer pricing rules Double tax treaty measures to combat international tax avoidance Specific anti-abuse provisions Permanent establishment Arm s length principle Beneficial ownership Artiste companies US savings clause Limitation on benefits Look-through approach Channel approach Bona fide or active trade or business test Exclusion approach Subject-to-tax approach Competent authority approval Harmful tax competition Chapter 20: Administration of double tax treaties Exchange of information Tax recovery Mutual agreement procedure Non-discrimination Non-discrimination of permanent establishments Branch profits tax Most favoured nation clause