TONG QUAN VE THUE QUOC TE

For instance, a typical tax base might include:  Income taxes on earnings  Income taxes on investment income  Income/corporation taxes on profits of corporations  Capital taxes on ca

LECTURER: Dang Thi Bach Van(MA)

CHAP 1

INTRODUCTION TO INTERNATIONAL TAXATION

Essential concepts in international taxation

Tax planning in multinational enterprises

Tax administration

Role of supranational organizations

Cross-border enforcement of taxes

BEPS project

International taxation refers to tax levied on the cross border transactions The transactions may take place between two or more persons or entities in two or more countries or tax jurisdictions

 Such a transaction may involve a person in one country with property and income flows in another

CONCEPTS

INTERNATIONAL TAXATION DEFINE

International tax refers to the international aspects of the income tax laws of particular countries

 Các nguyên tắc đánh thuế áp dụng cho những giao dịch giữa hai hoặc nhiều quốc gia.

Thuế luôn mang tính chất quốc gia, không mang tính quốc tế.

Không có tòa án thuế quốc tế hoặc các cơ quan quản lý các vấn đề riêng về thuế quốc tế.

Essential concepts

in international taxation

Home and Host Country

+ In Business Context:

Home Country refers to the country where

the headquarters is located

Host Country refers to the foreign countries

where the company invests

RESIDENCE & SOURCE

Tax jurisdiction

Under the resident jurisdiction: A country may reserve the right to tax its residents on their worldwide income and gains

Under the source jurisdiction: a country reserves the right to tax not only the worldwide income and gains of its tax residents, but also the income and gains of non-residents arising within its border

Tax jurisdiction

 A country’s tax base may therefore be defined in terms of:

 The persons who are liable to pay tax (eg individuals only, individuals plus corporations, individuals plus trustees plus corporations, etc).

 The types of income and capital on which tax must be paid For instance, a typical tax base might include:

 Income taxes on earnings

 Income taxes on investment income

 Income/corporation taxes on profits of corporations

 Capital taxes on capital profits

 Capital taxes on inheritances

 Indirect taxes on purchases of goods and services

 Taxes on holdings of property and wealth

 Tax base can be eroded through tax planning, tax avoidance

Federal systems and local-level taxes

 Some countries have multi-tier tax systems where the federal government collects taxes and the internal divisions of the country also have their own tax systems.

 Tax policy makers can learn much from the operation of these sub-national tax systems Issues which the supra-national tax policy makers grapple with, such as artificial shifting

of profits to low-level tax countries and which country has the right to tax a particular company have often been dealt with successfully in state-level tax system.

Federal systems and local-level taxes

In our study of double tax relief we are not usually concerned with sub-national taxes because:

 Sub-national taxes are normally tax deductible when computing tax at the federal (national) level, thus any potential double taxation to which they give rise has already been dealt with;

 Double taxation treaties (mainly bilateral agreements under which two countries decide how double taxation arising from the interface of their tax systems is to be relieved) normally exclude sub-national taxes from their provisions In any case, double tax treaties normally only deal with the taxation of income, gains and capital, not sales or other indirect taxes.

Tax principles

in an international environment

How should tax revenues be divided between the various countries in which taxpayers do business or otherwise earn taxable profits?

 what gives it jurisdiction to tax, residence

of a taxpayer or the source of the taxable income or profits, or both?

Tax principles

in an international environment

National neutrality (NN)

Capital export neutrality (CEN)

Capital import neutrality (CIN)

(Peggy Musgrave, 1960s)

Tax principles

in an international environment

National ownership neutrality (NON)

Capital ownership neutrality (CON)

(Desai and Hines, 2003)

Tax principles

in an international environment

National neutrality is insular, in that it focuses on ensuring that the domestic fiscal does not lose when residents invest overseas

It is concerned with equalising the after-tax rate of return on foreign investments with the pre-tax return on domestic investments

by treating foreign taxes paid in the same way as other business expenses

Tax principles

in an international environment

CEN is concerned with neutrality in the location of investment

Under this principle, a tax system should

be designed so that it is neutral regarding outflows of capital, so that the total of domestic and foreign taxes does not leave

a capital exporter worse off than if the investment had all been in the home country

Tax principles

in an international environment

CIN is concerned with neutrality in the source of investment and from a government’s point of view means that domestic companies should be protected from a higher tax burden in a foreign market than taxpayers from other countries operating in that same market (ie all firms

of all nations pay the same rate of tax)

Tax principles

in an international environment

National ownership neutrality (NON) suggests that the amount of tax paid by a business should not depend on the identity,

or location, of its owners Therefore, decisions such as how to structure foreign investment (eg as foreign direct investment

or otherwise), should not be influenced by tax considerations

Tax principles

in an international environment

Capital ownership neutrality (CON) suggests that tax systems should not distort asset ownership on a worldwide basis; which should be such that productivity is maximized

NON and CON, in emphasising ownership patterns, are based on a transaction cost economics approach

NON and CON highlight the distortion of international ownership patterns leading to inefficiencies.#

Tax planning in multinational

enterprises (MNEs)

MNEs usually:

consist of groups of companies or other business entities which are resident in a number of different countries, but which are under common control;

Consist of partnership and other business forms where the partners are resident in different countries;

Tax planning in multinational

 May also seek to exploit differences not only in

the tax rates but also in the way tax profits

are computed – for example, by claiming a tax

deduction in one country for an item of expenditure which is being paid to a fellow group member in another country, whose tax system does not count the receipt as taxable income.

Tax planning in multinational

enterprises (MNEs)

 MNEs spend huge amounts of money on planning activities and on complying with the tax rules and regulations

tax- EX: they can save o average $4 for every $1 spend on tax-planning activities (Mills, Erikson & Maydew, 1998).

 Planning techniques include the use of tax havens, the use of specially targeted tax regimes by countries which are not obviously tax havens and the manipulation of internal transfer prices to transfer profits into low-tax jurisdictions away from higher tax ones.#

Tax administration

 Increased globalization puts considerable pressure

on tax administration;

 Factors that threaten the integrity of tax systems:

1 Electronic commerce and transactions

2 Electronic money;

3 Intra-company trade;

4 Offshore financial centres and tax havens;

5 Derivatives and hedge funds;

6 Inability to tax financial capital;

7 Growing foreign activities;

8 Foreign shopping.

Tax administration

The economic crisis led to increased pressure

on tax administrations to ensure the maximum amount of revenue is collected  need to close the tax gap;

Recent developments in the area of operation between the tax authorities in combating aggressive tax avoidance include the formation of the Joint International Tax Shelter Information Centre, based in Washington and London and entailing information sharing between the US, UK, Australia, Canada and Japan.#

co-ROLE OF SUPRANATIONAL

ORGANIZATIONS

Several supranational organizations have emerged and developed in the last century with the aim of encouraging international trade whilst providing a level playing field for their member countries in terms of their ability to attract MNEs to invest in their countries

EXAMPLES OF SUPRANATIONAL ORGANIZATIONS

 OECD_adoption of double tax treaties; establishing principles for the taxation of international money flows resulting from electronic commerce;

 EU-Promoting harmonization of the tax systems of its member countries;

 The UN_ promoting measures to ensure that developing countries get their fair share of the tax on profits of MNEs operating within their borders;

 The IMF_providing technical assistance to countries in developing their tax policy and practice, mainly to low and middle income countries;

 The G20 (&G8) provide a forum for international cooperation on economic and financial issues facing the member countries,…#

CROSS- BORDER ENFORCEMENT

OF TAXES

 Historically, the general principle in international law has been that a country will not assist in the collection of taxes charged by another country;

 However, cooperation in the collection of taxes of other countries is now widespread:

Exchange information automatically

(eg lists of interest payments by banks), spontaneously;

The right to permit tax officials from one country to visit the other country to carry out investigations;

Recovery of tax claims;

Measures of conservancy#

RECOGNITION OF FOREIGN

LEGAL ENTITIES

Different states have different rules for determining whether a legal entity is to be considered “transparent” or “opaque” for tax purposes

RECOGNITION OF FOREIGN

LEGAL ENTITIES

If an entity is considered to be transparent:

Then a state will wish to tax the individuals

or other persons who make up that entity;

In the case of a partnership, this would mean that the individual partners would find themselves potentially liable to tax in the state in which they are resident

RECOGNITION OF FOREIGN

LEGAL ENTITIES

If an entity is considered to be opaque:

 Then it will primarily be taxable in the state in which it is established  double taxation

 Ex: An entity which is established under the law

of State A, but whose individual partners are tax resident in state B if state A considers an entity

to be opaque, but state B considers it to be transparent, then the profits or income could be taxed in both states

 In practice, this is a matter which gives rise to considerable uncertainty in international taxation.

BEPS – base erosion and profit shifting

Base erosion refers to:

 A reduction of the amount of profits which a country can tax;

 The reduction of the number of companies and amount of profits that a country can tax

Ex: if a company moves its residence to a different country or causes its profits to arise in a different country (eg by transferring its intellectual property IP to another country so that the royalties go there) then the ability of the original country to collect corporation tax will be diminished If payment is made to a non-resident, but the government has to grant a tax deduction for it  that payment is a “base eroding payment”.

BEPS – base erosion and profit shifting

Base erosion and profit shifting activity frequently overlap: shifting tax profits to a lower tax country will erode the tax base of a country from which the profits are being shifted

BEPS – base erosion and profit shifting

In its communique, the G20 finance ministers made the following statements:

 Effective taxation of mobile income is a key challenge;

 Profits should be taxed where functions driving the profits are performed and where value is created;

 G20 member countries should ensure that international and domestic laws do not permit or encourage artificial profit shifting to low-tax jurisdictions;

 There should be a new single global standard for automatic exchange of information; and

 All countries should join the Multilateral Convention on Mutual Administrative Assistance in Tax Matters

Since individual countries define their tax jurisdictions in slightly different terms, these jurisdictions often overlap Potentially, this can result in taxpayers being liable for tax in two

or more countries on the same income or profits

International law, usually in the form of bilateral double tax treaties, seeks to alleviate this problem The form and content of international law is strongly influenced by supra-national bodies such as OECD

 One of the key issues in international tax is the question of jurisdiction, which arises through residence and source The way in which these concepts interact causes potential problems and there is much debate about which one is more important in terms of the allocation of taxing rights between nation states.

 Principles guiding the development of international tax policy include CEN and CIN Much of the focus of current international tax policy development stems from the need to control the tax-planning activities of multinational groups of companies, who have considerable choice available to them as to where to locate their activities so as to potentially achieve tax savings.

The OECD BEPS project represents a bold attempt to correct perceived problems in the current international tax system

The speed with which decisions are being taken in terms of defining the problems, and recommending solutions is alarming, and threatens to cause considerable disruption in the next few years.###

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