International Tax Law
- Following the 2008 crisis, a curiosity sparked as to how big multinationals are paying
their taxes
- Basic tax planning structure
o Example: An MNC produces tech business consumer products in the US and
distributes them in Spain through its Spanish subsidiary.
o Overall cost = 100
o Retail price = 120
o Global profit = 20
o Individual profit can either be = cost + 5% -> 5 (US margin) and 15 (Spanish
margin) OR resale price - 5% = 6 (Spanish margin) and 14 (US margin)
o OR
- International taxation is not a matter of how much tax I am supposed to pay as a
taxpayer
- E-commerce: no physical presence
o Digital PE?
o No clear transaction tracking. Internet tax sales?
o Difficulty to identify value creation boosters: IT, markets, users?
o The digital market changed the market for tax
- Traditional business
o Physical, easy to track thus to tax
o Accounting – cross-references of information to tract tax gaps
o Value creation is easy to identify
- Tax rules are set by states not MNCs
o The one’s to blame are not the MNCs – they are only taking advantage of the
tax regimes provided by their jurisdictions. Such schemes minimise their
overall taxation. It is not illegal to take advantage of a tax scheme
A la cart tax rulings – the company can contact the authorities to
negotiate tax arrangements
, Competitive advantage – unfair competition against their
competitors in the market
o G20 – OECD investigation (Base Erosion and Profit Shifting: BEPS) looking into
tax payment of MNCs. Primary aim is to align value creation and taxable
profits by allocating both within the same tax jurisdiction. Need to make sure
that where a MNC is creating value, that company needs to pay taxes to that
jurisdiction in which it is creating value. Taxable profits are allocated to the
value jurisdiction
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- Main issues of international taxation
o Tax sovereignty: sovereignty is the power of a state to do everything
necessary to govern itself, such as making, executing and applying laws;
, imposing and collecting taxes; making war and peace; and forming treaties or
engaging in commerce with foreign nations
Public expenditure financed through taxes. Imposing and collecting
taxes is key elements of sovereignty
Personal taxation = the right of every state to impose taxes on its
citizens and mora specifically its tax residents on their worldwide
income. That is why the focus in on the income earner.
Real taxation = every state has the right to tax every income within its
borders. Eg every income generated in the UK is eligible to be taxed
by the Inland Revenue regardless of the fact that the income is
generated by a UK citizen. Calculated on an item by item basis – gross
taxation. No personal circumstances affect this tax: more objective.
Example: if a German citizen decides to rent his property in Mallorca
the income generated from this property is taxable by the Spanish
govt AND the German govt bc he is a German tax resident: double
taxation
o Multiple taxation
Same individual taxed by different govts. The German example above
Double taxation must be minimised
- Sources of International Tax Law
o The International Tax Law – governed by the OECD
o The Conventional Law (Tax Treaties)
o The Domestic Law
o The EU Law
o The tax soft law
- The International Tax Law
o Charter of the ICJ art 38 lists the sources of int law applicable to the int tax
law too;
The court, whose function is to decide in accordance with
international law such disputes as are submitted to it, shall apply;
Int conventions, whether general or particular, establishing
rules expressly recognised by the contesting states
Int custom as evidence of a general practice accepted as law
, The general principles of law recognised by civilized nations
Subject to the provisions of Art 59
o International customs: the common int law is an unwritten source that
consists of a uniform behaviour held by the states on the basis of the binding
of that behaviour
o The general principles of law: the principles to be binding must be
established and uniformly applied in most states and is recognised as binding
o Some generally recognised principles and int practice that are often the
foundation of positive norms of conventional tax law and which are
recognized by self-limitations of the system of int tax law
A. tax based on the actual source of income, through which will be
taught a basic criterion for the resolution of conflicts between
different national perspective claims
B. worldwide taxation principle, according to which the indv states
can tax residents on income produced anywhere whether or not a
personal connection is sufficient to justify the tax claims
C. non-discrimination principle in tax treatment
- The Conventional Law (Tax Treaties)
o Purpose = to diminish the distortions to international investment and trade.
aims to minimize and avoid double taxation by allocating one member state
of the treaty
o Form: written
o Contents: rules designed to resolve or reduce the conflicts of the tax claims
of two sovereign states with the power to tax. The Convention creates a sort
of division of state sovereignty and jurisdiction
o The set of rules:
The criteria for the connection real or personal
Substantive provisions to eliminate double taxation by attribution of
the right to tax and foreign tax credit mechanisms
Substantial norms of various kinds
Does not specify the method of tax
o Model tax treaties: OECD, UN, Pacto Andino
Structure of the model: articles, reservations, commentaries,
observations, double tax conventions
Main difference between the OECD and UN model: OECD countries
are more developed therefore those states try to allocate taxation
rights to the investing country ie where the tax resident resides. UN is
trying to attribute rights to the country being invested in for
development purposes.
- Domestic law
o The way to implement taxes
o The international tax code doesn’t exist yet
- Following the 2008 crisis, a curiosity sparked as to how big multinationals are paying
their taxes
- Basic tax planning structure
o Example: An MNC produces tech business consumer products in the US and
distributes them in Spain through its Spanish subsidiary.
o Overall cost = 100
o Retail price = 120
o Global profit = 20
o Individual profit can either be = cost + 5% -> 5 (US margin) and 15 (Spanish
margin) OR resale price - 5% = 6 (Spanish margin) and 14 (US margin)
o OR
- International taxation is not a matter of how much tax I am supposed to pay as a
taxpayer
- E-commerce: no physical presence
o Digital PE?
o No clear transaction tracking. Internet tax sales?
o Difficulty to identify value creation boosters: IT, markets, users?
o The digital market changed the market for tax
- Traditional business
o Physical, easy to track thus to tax
o Accounting – cross-references of information to tract tax gaps
o Value creation is easy to identify
- Tax rules are set by states not MNCs
o The one’s to blame are not the MNCs – they are only taking advantage of the
tax regimes provided by their jurisdictions. Such schemes minimise their
overall taxation. It is not illegal to take advantage of a tax scheme
A la cart tax rulings – the company can contact the authorities to
negotiate tax arrangements
, Competitive advantage – unfair competition against their
competitors in the market
o G20 – OECD investigation (Base Erosion and Profit Shifting: BEPS) looking into
tax payment of MNCs. Primary aim is to align value creation and taxable
profits by allocating both within the same tax jurisdiction. Need to make sure
that where a MNC is creating value, that company needs to pay taxes to that
jurisdiction in which it is creating value. Taxable profits are allocated to the
value jurisdiction
-
-
-
-
-
-
-
-
-
- Main issues of international taxation
o Tax sovereignty: sovereignty is the power of a state to do everything
necessary to govern itself, such as making, executing and applying laws;
, imposing and collecting taxes; making war and peace; and forming treaties or
engaging in commerce with foreign nations
Public expenditure financed through taxes. Imposing and collecting
taxes is key elements of sovereignty
Personal taxation = the right of every state to impose taxes on its
citizens and mora specifically its tax residents on their worldwide
income. That is why the focus in on the income earner.
Real taxation = every state has the right to tax every income within its
borders. Eg every income generated in the UK is eligible to be taxed
by the Inland Revenue regardless of the fact that the income is
generated by a UK citizen. Calculated on an item by item basis – gross
taxation. No personal circumstances affect this tax: more objective.
Example: if a German citizen decides to rent his property in Mallorca
the income generated from this property is taxable by the Spanish
govt AND the German govt bc he is a German tax resident: double
taxation
o Multiple taxation
Same individual taxed by different govts. The German example above
Double taxation must be minimised
- Sources of International Tax Law
o The International Tax Law – governed by the OECD
o The Conventional Law (Tax Treaties)
o The Domestic Law
o The EU Law
o The tax soft law
- The International Tax Law
o Charter of the ICJ art 38 lists the sources of int law applicable to the int tax
law too;
The court, whose function is to decide in accordance with
international law such disputes as are submitted to it, shall apply;
Int conventions, whether general or particular, establishing
rules expressly recognised by the contesting states
Int custom as evidence of a general practice accepted as law
, The general principles of law recognised by civilized nations
Subject to the provisions of Art 59
o International customs: the common int law is an unwritten source that
consists of a uniform behaviour held by the states on the basis of the binding
of that behaviour
o The general principles of law: the principles to be binding must be
established and uniformly applied in most states and is recognised as binding
o Some generally recognised principles and int practice that are often the
foundation of positive norms of conventional tax law and which are
recognized by self-limitations of the system of int tax law
A. tax based on the actual source of income, through which will be
taught a basic criterion for the resolution of conflicts between
different national perspective claims
B. worldwide taxation principle, according to which the indv states
can tax residents on income produced anywhere whether or not a
personal connection is sufficient to justify the tax claims
C. non-discrimination principle in tax treatment
- The Conventional Law (Tax Treaties)
o Purpose = to diminish the distortions to international investment and trade.
aims to minimize and avoid double taxation by allocating one member state
of the treaty
o Form: written
o Contents: rules designed to resolve or reduce the conflicts of the tax claims
of two sovereign states with the power to tax. The Convention creates a sort
of division of state sovereignty and jurisdiction
o The set of rules:
The criteria for the connection real or personal
Substantive provisions to eliminate double taxation by attribution of
the right to tax and foreign tax credit mechanisms
Substantial norms of various kinds
Does not specify the method of tax
o Model tax treaties: OECD, UN, Pacto Andino
Structure of the model: articles, reservations, commentaries,
observations, double tax conventions
Main difference between the OECD and UN model: OECD countries
are more developed therefore those states try to allocate taxation
rights to the investing country ie where the tax resident resides. UN is
trying to attribute rights to the country being invested in for
development purposes.
- Domestic law
o The way to implement taxes
o The international tax code doesn’t exist yet
